[Year]

1.1. Introduction

In today's business market, almost all companies face an ever-changing and

highly competitive environment. In order to meet or exceed their customers'
expectations, the business function of any organization (such as marketing)
has to use information systems (IS) as a tool. This, in turn, may call for the
systematic organization of a large amount of data to support the decision-
making process. As a result, the marketing information system based on
information technology (IT) has become a common management decision-
making tool in organizations. In this age of information, almost all fields of
Endeavour such as education, manufacturing, research, games, entertainment,
and business treat information systems as a need. Organizations today use
information systems to offer services with greater satisfaction to customers, to
access a wider range of information, to handle business changes at a greater
speed, and to increase the productivity of workers of information systems

Organizational activities are basically dependent on data and information. To

arrive at appropriate decisions, managers collect, process, interpret and use
data and information before they arrive at a decision. People all over the world
are communicating using information and data. The rate of the growth of world
business is growing ever before due to the rapid growth of information
exchange. We are saying that, information is power! Also we are saying that, we
are in the age of information, why? This is because; information is facilitating
the business, the industry, and controlling the daily life activities of people. In
this chapter the basic foundational concepts of information system, such as
data vs. information, basic concepts of a system, information and information
systems, types of information systems, and components of information systems

1.2. Data and Information

The word data is the plural form of datum, though data commonly represent
both singular and plural forms. Data are raw facts or observations, typically
about physical phenomena or business transactions. Data are objective

Page 1 of 18
 [Year]
measurements of the attributes of entities. People often use the terms data and
information interchangeably. However, it is better to view data as a raw
material resource that are processed in to finished information products.

Data and information are interrelated. In fact, they are often mistakenly
used interchangeably. Data is considered to be raw data. It represents ‘values
of qualitative or quantitative variables, belonging to a set of items.’ It may be in
the form of numbers, letters, or a set of characters. It is often collected via
measurements. In data computing or data processing, data is represented by in
a structure, such as tabular data, data tree, a data graph, etc.

We can define information as data that has been converted into meaningful
and useful context for specific end users. Some differences between data and
information:

 Data is used as input for the computer system. Information is

the output of data.
 Data is unprocessed facts figures. Information is processed
data.
 Data doesn’t depend on Information. Information depends on
data.
 Data is not specific. Information is specific.
 Data is a single unit. A group of data which carries news are
meaning is called Information.
 Data doesn’t carry a meaning. Information must carry a logical
meaning.
 Data is the raw material. Information is the product.

Example : -

Page 2 of 18
[Year]
 Each student’s test score is one piece of data, but the average score of a
class or of the entire school is information that can be derived from the
given data.
 The history of temperature readings all over the world for the past 100
years is data. If this data is organized and analyzed to find that global
temperature is rising, then that is information.
 The number of visitors to a website by country is an example of data.
Finding out that traffic from the U.S. is increasing while that from
Australia is decreasing is meaningful information.
 Often data is required to back up a claim or conclusion (information)
derived or deduced from it. For example, before a drug is approved by the
FDA, the manufacturer must conduct clinical trials and present a lot of
data to demonstrate that the drug is safe.
Table1.1. Differences between Data and Information

Data Information
Name Salary (Br)
Abebe 4,300.00 No of Employees 5
Almaz 2,000.00 Average Salary 2940.00
Aster 2,500.00 Total Salary 14,700.00
Bement 4,000.00 Highest Salary 4,300.00
Yasin 1,900.00 Lowest Salary 1,900.00

Information Quality: Information that is outdated, inaccurate, or hard to

understand would not be very meaningful, useful, or valuable to you or other
end users. People want information of high quality, that is, information
products whose characteristics, attributes, or qualities make the information
more valuable to them. It is useful to think information as having the three
dimensions of time, content and form.

Table 1.2. Information Quality

Page 3 of 18
[Year]
Time Dimension
Timeliness Information should be provided when it is needed
Accuracy Information should be up to date when it is provided
Frequency Information should be provided as often as needed
Time period Information can be provided about past, present or future time
periods
Content Dimension
Accuracy Information should be free from errors
Relevancy Information should be related to the information needs of the
specific recipient for the specific situation
Completenes All information that is needed should be provided
s
Conciseness Only the information that is needed should be provided
Scope An information can have a broad or narrow scope an internal or
external focus
Performance Information can reveal performance by measuring activities
accomplished, progress made, or resources accumulated
Form Dimension
Clarity Information should be provided in a form that is easy to
understand
Detail Information can be provided in detail or summery form
Order Information can be arranged in a predetermined sequence
Presentation Information can be presented in narrative, numeric, graphic, or
other forms
Media Information can be provided in the form of printed paper
documents, video displays, or other media

1.3. System Concepts

Page 4 of 18
 [Year]
A system is a set of interacting or interdependent components forming an
integrated whole or a set of elements (often called ‘components’) and
relationships which are different from relationships of the set or its elements to
other elements or sets. Every system is delineated by its spatial and temporal
boundaries, surrounded and influenced by its environment, described by its
structure and purpose and expressed in its functioning.

Systems share common characteristics, including:

 A system has structure, it contains parts (or components) that are

directly or indirectly related to each other;
 A system has behavior, it exhibits processes that fulfill its function or
purpose;
 A system has interconnectivity: the parts and processes are connected by
structural and/or behavioral relationships.
 A system's structure and behavior may be decomposed via subsystems
and sub-processes to elementary parts and process steps.
 A system has behavior that, in relativity to its surroundings, may be
categorized as both fast and strong

Natural and Human-Made Systems: There are natural and human-made

(designed) systems. Natural systems may not have an apparent objective but
their outputs can be interpreted as purposes. Human-made systems are made
with purposes that are achieved by the delivery of outputs. Their parts must be
related; they must be “designed to work as a coherent entity” – else they would
be two or more distinct systems.
Open and Closed Systems:
Systems: Open systems operate in an external environment
and exchange information and material with that environment. The external
environment consists of the activities external to the system boundary with
which the system can interact. An open system needs to receive feedback to
change and to continue to exist in its environment. For example, a marketing

Page 5 of 18
 [Year]
system, which is an open system, operates in an environment of competition. If
a competitor introduces new technology by providing customers with on line
order entry terminals, the marketing function must adapt to the change in the
environment or remain at a competitive disadvantage. One way of
accommodating the change in the environment is to offer a similar on-line
order entry service. The same type of adjustment is necessary when an airline
offers a new service, such as a frequent flier bonus program. Though the new
service may temporarily give the air carriers the competitive advantage, the
other airlines soon follow suit and offer a similar program.
In contrast, a closed system is relatively self- contained; it doesn't exchange
information with its environment. Closed systems don't get the feedback they
need from the external environment and tend to deteriorate.

Table 1.3: Basic Difference between Open and Closed System

SNO Open System Closed System

.
1. The system which interacts with its The system which does not interacts
environment with its environment
2. It takes input from environment and It neither take input nor provides
gives output back to environment output to environment self
contained, self sufficient systems
3. It gets influenced by the changes It remains uninfluenced by the
taking place in the environment environmental changes
4. The life time of such system is It’s life time is much shorter
relatively longer compared to open system
5. e.g. Business Organization e.g. Use and through digital watch

Process and Transformation Process: A system can also be viewed as a

bounded transformation process, that is, a process or collection of processes
that transforms inputs into outputs. Inputs are consumed; outputs are

Page 6 of 18
 [Year]
produced. The concept of input and output here is very broad. E.g., an output
of a passenger ship is the movement of people from departure to destination.
Subsystem: System may consist of numerous subsystems, each of which has
elements, interactions, and objectives.
objectives A subsystem is a set of elements, which
is a system itself, and a component of a larger system. In a business system,
various functions are subsystems. Marketing, finance, and manufacturing, for
example, are subsystems. Within the marketing subsystem, the sales order
entry and credit checking functions are subsystems. Each subsystem uses its
resources to meet specific objectives. Successful achievement of these goals
requires good management of internal resources. For instance, in managing the
sales order entry function, the supervisor needs to develop sales order
procedures, maintain sales order records, and train sales order personnel.

System Stress and Change: System changes over time. Some of these
changes occur because of identified problems, new business opportunities, and
new management directives. Systems may also change as a result of stresses.
The achievement levels needed to meet existing goals may changes. For
example, because of reduced profit margins on sales, a division sales manager
may insist on a sales increase of 20 percent instead of 12 percent to achieve
the same profits. The tendency is to localize the stress so the pressure for
adjusting to new demands is felt primarily by one subsystem, in this case the
division sales force.
It is easier to deal with change within one subsystem than within the total
system because stress may require rethinking existing work methods and
organization. In this case, the sales manager may have to develop more
effective procedures to improve the profitability of sales. The sales manager
may recommend cutting down calls to smaller customer accounts and
substituting telemarketing to service their needs. Sales people might need to
reallocate their time so they can pay special attention to customers who
purchase the most profitable product lines and encourage customers who
purchase less profitable lines of look at high margin products. All these

Page 7 of 18
[Year]
procedures require a close analysis of the current system, changes in work
procedures, and effective time management.

Another source of system stress occurs if inputs cannot be monitored but the
system is expected to produce the same quality of output. Many colleges and
universities screen applicants using standardized test scores, high school
grades, and references. Some educational institutions, however, have open
admissions policies that make it possible for all high school graduates to apply
and be admitted. Because admitting candidates without the necessary
academic skills for college study places undue stress on the entire educational
system, colleges with open admissions policies typical localize this stress by
establishing remedial programs and hiring specially trained teachers for these
students. Students are expected to pass remedial course work before entering
regular college courses.

In a business situation, the same thing happens. New workers participate in

training programs before being places in positions within the firm. During the
training period, they learn specific job related practices so they can become
productive in the work environment as soon as possible. After training, they
are placed in positions consistent with their skill levels and backgrounds. This
orientation and training process helps minimize the stress that might occur if
the new employees were placed directly in to positions within the firm.

Although it is often easier to deal with stress by changing the activities of a

subsystem, it is also important to remember that the subsystem is a part of the
whole system and interacts with other subsystem in achieving overall
objectives. It may be necessary to consider the entire system in responding to a
problem and to modify activities in other subsystems as well.

Elements of a System

Page 8 of 18
[Year]
Following are considered as the elements of a system in terms of Information
systems: –

1. Input
2. Output
3. Processor
4. Control
5. Feedback
6. Boundary and interface
7. Environment

1. Input: Input involves capturing and assembling elements that enter the
system to be processed. The inputs are said to be fed to the systems in order to
get the output. Inputs are the elements (materials, human resources, and
information) that enter the system for processing. A system feeds on input to
produce output in much the same way as that a business uses human,
financial and material resources to produce goods and services. For example,
an ATM machine accepts data when you enter the PIN number; a washing
machine accepts data when you select the start buttons.

2. Output: Those elements that exists in the system due to the processing of
the inputs is known as output. A major objective of a system is to produce
output that has value to its user. The output of the system maybe in the form
of cash, information, knowledge, reports, documents etc. The system is defined
as output is required from it. It is the anticipatory recognition of output that
helps in defining the input of the system. The inner workings of a systems or
subsystems are organized to produce outputs from inputs. In this conversation
process, some value or utility should be added to the inputs. For example, a
training program should produce trained employees with certain skills,
knowledge, or behavior from its inputs- untrained employees . The outputs of
one subsystem usually become inputs in to the next

Page 9 of 18
 [Year]
3. Processor(s): The processor is the element of a system that involves the
actual transformation of input into output. It is the operational component of a
system. For example, processor of a 'computer system' is central processing
unit that further consists of arithmetic and logic unit (ALU), control unit and
memory unit etc.

4. Control: The control element guides the system. It is the decision-making

sub-system that controls the pattern of activities governing input, processing
and output. It also keeps the system within the boundary set. For example,
control in a 'computer system' is maintained by the control unit that controls
and coordinates various units by means of passing different signals through
wires.

5. Feedback: A system needs feedback to do its job. Feed back is an indicator

of how current Performance rates when compared to a set of standards. With
effective feedback, continuing adjustments in the activities of a system can be
made to assure that the system achieves its goals. Measuring performance
against a standard is an effective control mechanism. Employees need feedback
to learn how well they are achieving job goals. Students receive grades or other
kinds of evaluations from instructors that show whether they are meeting
course objectives.

Product managers also need feedback on how well new products fare in certain
markets. They conduct market research studies in test markets to compare
new products with established products. They can use feedback from these
market tests to redesign a new product or identity target markets for which the
product is suitable before its introduction. Products such as shampoos, honey
roasted peanuts, and detergents are all market tested in this way. Sometimes a
company receives feedback after introducing a new product. When coca-cola
introduced new coke, negative feedback from its established customer base
forced the reintroduction of its original formula as classic coke.

Page 10 of 18
 [Year]
Feedback mechanisms must be designed for effective control of business
functions with is an organization. In a business setting, an inventory manager
needs to manage the inventory levels of hundreds of items to avoid shortages of
items in demand and to prevent excess inventory levels of items that do not
turn over frequently. The inventory manager needs feedback to control these
inventory levels and determine when to order new stock of certain items. An
inventory control system can automatically generate a purchase order for stock
replenishment when an item in inventory levels fall below a safe level, incoming
customers order cannot be filled. However, if excess inventories build up, cash
will be tied up unnecessarily.

In short, many information systems provide managers with information they

need to allocate their resources to achieve business goals. By having
information about current business activities, managers can control
production, inventory, and marketing resources and invest these resources in
the most profitable ways. Information on planned versus actual sales, for
example, can be used to detect slow moving items and cut production of these
items. Fast moving items should trigger production so the sales function can
take advantage of market demand.

6. Boundary and Interface: A system should be defined by its boundaries-the

limits that identify its components, processes and interrelationships when it
interfaces with another system. All systems have a boundary that depicts its
scope of activities in a class include lectures, discussion, testing, grading, and
preparation of assigned course work. These activities may represent the
boundary of the system for which a teacher is responsible. Within the systems
of the classroom, the teacher is responsible for organizing class time, assigning
homework to students, and evaluating student progress. The boundary, then,
delineates an area of responsibility. When defining a system, you must
establish a boundary.

Page 11 of 18
[Year]
System boundaries are also established within a business system. A sales
manager may be responsible for managing, motivating, and evaluating the
performance of a sales organization. The owner of the business, however, faces
different boundaries and may develop a financial plan, a marketing strategy,
and a long-range business plan.

An interface is a connection at system or subsystem boundaries. An interface

serves as a medium to convey the output from one system to the input of
another system. An example will help clarify this concept. Two typical business
systems that interface with each other are inventory control and purchasing. If
inventory levels drop below a certain level, then additional stock of these items
should be purchased. Purchasing will need to know what quantity of a
particular item to obtain to replenish the stock and information on sales
inventory turnover to learn which items are in greatest demand so these items
can be replenished on a timely basis. An inventory control system will provide
information on stock to be reordered based up on sales and inventory turnover
trends.

7. Environment: The system's environment consists of people, organizations,

and other systems that supply data to or that receive data from the system. Not
surprisingly, the environment is perceived differently by different managers. A
sales manager, for example, envisions the system environment to be the
company's customers and vendors of the products and services being
marketed. But the owner of the business perceives the environment to include
the firm's competitors, financial institutions that provide resources for
expansion, and government agencies with jurisdiction over company plans and
products. Moreover, not only can the environment be perceived differently by
different managers, but also various kinds of systems don't always interact
with the environment in the same way.

1.4. Information Systems and Types of Information Systems

Page 12 of 18
 [Year]
What Is an Information System?

The concept of information system has become crucial for the success of
organizational activities or business firms. A set of people, procedure, and
resources that collects, transforms, and disseminates information in an
organization are called information system. An information system can be
defined technically as a set of interrelated components that collect (or
retrieve), process, store, and distribute information to support decision making
and control in an organization. Information systems can provide the
information a business needs for efficient operations, effective management
and competitive advantage through the computerized systems established. In
addition to supporting decision making, coordination, and control, information
systems may also help managers and workers analyze problems, visualize
complex subjects, and create new products. If an information system does not
properly support the strategic objectives, business operations, or management
needs of an organization, an information system can fail. Thus, the proper
management of information systems is a major challenge for managers.

Three activities in an information system produce the information that

organizations need to make decisions, control operations, analyze problems,
and create new products or services. These activities are input, processing,
and output. Input captures or collects raw data from within the organization or
from its external environment. Processing converts this raw input into a more
meaningful form. Output transfers the processed information to the people who
will use it or to the activities for which it will be used. Information systems also
require feedback, which is output that is returned to appropriate members of
the organization to help them evaluate or correct the input stage

Types of Information Systems

Page 13 of 18
 [Year]
Information systems are categorized in the following way to spotlight the major
roles each plays in the operations and management of a business

1. Operations Support System: Information systems have always been

needed to process data generated in, business operations. Such operations
support systems produce a variety of information products for internal and
external use. However, they do not emphasize producing the specific
information products that can best be used by managers. Further
processing by management information systems is usually required. The
role of business firm’s operation support systems is to efficiently process
business transactions, control industrial processes, support enterprise
communication and collaboration, and update corporate data bases.
2. Enterprise Collaboration System: Enterprise collaboration systems are
information systems that use a variety of information technologies to help
people work together. Enterprise collaboration systems help us collaborate
to communicate ideas, share resources, and coordinate our cooperative
work efforts as members of the many formal and informal processes and
project teams and other work groups that are a vital part of today’s
organization. Thus, the goal of enterprise collaboration systems is to use
information technology to enhance the productivity and creativity of teams
and work groups in the modern business enterprise. For example, many
businesses form teams of engineers, making specialists, and other
knowledge workers to develop new products or improve the existing ones.
They may form virtual teams of people from several departments and
locations within a company, and include outside consultants as team
members. Such teams would make heavy use of the internet, corporate
intranets and extranets, and collaboration soft-ware known as group ware.
Then, they could easily collaborate via electronic mail, discussion forums,
data and video conferencing, and multimedia project web sites on the
company’s intranet. In this way, a product development team could

Page 14 of 18
 [Year]
efficiently communicate with each other and coordinate their work
activities, and effectively collaborate in the development or improvement of
products and service.
3. Management Support System: When information systems focus on
providing information and support for effective decision making by
managers, they are called management support systems. Management
support systems began when the concept of management information
system (MIS) originated in the 1960s. Providing information and support
for management decision making by all and levels of managers is a
complex task. Conceptually, several major types of information systems are
needed to support a variety of managerial end users responsibilities.
4. Knowledge Management Systems: Many companies today realize that
they must become knowledge creating companies or learning organizations
in order to survive and flourish in a rapidly changing business
environment. That means constantly creating new business knowledge,
disseminating it within the organization, and quickly building it in to new
products and services. The knowledge-creating company must find ways to
use knowledge management techniques and information technology to
encourage employees to share what they know and make better use of
accumulated workplace knowledge. Thus, many organizations are
developing knowledge management systems (KMS) to manage
organizational learning and business know-how. Knowledge management
systems help knowledge workers create, organize, and share important
business knowledge wherever and whenever it is needed. For example,
many knowledge management systems rely on the internet and intranet
web sites, knowledge bases, and discussion forums as key technologies for
gathering, sorting, and disseminating business knowledge. In this way,
knowledge management systems facilitate organizational learning and
knowledge creation and dissemination with in the business enterprise.

Page 15 of 18
 [Year]
5. Strategic Information Systems: develop products, services, and
capabilities that give a company strategic advantages over the competitive
forces it faces in the global market place. This creates strategic,
information systems, information systems that support or shape the
competitive position and strategies of an enterprise. So strategic
information can be any kind of information system (TPS, MIS, DSS, etc)
that helps an organization gain a competitive advantage, reduce a
competitive disadvantage, or meet other strategic enterprise objectives.
6. Expert System: Are being used in many different fields, including
medicine, engineering, the physical sciences, and business. For example,
expert systems now help diagnose illnesses, search for minerals, analyze
compounds, recommend repairs, and do financial planning. Expert
systems can support either operations or management.
1.5. Information System Components
1. Resources of people: (end users and IS specialists, system analyst,
programmers, data administrators etc.).
2. Hardware: (Physical computer equipments and associate device,
machines and media).
3. Software: (programs and procedures).
4. Data: (data and knowledge bases), and
5. Networks: (communications media and network support).
People Resources
• End Users: (also called users or clients) are people who use an information
system or the information it produces. They can be accountants, salespersons,
engineers, clerks, customers, or managers. Most of us are information system
end users.

• IS Specialists: people who actually develop and operate information

systems. They include systems analysts, programmers, testers, computer
operators, and other managerial, technical, and clerical IS personnel. Briefly,
systems analysts design information systems based on the information

Page 16 of 18
[Year]
requirements of end users, programmers prepare computer programs based on
the specifications of systems analysts, and computer operators operate large
computer systems.

Hardware Resources

• Machines: as computers and other equipment along with all data media,
objects on which data is recorded and saved.
• Computer systems: consist of variety of interconnected peripheral devices.
Examples are microcomputer systems, midrange computer systems, and large
computer systems.
Software Resources
Software Resources includes all sets of information processing instructions.
This generic concept of software includes not only the programs, which direct
and control computers but also the sets of information processing (procedures).
Software Resources includes:
• System software, such as an operating system
• Application software, which are programs that direct processing for a
particular use of computers by end users.
• Procedures, which are operating instructions for the people, who will use
an information system. Examples are instructions for filling out a paper
form or using a particular software package.
Data Resources
Data resources include data (which is raw material of information systems) and
database. Data can take many forms, including traditional alphanumeric data,
composed of numbers and alphabetical and other characters that describe
business transactions and other events and entities. Text data, consisting of
sentences and paragraphs used in written
Communications; image data, such as graphic shapes and figures; and audio
data, the human voice and other sounds, are also important forms of data.
Data resources must meet the following criteria:

Page 17 of 18
 [Year]
• Comprehensiveness: means that all the data about the subject are actually
present in the database.
• Non-redundancy: means that each individual piece of data exists only once in
the database.
• Appropriate structure: means that the data are stored in such a way as to
minimize the cost of expected processing and storage.
The data resources of IS are typically organized into:
 Processed and organized data-Databases.
 Knowledge in a variety of forms such as facts, rules, and case
examples about successful business practices.
Network Resources
Telecommunications networks like the Internet, intranets, and extranets have
become essential to the successful operations of all types of organizations and
their computer-based information systems. Telecommunications networks
consist of computers, communications processors, and other devices
interconnected by communications media and controlled by communications
software. The concept of Network Resources emphasizes that communications
networks are a fundamental resource component of all information systems.
Network resources include:
• Communications Media: such as twisted pair wire, coaxial cable, fiber-optic
cable, microwave systems, and communication satellite systems.
• Network Support: This generic category includes all of the people, hardware,
software, and data resources that directly support the operation and use of a
communications network. Examples include communications control software
such as network operating systems and Internet packages

Page 18 of 18