Chapter Two

2. Foundational Concepts in MIS

2.1. Introduction

Management Information System (MIS) can be described as computer based

system that provides flexible and speedy access to accurate data. Such a definition
would suit any personal, professional, organizational, national or global
information system. Obviously, the organizational information systems-those
pertaining to the planning, operation and control of enterprise are the most
important amongst these. Management Information System refers primarily to
such organizational information systems, which are generally large, sophisticated,
structured and dynamically evolving, and of immense commercial value.

Management information systems are expected to provide information for

functions such as planning, control and decision making. The type of information
support required would depend on various factors such as level in the organization
structure where the activity is being performed, the type of activity such as
operational control or managerial control, degree of risks involved and so on. The
management information systems are expected to provide for information support
that is appropriate for the managerial activity being performed. The managerial
functions and the activities related with them would be influenced by the factors
influencing the business organization. Management information systems are
expected to be flexible in order to adopt to these changes in the managerial
functions and the associated activities and to the changing support requirements.

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 2.2. Business and management functions

Business process and functions

The new digital firm business environment requires companies to think more
strategically about their business processes. Business processes refer to sets of
logically related activities for accomplishing a specific business result. Business
processes also refer to the unique ways in which organizations and management
coordinate these activities. A company’s business processes can be a source of
competitive strength if they enable the company to innovate better or to execute
better than its rivals. Business processes can also be liabilities if they are based on
outdated ways of working that impede organizational responsiveness and
efficiency. Some business processes support the major functional areas of the firm,
others are cross-functional. The following table describes some typical business
processes for each of the functional areas.

Functional area Business process

 Assembling the product
Manufacturing and production  Checking for quality
 Producing bills of materials
 Identifying customers
 Making customers aware of the
Sales and marketing
product
 Selling the product
 Paying creditors
Finance and accounting  Creating financial statements
 Managing accounts
 Hiring employees
Human resources  Evaluating employee's job
performance
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Functions of Management

Regardless of the type, size and objective of the firm, all managers have certain
basic functions. These are planning, organizing, staffing, leading/directing/, and
controlling. The nature and scope of these functions differ from manager to
manager and from firm to firm.

Planning

It is a decision making process which involves selection of missions and objectives

and choose the best course of action to achieve them from among alternatives. It is
an intellectual task, which bridges the gap between the present and future
conditions of the organization (from where we are to where we want to be in a
desired future). Planning is a decision making process that determines what to be
done, how it is to be done, why it is done, when it is to be done, and by whom it is
to be done.

The first step in planning is determination of the objective of an organization and

then objectives are established for the sub units of the organization- its
departments, divisions, etc. Once the objectives are determined, programs are
established for achieving them in a systematic manner.

Top level managers set plans for the entire company; while lower level managers
prepare plans for their immediate areas of responsibility. Planning doesn't occur in
a vacuum. It is done in light of budgetary constraints, personnel requirements,
competition, and other factors.Planning, as a managerial function, is the process of
integrating the future activities of an organization, and requires the ability to
foresee, visualize, and look ahead purposefully.

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Organizing

It is a managerial activity that involves establishing an intentional structure of roles

for people to fill in an organization. In other words, it is the process of creating an
environment for human performance depending on the objectives set. In short,
organizing is the process of determining the role by which an individual plays and
the individual roles are related and integrated to achieve the common
organizational goal. Organizing, thus involves:

 Identification of activities to achieve the predetermined objective;

 Grouping these activities into working units;

 Assignment of responsibility to each unit with corresponding authority; and

 The creation of intentional organizational relationship so as to enhance

coordination.

Staffing

It is the process of filling and keeping filled the positions in the organization
structure. This is done by identifying work force requirements, inventorying the
people available, recruiting, selecting, placing, promoting, compensating, training
and developing both candidates and current job holders to accomplish their tasks
effectively and efficiently.

Leading

It is influencing, motivating and directing people so that they will contribute to

organization and group goals; it has to do predominantly with the interpersonal
aspect of managing. To be effective leader managers need to understand individual

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and group behavior, techniques of motivation, and effective styles of leadership.
Mangers must develop relationships that ensure adequate communication with
their subordinates. Leading also includes managing personal conflict, helping
employees, deal with changing conditions, and in some cases disciplining
employees. Leadership requires good interpersonal skills. Leading /directing has
the following three elements:

(i) Motivation

(ii) Leadership styles

(iii) Communication

Controlling

It is the measuring and correcting of activities of subordinates, to ensure that

events conform to plans. It also involves taking corrective measures (actions) if
negative deviations exist.

The controlling function involves the following steps:

 Establishing standards of performance:

 Measuring actual performance and comparing it against the plan the goal /the
established standard;
 Taking corrective measures if there are deviations (taking corrective actions
when standards are not met or in anticipation that they may not be met).

Actual results may differ from desired results in any area, but the three that require
the most attention are product quality, worker performance, and cost control.

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 2.3. Data, information, knowledge, and wisdom

According to Russell Ackoff, a systems theorist and professor of organizational

change, the content of the human mind can be classified into five categories;
however for the sake of this course we will take a look at four of them:

1. Data: data is raw. It simply exists and has no significance beyond its
existence (in and of itself). It can exist in any form, usable or not. It does
not have meaning of itself. In computer parlance, a spreadsheet generally
starts out by holding data.
2. Information: information is data that has been given meaning by way
of relational connection. This "meaning" can be useful, but does not have
to be. In computer parlance, a relational database makes information from
the data stored within it.
3. Knowledge: knowledge is the appropriate collection of information,
such that it's intent is to be useful. Knowledge is a deterministic process.
When someone "memorizes" information (as less-aspiring test-bound
students often do), then they have amassed knowledge. This
knowledge has useful meaning to them, but it does not provide for, in
and of itself, an integration such as would infer further knowledge. For
example, elementary school children memorize, or amass knowledge of, the
"times table". They can tell you that "2 x 2 = 4" because they have amassed
that knowledge (it being included in the times table). But when asked what
is "1267 x 300", they cannot respond correctly because that entry is not in
their times table. To correctly answer such a question requires a true
cognitive and analytical ability that is only encompassed in the next level...
understanding. In computer parlance, most of the applications we use
(modeling, simulation, etc.) exercise some type of stored knowledge.
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 4. Wisdom:wisdom is an extrapolative and non-deterministic, non-
probabilistic process. It calls upon all the previous levels of
consciousness, and specifically upon special types of human
programming (moral, ethical codes, etc.). It beckons to give us
understanding about which there has previously been no understanding,
and in doing so, goes far beyond understanding itself. It is the essence
of philosophical probing. Unlike the previous levels, it asks questions to
which there is no (easily-achievable) answer, and in some cases, to which
there can be no humanly-known answers period. Wisdom is therefore, the
process by which we also distinguish, or judge, between right and
wrong, good and bad.

Ackoff indicates that the first three categories relate to the past; they deal with
what has been or what is known. Only the fourth category, wisdom, deals with the
future because it incorporates vision and design. With wisdom, people can create
the future rather than just grasp the present and past. But achieving wisdom isn't
easy; people must move successively through the other categories.

Illustration

Data represents a fact or statement of event without relation to other things.

Ex: It is raining.

Information embodies the understanding of a relationship of some sort, possibly

cause and effect.

Ex: The temperature dropped 15 degrees and then it started raining.

Knowledge represents a pattern that connects and generally provides a high level
of predictability as to what is described or what will happen next.

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Ex: If the humidity is very high and the temperature drops substantially the
atmospheres is often unlikely to be able to hold the moisture so it rains.

Wisdom embodies more of an understanding of fundamental principles embodied

within the knowledge that are essentially the basis for the knowledge being what it
is. Wisdom is essentially systemic.

Ex: It rains because it rains and this encompasses an understandingof all the
interactions that happen between raining, evaporation, air currents, temperature
gradients, changes, and raining.

2.4. The Information Needs and Sources of Managers

Information is needed for decision making at all levels of management. Managers

at different organizational levels make different types of decisions, control
different types of processes, and have different information needs. Three classical
levels of management include:
 Operational
 Tactical (middle), and
 Strategic
i. Operational information

Operational information relates to the day to day operations of the organization and
thus, is useful in exercising control over the operations that are repetitive in nature.
Since such activities are controlled at lower levels of management, operational
information is needed by lower management.

For example, the information regarding cash position o day to day basis is
monitored and controlled at lower levels of management. Similarly, in marketing
function, daily and weekly sales information is used by lower level manager to
monitor the performance of the sales force.
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It may be noted that the operational information pertains to activities that are easily
measurable by specific standards. The operational information mainly relates to
current and historical performance, and is based primarily on internal sources of
data. The predictive element in operational information is quite low and if at all it
is there, it has a short term horizon.
ii. Tactical information
Tactical information helps middle level managers allocating resources and
establishing controls to implement the top level plans of the organization. For
example, information regarding the alternative sources of funds and their uses in
the short run, opportunities for deployment of surplus funds in short term
securities, etc. may be required at the middle level of management.

The tactical information is generally predictive, focusing on short-term trends. It

may be partly current and partly historical, and may come from internal as well as
external sources.
iii. Strategic information
While the operational information is needed to find out how the given activity can
be performed better, strategic information is needed for making choices among the
business options. The strategic information helps in identifying and evaluating
these options so that a manager makes informed choices which are different from
the competitors and the limitations of what the rivals are doing or planning to do.

Strategic information is used by managers to define goals and priorities, initiate

new programs and develop policies for acquisition and use of corporate resources.
For example, information regarding the long-term needs of funds for ongoing and
future projects of the company may be used by top level managers in taking
decision regarding going public or approaching financial institutions for term loan.

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Strategic information is predictive in nature, relies on external sources of data, has
long term perspective, and is mostly in summary form. It may sometimes include
what if scenarios. However, the strategic information is not only external
information. For long, it was believed that strategic information is basically
information regarding the external environment. But, it is now well recognized that
the internal factors are equally important/responsible for success or failure of
strategies and thus, internal information is also required for strategic decision
making.

2.5. A Framework for Information Systems

The activities of an organization are of three kinds: operational, tactical and

strategic planning. Operations are the day-to-day activities of the firm that involves
acquiring and consuming resources. First-line supervisors must identify, collect
and register all transactions that result in acquiring and expending these resources.
When sales are made or goods are shipped, a department manager needs to record
these vents. These day-to-day transactions produce data that are the basis for the
operational systems.

The tactical function of an organization is the responsibility of its middle-level

managers. They review operational activities to make sure that the organization is
meeting its goals and not wasting its resources. The time frame for tactical
activities maybe month to month, quarter to quarter, or year to year. For example
orders for raw materials might be monitored monthly, productivity might be
assessed quarterly, and department budgets might be reviewed annually. Managers
responsible for control have to decide how to allocate resources o achieve business
objectives. Data that can be used to predict future trends help managers make these
resource allocation decisions.

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The top management of the organization carries out strategic planning. Though
managers responsible for operational and tactical decision making are primarily
involved in reviewing internal data, the managers responsible for planning are also
interested in external information. They need to set the organization’s long range
goals, for example, by deciding whether to introduce new products, build new
physical plant facilities, or invest in technology. For making these decisions they
need to know the activities of the competing firms, interest rates, the trends in
government regulations. Strategic planners address problem that involves long-
range analysis and prediction and often require months and years to resolve.
Hence, the framework for information systems consists of operational, tactical, and
strategic levels.

Operational level systems

At the operational systems level the primary concern is to collect, validate, and
record transactional data describing the acquisition or disbursement of corporate
resources. Financial data on accounts receivable; accounts payable, payroll, and
cash receipts must be recorded as they occur. When a sale occurs, data on the items
ordered are recorded, the inventory level for these items is adjusted, a shipping
label and packing slip are prepared, and an invoice is generated. The original
transaction-the sale of the item-creates numerous transactions in order processing,
inventory, and billing. Operational-level information systems often have the
following characteristics.

 Repetitiveness: The information operational-level information systems

produce is usually generated repetitively at periodic intervals, such as daily,
weekly, or monthly.

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  Predictability: The information usually does not contain any surprises or
unexpected results for the manager or other users of the system. That is,
people are paid what they were expected to be paid, and customers are billed
for what they purchased during the month.
 Emphasis on the past: The information usually describes past activities of
the organization. For example, the output of a payroll system describes
employees’ past work. The checks to vendors describe past purchases by the
organization. Customer invoices describe past sales to them. Stock reports
describe past changes in inventory.
 Detailed nature: The information is very detailed. That is, paychecks
provide de-tailed information on the workweek of each employee and the
specifics of each employee’s gross and net pay. Customer invoices specify
details regarding purchases made during the period, the terms under which
the purchases must be repaid, and the total amount, including taxes and other
charges, due.
 Internal origin: The data for operational systems usually spring entirely
from internal sources. That is, the data for paychecks come from internal
documents such as time cards and employee master records. The data for
customer invoices come from sales orders and shipping documents.
 Structured form: The form of the data used as input and the form of the
information produced by operational-level systems are usually very
structured. That is, the data on time cards are carefully formatted in identical
fashion on each, or the data on each customer invoice are carefully formatted
in identical fashion. In short, the form and format of the data input and the
information output of the systems are highly structured.

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  Great accuracy: The accuracy of the data used as input to such systems and
of the output produced by such systems is usually very high. The data input
and information output are carefully checked.

Tactical systems

Tactical information systems differ from operational information systems in their

basic purpose. The purpose of tactical information systems is not to support the
execution of operational tasks, but to help the manager control these operations. As
a result, the types of data used as inputs and the information produced as outputs
also differ from the types of data involved in operational information systems.
Tactical systems provide middle-level managers with the information they need to
monitor and control operations and to allocate their resources effectively. Tactical
information systems may also produce information when it is needed, that is, on an
ad hoc basis. For instance, once the credit manager has identified a problem with
overdue accounts, he or she may wish to query the accounting system database to
find out what customer data, if any, correlate with those who have credit problems.
In tactical systems, transactions data are summarized, aggregated, or analyzed.
Tactical systems generate a variety of reports, including summary reports,
exception reports, and ad hoc reports.

1. Summary Reports: provide management with important totals, averages,

key data, and abstracts on the activities of the organization. An example of a
summary report might be a list of the total regular and overtime hours earned
at each plant for the week by job classification. Another example is the list of
total weekly sales, by salesperson, by product, and by sales region.
2. Exception Reports: warn managers when results from a particular operation
exceed or do not meet the expected standard for the organization. An

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 example of an exception report is a list of all plants that have logged more
overtime hours than expected for a week. Another example is a list of those
sales personnel whose sales fall in the top and bottom 10% of the
organization.
3. Ad hoc reports are reports that managers need, usually quickly, that may
never be needed again. Ad hoc reports present information that the manager
needs to solve a unique problem. An example of this type of report might be
a list of the total number of employees absent during the week arranged by
plant and by job title along with the hours or days missed. Another example
might be a report that presents the production record of each plant for the
week. A manager might request these reports only when an exception report
shows high overtime earnings at certain plants. The manager may ask for a
number of ad hoc reports such as these to identify the nature of the overtime
problem

The following are characteristics of tactical information system.

 Periodic nature: The information from a tactical system is sometimes

produced periodically. For example, a branch credit manager for an
organization may receive a weekly report showing the total dollar amount of
accounts that are more than 60 days
 Unexpected findings: A tactical information system may produce
unexpected in-formation. For example, in querying the accounting system
database, the credit manager may find that the major customer characteristic
correlating with credit difficulty is the relationship between type of position
and type of employer. Further investigation may reveal that organizations in
a particular industry have cut their workforces and have laid-off selected
workers in certain positions. Such findings may lead to a review of all
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 customers who work in similar positions in that industry to find ways to
solve or ease their credit problems and to prevent them from becoming bad
debts to the organization.
 Comparative nature: The information is usually comparative in nature
rather than merely descriptive. Tactical information systems should provide
managers with information that alerts them to variance from accepted
standards or to results that are out-side the normal range so that they can
take remedial action swiftly. This type of tactical information system is
analogous to process control systems that monitor output constantly and
provide feedback when output parameters are at variance with accepted
standards.
 Summary form: The information is usually not detailed, but in summary
form. The credit manager is not interested in a detailed listing of each
customer account and its balance. In large organizations, that would be an
enormous quantity of data and would not, therefore, be useful information to
the manager. The manager needs only summary information relating to
credit performance or balances of accounts that are overdue or in collection.
 Both internal and external sources: The data used for input to the system
may extend beyond sources internal to the organization. The credit manager
may compare the information pertaining to problem of customers to other
branches, to other periods from the same organization, or to a goal set by top
management. The credit manager might also have compared the branch’s
credit information with the average overdue account experience reported for
the whole industry of which the organization is a part. Such a comparison
might show that though the branch is experiencing an increase in credit
problems, so is the whole industry. Further investigation may reveal that a

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 downturn in the economy is the likely culprit, not any unusual credit policies
of the organization.

Strategic planning system

Strategic planning information systems are designed to provide top managers

with information that assists them in making long-range planning decisions for
the organization. The distinction between strategic planning information
systems and tactical information systems is not always clear because both types
of information systems may use some of the same data. For example, when
middle-level managers use budgeting information to allocate resources to best
meet organizational goals, budgeting becomes a tactical decision activity. When
top management uses budgeting information to plan the long-term activities of
an organization, budgeting becomes a strategic planning activity. In either case,
accurate budget information delivered in a timely fashion to managers is an
important function of the financial information system of the organization.
However, the key differences between the systems have to do with who uses the
data and what they are using it for. Top management ordinarily uses strategic
planning information systems for setting long term organizational goals. Middle
managers typically use tactical information systems to control their areas of
supervision and to allocate resources to meet organizational goals set by top
management. Though the data used in tactical and strategic planning
information systems sometimes overlap, usually differences exist in the data
that the two information systems use. Strategic planning information systems
often have these characteristics.

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  Ad hoc basis: The information may be produced either regularly or
periodically. For example, top management uses periodic accounting system
reports such as the income statement, balance sheet, statement of sources
and uses of funds, and capital statement in its planning function. However,
strategic planning information is more often produced on an ad hoc basis.
For example, organization planners may request marketing analysis
information pertaining to a new product or to a new cluster of stores when
they are considering the addition of several new stores in a new region.
 Unexpected information: The system may produce unexpected
information. For instance, economic forecast information may be requested
for the economy as a whole and for the industry in particular. The results of
the economic forecast may be a surprise to organization planners. Or the
marketing survey described above may produce store locations that the
planners had not predicted or expected.
 Future Perspective: These systems are future oriented and predictive in
nature. For example, forecasts of future economic conditions, projections of
new product sales, and forecasts of the changing demographic characteristics
of target customer groups are all forms of strategic planning information that
help planners make decisions.
 Summary form: The information is usually not detailed, but in summary
form. Long-range planners are not usually interested in detailed information;
they are usually concerned with more global data. For instance, long-range
planners are not ordinarily concerned about the details of customer invoices.
They are more likely to be interested in the overall buying trends reflected in
the summaries of sales by product group. In addition, long-range planners

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 are not usually interested in the specific demographic characteristics of a
particular customer. They are more likely to be concerned

2.6. Business Systems

Many companies today are using information technology to develop integrated

cross-functional enterprise systems that cross the boundaries of traditional business
functions in order to reengineer and improve vital business processes all across the
enterprise. These organizations view cross-functional enterprise systems as a
strategic way to use IT to share information resources and improve the efficiency
and effectiveness of business processes, and develop strategic relationships with
customers, suppliers, and business partners.

2.6.1. E- business

Contrary to popular opinion, e-business is not synonymous with e-commerce. E-

business is much broader in scope, going beyond transactions to signify use of the
Internet, in combination with other technologies and forms of electronic
communication, to enable any type of business activity.

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E-business, a term originally coined by Lou Gerstner, CEO of IBM, is the use of
the Internet and other networks and information technologies to support e-
commerce, enterprise communications and collaboration, and Web-enabled
business processes, both within a networked enterprise and with its customers and
business partners. E-business includes e-commerce, which involves the buying
and selling, marketing and servicing of products, services, and information over
the Internet and other networks.

Instead of concentrating on traditional business functions or supporting only the

internal business processes of a company, enterprise applications focus on
accomplishing fundamental business processes in concert with a company’s
customer, supplier, partner, and employee stakeholders.

Thus, enterprise resource planning (ERP) concentrates on the efficiency of a

firm’s internal production, distribution, and financial processes. Customer
relationship management (CRM) focuses on acquiring and retaining profitable
customers via marketing, sales, and service processes. Partner relationship
management (PRM) aims to acquire and retain partners who can enhance the sale
and distribution of a firm’s products and services. Supply chain management
(SCM) focuses on developing the most efficient and effective sourcing and
procurement processes with suppliers for the products and services that a business
needs. Knowledge management (KM) applications provide a firm’s employees
with tools that support group collaboration and decision support.

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