What Is an Information System?

An information system (IS) can be any organized combination of people, hardware,

software, communications networks, data resources, and policies and procedures that
stores, retrieves, transforms, and disseminates information in an organization.

People rely on modern information systems to communicate with one another using a
variety of physical devices (hardware), information processing instructions and procedures
(software), communications channels (networks), and stored data (data resources).

Although today’s information systems are typically thought of as having something to do

with computers, we have been using information systems since the dawn of civilization.

Even today we make regular use of information systems that have nothing to do with a
computer. Consider some of the following examples of information systems:

• Smoke signals for communication were used as early as recorded history and can
account for the human discovery of fire. The pattern of smoke transmitted valuable
information to others who were too far to see or hear the sender.

• Card catalogs in a library are designed to store data about the books in an organized
manner that allows readers to locate a particular book by its title, author
name, subject, or a variety of other approaches.

Your book bag, day planner, notebooks, and file folders are all part of an information
system designed to help you organize the inputs provided to you via handouts, lectures,
presentations, and discussions. They also help you process these inputs into useful outputs:
homework and good exam grades.

• The cash register at your favorite fast-food restaurant is part of large information
system that tracks the products sold, the time of a sale, inventory levels, and the amount of
money in the cash drawer; it also contributes to the analysis of product sales in any
combination of locations anywhere in the world.

• A paper-based accounting ledger as used before the advent of computer-based

accounting systems is an iconic example of an information system. Businesses used this
type of system for centuries to record the daily transactions and to keep a record of the
balances in their various business and customer accounts.

Figure 1.2 illustrates a useful conceptual framework that organizes the knowledge
presented in this text and outlines areas of knowledge you need about information
systems. It emphasizes that you should concentrate your efforts in the following five
areas of IS knowledge:
• Foundation Concepts. Fundamental behavioral, technical, business and managerial
concepts about the components and roles of information systems. Examples include basic
information system concepts derived from general systems theory or competitive strategy
concepts used to develop business applications of information technology for competitive
advantage.

• Information Technologies. Major concepts, developments, and management issues in

information technology—that is, hardware, software, networks, data management, and
many Internet-based technologies.

• Business Applications. The major uses of information systems for the operations,
management, and competitive advantage of a business.

• Development Processes. How business professionals and information specialists plan,

develop, and implement information systems to meet business opportunities.

FIGURE 1.2
A framework that outlines the major areas of information systems knowledge needed by business
professionals.

The Fundamental Roles of IS in Business

Support of Business Processes and Operations. As a consumer, you regularly encounter
information systems that support the business processes and operations at the many retail
stores where you shop. For example, most retail stores now use computer-based
information systems to help their employees record customer purchases, keep track of
inventory, pay employees, buy new merchandise, and evaluate sales trends. Store
operations would grind to a halt without the support of such information systems.

Support of Business Decision Making. Information systems also help store managers and
other business professionals make better decisions. For example, decisions about what
lines of merchandise need to be added or discontinued and what kind of investments they
require are typically made after an analysis provided by computer-based information
systems. This function not only supports the decision making of store managers, buyers,
and others, but also helps them look for ways to gain an advantage over other retailers in
the competition for customers.

Support of Strategies for Competitive Advantage. Gaining a strategic advantage over

competitors requires the innovative application of information technologies. For example,
store management might make a decision to install touch-screen kiosks in all stores, with
links to the e-commerce Web site for online shopping. This offering might attract new
customers and build customer loyalty because of the ease of shopping and buying
merchandise provided by such information systems. Thus, strategic information systems
can help provide products and services that give a business a comparative advantage over
its competitors.

Types of Information Systems

Conceptually, the applications of information systems that are implemented in today’s

business world can be classified in several different ways. For example, several types of
information systems can be classified as either operations or management information
systems. Figure 1.6 illustrates this conceptual classification of information systems
applications. Information systems are categorized this way to spotlight the major roles
each plays in the operations and management of a business. Let’s look briefly at some
examples of such information systems categories.

Operations Support Systems

Information systems have always been needed to process data generated by, and used in,
business operations. Such operations support systems produce a variety of information
products for internal and external use; however, they do not emphasize the specific
information products that can best be used by managers. Further processing by
management information systems is usually required. The role of a business firm’s
operations support systems is to process business transactions, control industrial
processes, support enterprise communications and collaborations, and update corporate
databases efficiently. See Figure 1.7 .
Management Support Systems

When information system applications focus on providing information and support for
effective decision making by managers, they are called management support systems.
Providing information and support for decision making by all types of managers and
business professionals is a complex task. Conceptually, several major types of information
Systems support a variety of decision-making responsibilities: (1) management
information systems, (2) decision support systems, and (3) executive information systems.
See Figure 1.9 .

Other Classifications of Information Systems

FIGURE 1.15
Careers in IS are as diverse and exciting as the technologies used in them; IS professionals
have career opportunities in every business environment and activity throughout the
world.

The IS Function

The successful management of information systems and technologies presents major

challenges to business managers and professionals. Thus, the information systems function
represents:

• A major functional area of business equally as important to business success as the

functions of accounting, finance, operations management, marketing, and human resource
management.

• An important contributor to operational efficiency, employee productivity and morale,

and customer service and satisfaction.
 A recognized source of value to the firm.

• A major source of information and support needed to promote effective decision making
by managers and business professionals.

• A vital ingredient in developing competitive products and services that give an

organization a strategic advantage in the global marketplace.

• A dynamic, rewarding, and challenging career opportunity for millions of men and
women.

• A key component of the resources, infrastructure, and capabilities of today’s networked

business enterprises.

• A strategic resource.

Information System Resources

Our basic IS model shows that an information system consists of five major resources:
people, hardware, software, data, and networks. Let’s briefly discuss several basic concepts
and examples of the roles these resources play as the fundamental components of
information systems. You should be able to recognize these five components at work in any
type of information system you encounter in the real world. Figure 1.20 outlines several
examples of typical information system resources and products.
FIGURE 1.20: Examples of information system resources and products.

Businesses can counter the threats of competitive forces that they face by implementing
one or more of the five basic competitive strategies.

• Cost Leadership Strategy. Becoming a low-cost producer of products and services in the
industry or finding ways to help suppliers or customers reduce their costs or increase the
costs of competitors.

• Differentiation Strategy. Developing ways to differentiate a firm’s products and services

from those of its competitors or reduce the differentiation advantages of competitors. This
strategy may allow a firm to focus its products or services to give it an advantage in
particular segments or niches of a market.

• Innovation Strategy. Finding new ways of doing business. This strategy may involve
developing unique products and services or entering unique markets or market niches. It
may also involve making radical changes to the business processes for producing or
distributing products and services that are so different from the way a business has been
conducted that they alter the fundamental structure of an industry.
• Growth Strategies. Significantly expanding a company’s capacity to produce goods and
services, expanding into global markets, diversifying into new products and services, or
integrating into related products and services.

• Alliance Strategies. Establishing new business linkages and alliances with customers,
suppliers, competitors, consultants, and other companies. These linkages may include
mergers, acquisitions, joint ventures, formation of virtual companies, or other marketing,
manufacturing, or distribution agreements between a business and its trading partners.

FIGURE 2.3: A summary of how information technology can be used to implement the five
basic competitive strategies. Many companies are using Internet technologies as the
foundation for such strategies.