What are the types of information systems in the organization?

A typical organization is divided into operational, middle, and upper level. The information requirements for users at each level differ. Towards that end, there are number of information systems that support each level in an organization.

This tutorial will explore the different types of information systems, the organizational level that uses them and the characteristics of the particular information system.

In this tutorial, you will learn the different Classification of Information.

Pyramid Diagram of Organizational levels and information requirements

Understanding the various levels of an organization is essential to understand the information required by the users who operate at their respective levels.

The following diagram illustrates the various levels of a typical organization.

Pyramid Diagram

Operational management level

The operational level is concerned with performing day to day business transactions of the organization.

Examples of users at this level of management include cashiers at a point of sale, bank tellers, nurses in a hospital, customer care staff, etc.

Users at this level use make structured decisions. This means that they have defined rules that guides them while making decisions.

For example, if a store sells items on credit and they have a credit policy that has some set limit on the borrowing. All the sales person needs to decide whether to give credit to a customer or not is based on the current credit information from the system.

Tactical Management Level

This organization level is dominated by middle-level managers, heads of departments, supervisors, etc. The users at this level usually oversee the activities of the users at the operational management level.

Tactical users make semi-structured decisions. The decisions are partly based on set guidelines and judgmental calls. As an example, a tactical manager can check the credit limit and payments history of a customer and decide to make an exception to raise the credit limit for a particular customer. The decision is partly structured in the sense that the tactical manager has to use existing information to identify a payments history that benefits the organization and an allowed increase percentage.

Strategic Management Level

This is the most senior level in an organization. The users at this level make unstructured decisions. Senior level managers are concerned with the long-term planning of the organization. They use information from tactical managers and external data to guide them when making unstructured decisions.

Transaction Processing System (TPS)

Transaction processing systems are used to record day to day business transactions of the organization. They are used by users at the operational management level. The main objective of a transaction processing system is to answer routine questions such as;

• How printers were sold today?
• How much inventory do we have at hand?
• What is the outstanding due for John Doe?

By recording the day to day business transactions, TPS system provides answers to the above questions in a timely manner.

• The decisions made by operational managers are routine and highly structured.
• The information produced from the transaction processing system is very detailed.

For example, banks that give out loans require that the company that a person works for should have a memorandum of understanding (MoU) with the bank. If a person whose employer has a MoU with the bank applies for a loan, all that the operational staff has to do is verify the submitted documents. If they meet the requirements, then the loan application documents are processed. If they do not meet the requirements, then the client is advised to see tactical management staff to see the possibility of signing a MoU.

Examples of transaction processing systems include;

• Point of Sale Systems – records daily sales
• Payroll systems – processing employees salary, loans management, etc.
• Stock Control systems – keeping track of inventory levels
• Airline booking systems – flights booking management

Management Information System (MIS)

Management Information Systems (MIS) are used by tactical managers to monitor the organization’s current performance status. The output from a transaction processing system is used as input to a management information system.

The MIS system analyzes the input with routine algorithms i.e. aggregate, compare and summarizes the results to produced reports that tactical managers use to monitor, control and predict future performance.

For example, input from a point of sale system can be used to analyze trends of products that are performing well and those that are not performing well. This information can be used to make future inventory orders i.e. increasing orders for well-performing products and reduce the orders of products that are not performing well.

Examples of management information systems include;

• Sales management systems – they get input from the point of sale system
• Budgeting systems – gives an overview of how much money is spent within the organization for the short and long terms.
• Human resource management system – overall welfare of the employees, staff turnover, etc.

Tactical managers are responsible for the semi-structured decision. MIS systems provide the information needed to make the structured decision and based on the experience of the tactical managers, they make judgement calls i.e. predict how much of goods or inventory should be ordered for the second quarter based on the sales of the first quarter.

Decision Support System (DSS)

Decision support systems are used by senior management to make non-routine decisions. Decision support systems use input from internal systems (transaction processing systems and management information systems) and external systems.

The main objective of decision support systems is to provide solutions to problems that are unique and change frequently. Decision support systems answer questions such as;

• What would be the impact of employees’ performance if we double the production lot at the factory?
• What would happen to our sales if a new competitor entered the market?

Decision support systems use sophisticated mathematical models, and statistical techniques (probability, predictive modeling, etc.) to provide solutions, and they are very interactive.

Examples of decision support systems include;

• Financial planning systems – it enables managers to evaluate alternative ways of achieving goals. The objective is to find the optimal way of achieving the goal. For example, the net profit for a business is calculated using the formula Total Sales less (Cost of Goods + Expenses). A financial planning system will enable senior executives to ask what if questions and adjust the values for total sales, the cost of goods, etc. to see the effect of the decision and on the net profit and find the most optimal way.
• Bank loan management systems – it is used to verify the credit of the loan applicant and predict the likelihood of the loan being recovered.

Artificial intelligence techniques in business

Artificial intelligence systems mimic human expertise to identify patterns in large data sets. Companies such as Amazon, Facebook, and Google, etc. use artificial intelligence techniques to identify data that is most relevant to you.

Let’s use Facebook as an example, Facebook usually makes very accurate predictions of people that you might know or went with to school. They use the data that you provide to them, the data that your friends provide and based on this information make predictions of people that you might know.

Amazon uses artificial intelligence techniques too to suggest products that you should buy also based on what you are currently getting.

Google also uses artificial intelligence to give you the most relevant search results based on your interactions with Google and your location.

These techniques have greatly contributed in making these companies very successful because they are able to provide value to their customers.

Online Analytical Processing (OLAP)

Online analytical processing (OLAP) is used to query and analyze multi-dimensional data and produce information that can be viewed in different ways using multiple dimensions.

Let’s say a company sells laptops, desktops, and Mobile device. They have four (4) branches A, B, C and D. OLAP can be used to view the total sales of each product in all regions and compare the actual sales with the projected sales.

Each piece of information such as product, number of sales, sales value represents a different dimension

The main objective of OLAP systems is to provide answers to ad hoc queries within the shortest possible time regardless of the size of the datasets being used.

A typical organization has six information systems with each supporting a specific organizational level. These systems include transaction processing systems (TPS) at the operational level, office automation systems (OAS) and knowledge work systems (KWS) at the knowledge level, management information systems (MIS) and decision support Systems (DSS) at the management level and the executive support systems (ESS)at the strategic level.

Every firm needs to process transactions in order to perform its daily business operations. A transaction refers to any event or activity that affects the organization. Depending on the organization’s business, transactions may differ from one organization to another. In a manufacturing unit, for example, transactions include order entry, receipt of goods, shipping, etc., while in a bank, transactions include deposits and withdrawals, cashing of cheques, etc.

However, some transactions, including placing orders, billing customers, hiring employees, employee record keeping, etc., are common to all organizations. To support the processing of business transactions, transaction processing systems (TPS) are used in organizations.

An office automation system (OAS) is a collection of communication technology, computers, and persons to perform official tasks. It executes office transactions and supports official activities at every organizational level. These activities can be divided into clerical and managerial activities.

Clerical activities performed with the help of an office automation system include preparing written communication, typesetting, printing, mailing, scheduling meetings, calendar keeping. etc. Under managerial activities, an office automation system helps in conferencing, creating reports and messages, and controlling the performance of the organization. Many applications like word processing, electronic filing, and e-mail are integrated into office automation systems.

 Word Processing

Word processing is used for the preparation of documents like letters, reports, memos, or any type of printable material by electronic means. The text is entered by the keyboard and displayed on the computer’s display unit.

This text can be edited, stored, and reproduced with the help of commands present in the word processor. Word processors have facilities for spell checking, grammar checking, counting (character, lines, pages, etc.), automatic page numbering, index creation, header, and footer, etc.

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 Email

E-mail or electronic mail facilitates the transfer of messages or documents with the help of computers and communication lines. This helps in the speedy delivery of mails and also reduces the time and cost of sending paper mail. E-mail supports not only the transfer of text messages but also has options for sending images, audio, video, and many other types of data.

Voice Mail

Voice mail, an important call service, allows the recording and storing of telephone messages into the computer’s memory. The intended person can retrieve these messages at any time.

3. Knowledge Work Systems

A knowledge work system (KWS) is a specialized system built to promote the creation of knowledge and to make sure that knowledge and technical skills are proper integrated into the business. It helps the knowledge workers in creating and propagating new information and knowledge by providing them the graphics, analytical, communications, and document management tools.

The knowledge workers also need to search for knowledge outside the organization. Thus, the knowledge work system must give easy access to external databases. In addition, knowledge work systems should have a user-friendly interface to help users to get the required information quickly and easily.

Some examples of knowledge work systems are computer-aided design (CAD)systems, virtual reality systems, and financial workstations.

Computer-aided design (CAD) systems: These systems are used for automating the creation and revision of designs using computers and graphics software. The CAD software has the capability to provide design specifications for the tooling and manufacturing process. This saves much time and money while making a manufacturing process.

Virtual Reality System: These systems have more capabilities than CAD systems for visualization, rendering, and simulation. They make use of interactive graphics software to build computer-generated simulations which almost look real. They can be used in educational, scientific, and business work.

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Financial Workstations: They are used to combine a wide range of data from internal as well as external sources. This data includes contact management data, market data, and research reports. Financial workstations help in analyzing trading situations and large amounts of financial data within no time. It is also used for portfolio management.

4. Management Information Systems

Management information systems are specially developed to support the planning, controlling, and decision-making functions of middle managers. A management information system (MIS) extracts transaction data from underlying TPSs, compiles them, and produces information products in the form of reports, displays, or responses.

These information products provide information that conforms to the decision-making needs of managers and supervisors. Management information systems use simple routines like summaries and comparisons which enable managers to take decisions for which the procedure of reaching a solution has been specified in advance.

Generally, the format of reports produced by MIS is pre-specified. A typical MIS report is a summary report, such as a report on the quarterly sales made by each sales representative of the organization. Another type of management information system report is an; for example, exception report that specifies the exception conditions the sales made by some sales representative is far below than expected.

Usually, management information systems are used to produce reports on a monthly, quarterly, or yearly basis. However, if managers want to view the daily or hourly data, MIS enables them to do so. In addition, they provide managers online access to the current performance as well as past records of the organization.

5. Decision Support Systems

A decision support system (DSS) is an interactive computer-based information system that, like MIS, also serves at the management level of an organization. However, in contrast to MIS, it processes information to support the decision-making process of managers.

It provides middle managers with the information that enables them to make intelligent decisions. A decision support system in a bank, for example, enables a manager to analyze the changing trends in deposits and loans in order to ascertain the yearly targets.

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Decision support systems are designed for every manager to execute a specific managerial task or problem. Generally, they help managers to make semi-structured decisions, the solution to which can be arrived at logically. However, sometimes, they can also help in making complex decisions. To support such decisions, they use the information generated by OASs and TPSs.

Decision support systems have more analytical power as compared to other information systems. They employ a wide variety of decision models to analyze data or summarize a vast amount of data into a form (usually the form of tables or charts) that makes the comparison and analysis of data easier for managers.

They provide an interactive environment so that the users could work with them directly, add or change data as per their requirements, and ask new questions.

6. Executive Support Systems

An executive support system (ESS) – an extension of MIS – is a computer-based information system that helps in decision-making at the top level of an organization. The decisions taken with the help of an executive support system are non-routine decisions that affect the entire organization and, thus, require judgment and sight.

As compared to DSSs, ESSs offer more general computing capabilities, better telecommunications, and efficient display options. They use advanced graphics software to display critical information in the form of charts or graphs that help senior executives to solve a wide range of problems.

To make effective decisions, they use summarized internal data from MIS and DSS as well as data from external sources about events like new tax laws, new competitors, etc. They filter, compress, and track data of high importance and make it available to the strategic-level managers.

Executive support systems help to monitor performance, track activities of competitors, identify opportunities, and forecast trends. They also assist senior managers in answering the following question:

• What business should we do?

• How are our competitors doing the business?

• Which units can be sold and which new units are to be bought?

References:

http://bisom.uncc.edu/courses/info2130/Topics/istypes.htm