Information Systems | 14 mins read

What are Information Systems?

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Lauren Christiansen

By Lauren Christiansen

What are Information Systems?

As businesses gather more data than ever before, it's critical to know how to manage it. Employees need to request information to help customers, collaborate on tasks, and complete projects. Organizations must have the proper hardware and software in place to ensure this is possible. That's where information systems come in.

Information systems are the stakeholders, information technology, and processes used to meet a business goal. These 3 elements are what make a company fully operational. Information systems are typically represented on a triangle, with stakeholders, processes, and computers on each of the 3 vertices.

3 Elements of Information Systems

At the top of the triangle are stakeholders or people, which include the individuals who interact with a task. For example, a retail clerk processes a transaction, which is stored in a POS system. Different types of companies have different business processes. A standard process can be anything from managing inventory to processing transactions to selling a product. Stakeholders have some type of interaction with these processes, even if they are automated. To illustrate, the same retail clerk uses a technology system to process a transaction, even though the system does most of the work.

Finally, information technology facilitates the business process from start to finish. Companies have a variety of information technology systems, depending on business needs. In the latter example, the POS system is information technology. Without it, employees would need to process the transaction manually. In the digital age, this won't produce the type of competitive advantage required to stay on top. It also wastes time, money, effort, and resources.

These 3 elements work together to streamline the supply chain and increase efficiency. Most organizations have information systems of some kind, though some fail to leverage automated tools. All 3 vertices of the triangle must interact simultaneously to achieve key business goals. Information system professionals seek to monitor this balance to ensure each element works as it should.

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The History of Information Systems

Information systems have an extensive history that begins way before computers ever existed. People have always looked for ways to streamline work and minimize repetitive tasks. If there are innovative tricks to minimize errors and shorten work time, people will find them.

Furthermore, entrepreneurs have always strived to maintain a competitive edge. With more optimized means to complete business processes, they were able to do just that. From the first punch card in 1901 to magnetic storage media in the mid 20th century, information systems have come a long way. Read ahead to learn more on the 5 eras of information systems.

1. Information Systems First Era Mid 1960's Mid 1970's

Throughout the early years of computer information, IS's were centralized and focused only on the demands of management. Accounting departments controlled the majority of reports and management information systems. Most organizations used third-generation technology systems, such as the IBM 360.

One critical development during this time was ethernet networks. These transmit and receive information through cables, which enables the communication between two network cables. Nowadays, people use ethernet because it is low-cost, reliable, and highly robust.

2. Information Systems Second Era Mid 1970's Mid 1980's

While computer information systems were primarily focused on managerial needs, other business units began to leverage IS's. Steering committees and user-driven projects are what led to more advanced information system projects. During this time, personal computers, and minicomputers were developed. These systems enabled scientific computations, transaction processing, and large file management. As a result, organizations were able to store more information, streamline payments, and share more data.

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3. Information Systems Third Era Mid 1980's to Late 1990s

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Beginning in the mid-1980s, data within information systems became less centralized. Employees outside of management could now access critical files and collaborate on tasks. While functionality was still limited by today's standards, this decentralization was critical. It changed the nature of how organizations operate and how data is shared.

New positions were added to large corporations. Often referred to as Chief Information Officers, these individuals were responsible for managing multiple IS's. The internet also took off during this time; which proved to be another crucial development for the business community.

4. Information Systems Fourth Era Late 1990's to Today

While information technology is still tied to management needs, systems are more widely dispersed. Every employee who needs access to data typically has it across various applications. The majority of systems information is integrated among various organizations. This enables a customer service rep to access vendor data for a customer and then provide it to him/her.

The biggest developments are social media and search engines, which optimized communication and marketing campaigns. Employees can also access company information systems on other devices outside of the workplace. This includes smartphones, laptops, iPads, and more. Due to this greater access to company data, organizations are not limited to performing work on-site. This broke down geographical barriers and facilitated the hiring of remote teams.

5. Information Systems Fifth Era Moving Forward

Internet bandwidth continues to increase, along with a reliance on cloud-based systems. Organizations can now safely store and access more information than ever before at a low cost. Nowadays, any worker can make better decisions based on his/her ability to access data at any time. Furthermore, there is less of a distinction between who creates data and who consumes data. This is due to the decentralization of information systems and easier access to the company across the supply chain.

The Importance of Information Systems

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A strong relationship between people, technology systems, and processes will streamline operations and enable a competitive edge. First, it's critical to drill down into the performance of any automated systems within an organization. This will help pinpoint inefficiencies and make sure users can easily access the data they need.

To leverage information technology, the exploitation of IT's capabilities is essential. To optimize science information systems' effectiveness, users must do one of two things. They either need to add more data to ensure information is accurate, or utilize existing data in different ways.

If owners take one of these two options, they will reap all of the benefits of their systems' information. Increasing the reliability of data improves employee decision-making. Finding new ways to use existing data also maximizes collaboration and makes work life easier for employees. As a result, customer satisfaction will increase and profits will rise. Employee morale will improve because team members have access to the data that helps them perform their jobs. Here are some other reasons why information systems are important.

1. Information Systems Optimize Decision-Making

A management information platform with better systems analysis optimizes decision-making across the supply chain. This is because all relevant information is delivered to applicable stakeholders. The potential results of decisions are also modeled within an information system, ensuring workers know the consequences of their actions.

When everyone has access to reliable data, they can make their choices with ease. If there is more than one potential solution to a problem, an information system can run different outcomes. For each potential outcome, the IS estimated profits, costs, and sales. This helps users make the most informed decisions that lead to the best business outcomes.

  • Survey responses to identify products and services that customers like
  • User-testing data that shows how customers may interact or use a specific product
  • Demographic data shifts to show where potential new customers may come from
  • Internal data sources such as inventory data, POS data, or scheduling system data can help monitor performance, optimize the ordering process, and minimize waste

2. Information Systems Streamline Record-Keeping

An organization requires an audit trail of all business processes to maintain compliance. It also needs to find the causes of bottlenecks and ensure corrective action. Information systems manage records and any revised inputs, along with communications and operations data.

Owners can leverage an IS's record-keeping capabilities if they organize information properly. They can then use the information system to process and display data as helpful and relevant information. This can facilitate cost estimates, predictions, and analyzing KPIs.

The Benefits of Using Information Systems

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An effective information system gives an employee all of the data required to complete tasks quickly and effectively. While databases and paper receipts generate data, they don't provide insight into each stakeholder's interaction with the system. In other words, it's impossible to always know who requested what, which worker spoke with which customer, and when it all happened.

This makes it hard to hold teams accountable for their actions. It also prevents effective collaboration and information sharing. With an information system, users can access real-time or historical data as required to complete requirements. Here are other top benefits of information systems.

1. Information Systems Provide Custom Data

An information system gives an employee all the required data he/she needs to make good decisions. Employers can customize visible data so each team member sees the most applicable information. While the data stored in the information system is the same across the supply chain, customization features tailor it towards each employee's role. This facilitates quick collaboration and ensures workers don't waste time searching for information.

2. Information Systems Enable Custom Formats

It's much easier to use and share information when its format is customized. For example, a sales manager can view a pie chart that shows each sales team member's share of total sales. He can also view a bar graph that displays how much of each product was sold during that period. An accountant can look at the same time and view how much each sales team member made in dollars. Each member of the supply chain can view exactly the information they needs to perform their role within the organization.

3. Information Systems Generate Real-Time Data

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Real-time data is crucial to make accurate, quick decisions. This immediate access to data allows the right stakeholders to make the right choices at the right time. For example, a line operator can understand the reasons behind a production line stop, such as mechanical failure. They can then contact the correct people to fix the problem, or find an alternative solution to maintain that area of the supply chain. This streamlines operations and ensures customers receive the type of service they were promised.

  • Real-time data enables stakeholders to make quick decisions
  • Real-time data increases agility and process optimization
  • Real-time data enables users to quickly identify and eliminate bottlenecks
  • Real-time data enables users to act on market changes and create better products

5 Types of Information Systems

So, what type of information system should an organization invest in? Information systems vary depending on business requirements, the price of the solution, and the size of the company. Different business units also need access to more or less information, which changes the type of IS they require.

Some teams utilize data to fulfill job duties, while others use data to monitor business processes. As most organizations have several business units operating at the same time, they tend to invest in more than one IS. Read ahead for the top types.

1. Information Systems Type - Executive Support Systems

This information system enables senior management to optimize decision-making. It collects, analyzes, and details the critical information utilized in day-to-day operations. It provides an overview of all existing assets, forecasted revenue amounts, and estimated sales figures. Individuals who may use an executive support system include CEOs and upper-level managers.

2. Information Systems Type Management Information System

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Management information systems are focused on internal data sources. These solutions collect data from POS systems and describe it within various reports. An MIS generates precise, detailed data so management can optimize decision-making and problem-solving. It also enables them to oversee various business processes and track their performance. Potential stakeholders who may use an MIS may be a call center supervisor or HR manager.

3. Information Systems Type Decision Support System

A decision support system intends to assist users in decision-making when a particular occasion arises. A DSS utilizes tools to gather relevant data and assess potential outcomes or alternative solutions. Within a DSS, some complex spreadsheets and databases generate models. These help stakeholders identify challenging circumstances and analyze potential outcomes. Planning departments and operations management may be possible departments that use a DSS.

4. Information Systems Type - Knowledge Management System

A knowledge management system enables an organization to generate and distribute data. Industries that use a KMS need to generate new expertise so employees can share it. This creates more commercial advantages or helps employees learn about a specific topic.

Businesses also use a KMS to streamline the onboarding process. They may offer training documents or courses to ensure new hires can complete much of the training themselves. Both employees and managers use a knowledge management system. Industries that tend to prioritize KMS's include law firms, accountants, and training-related organizations.

  • 40% of customer interactions are only on the web
  • Phone calls with customers can cost an organization up to $5 per interaction
  • A knowledge management system can reduce the $5 dollar price tag to just $.25
  • 47% of organizations that use a KMS have increased sales

5. Information Systems Type Transaction Processing System

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A TPS processes repetitive tasks quickly and reliably. Let's say an organization has several types of billing systems to generate invoices and send them to clients. These solutions calculate tax payments and use functionality to route the information to the proper people (both internally and externally). Other examples of a TPS include purchasing systems that assess and estimate any requirements for raw materials.

Best Practices for Building Information Systems

There are many challenges an organization may run into when utilizing an information system. It's always complicated to manage large quantities of data sources and ensure everyone has access to what they need. The majority of businesses have duplicate data that doesn't integrate, along with a plethora of inconsistencies. If an IT team builds faulty information systems, they are bound to have issues. To minimize these concerns, businesses can use the following best practices.

1. Build Information Systems Know The Goal

What are the key business strategies that drive an organization? Knowing this will ensure key financial targets are in place to meet customer-related needs. This also helps to understand and identify the critical internal business processes and stakeholders and make sure they are aligned to achieve a strategy. This stage of the process is needed to establish the context that an effective IS requires.

2. Build Information Systems Understand Information Requirements

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Next, it's time to understand what type of information an organization needs. This requires pinpointing and comprehending the main sectors of the business, along with any processes that facilitate operations. Throughout this step, it helps identify relevant personnel who need the data. It also helps facilitate a discussion on what that information should be used for.

3. Build Information Systems Assess Existing Information Technology

To build an IS, it's critical to know how effective the information sharing and delivery process is now. What are the various touch points between data sources? Are they automated or manual? What are the key functions that these solutions perform? Answering these questions can help generate a systems map that shows the entire picture within an organization. It will also help identify any inefficiencies or problem areas.

  • Define the business need and goal
  • Determine if the goal is being achieved with the current technology system
  • Get feedback from stakeholders who interact with the existing system
  • Perform a simple return on investment analysis
  • Compare various vendors to see if their products better align with company needs

4. Build Information Systems Review and Aggregate

This is where individuals look at any problem areas within existing information systems and see if it is possible to make improvements. This requires looking at areas where information is duplicated, there is missing data, information is inconsistent, or solutions aren't working properly. Any manual processes typically lead to errors and should also be reviewed. It's also important to find out where data moves in and out of an organization. These are referred to as integration points.

5. Build Information Systems - Define an Enterprise Architecture

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Finally, it's time to bring all of the data together to identify a concept of the organization's IT architecture. This includes the ways that users access information through various portals, along with any workflows that map out business activities. Data orchestration is needed to maintain the quality and integrity of data. Furthermore, owners need better BI suites to generate management information and reporting. The goal is to generate a vision of a new information system infrastructure to align with organizational requirements.

Key Takeaways of Information Systems

In conclusion, here is what to know about information systems -

  • Information systems are important because they optimize company decision-making and improve record-keeping capabilities.
  • Information system benefits include customized data, customized formats, and the ability to see real-time information.
  • Types of information systems include executive support systems, management information systems, decision support systems, knowledge management systems, and transaction processing systems.
  • To build an effective information system, take the following steps. First, understand business goals. Then, understand information needs, assess the status quo, review and consolidate, and define enterprise architecture.

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