Information Technology Systems and Their Business Applications

Defining Information Technology (IT)

Information Technology (IT) means the collection, storage, processing, dissemination, and use of information. IT is not confined solely to hardware and software but also acknowledges the importance of the person, the goals he/she sets for the technology, the values employed in making these choices, and the assessment criteria used to determine whether he/she is controlling the technology and is being enriched by it.

Types of Information Systems

There are various types of information systems:

Transaction Processing Systems (TPS)

A Transaction Processing System (TPS) is used primarily for record keeping essential for conducting business operations within any organization. Examples of TPS include sales order entry, payroll, and shipping records. TPS is used for:

• Periodic report generation in a scheduled manner.
• Producing reports on demand.
• Generating exception reports.

Decision Support Systems (DSS)

A Decision Support System (DSS) serves the management of an organization. A DSS utilizes sophisticated data analysis tools to support and assist all aspects of problem-specific decision making. DSS may use data from external sources, such as current stock prices, to enhance decision-making.

DSS is typically used when the problem is complex and the information needed to make the best decision is difficult to obtain and use. DSS is developed collaboratively with decision makers. Crucially, DSS helps in the decision-making process but does not make the final decision itself.

Executive Information Systems (EIS)

An Executive Information System (EIS), also known as an Executive Support System (ESS), is utilized by senior managers of an organization. Therefore, it must be easy to use so that executives can operate it without assistance. EIS can perform:

• Trend analysis.
• Exception reporting.
• Drill-down capabilities.

The results are usually presented in a graphical form tailored specifically to the executive’s information needs.

Management Information Systems (MIS)

A Management Information System (MIS) provides management with routine summaries of the basic operations of the organization. The basic operations are recorded by the organization's TPS, and the MIS consolidates this data (e.g., sales, production). MIS provides routine information essential for managers and decision makers.

Workflow Systems

A workflow system is a rule-based management system that directs, coordinates, and monitors the execution of an interrelated set of tasks arranged to form a business process. A workflow system is also known as a Document Image Management System. For example, banks commonly use a workflow system for the loan sanction process.

Enterprise Resource Planning (ERP)

An Enterprise Resource Planning (ERP) system is a set of integrated programs capable of managing a company’s vital business operations across an entire multi-site, global organization. ERP facilitates organizations to share and integrate data, ensuring a consistent flow of information across the organization’s network and potentially utilizing the internet, depending on organizational strategy.

The Business Perspective of Information Technology

The impact of IT on business operations has been tremendous. A significant advantage of IT systems is the favorable cost-performance ratio of computing hardware. While labor costs typically increase annually, the cost of computing power often decreases or remains stable, meaning a better and more powerful computer can often be purchased for the same price after a year. Therefore, utilizing computers for routine jobs is highly efficient.

Finance and Accounting

IT is crucial in finance and accounting for:

• Forecasting revenues.
• Determining the best sources and uses of funds.
• Managing cash and other financial resources.
• Analyzing investments and performing audits.

Sales and Marketing

IT has enabled the development of new services that might not exist otherwise. IT assists management in:

• Determining optimal locations for production and distribution facilities.
• Analyzing operational data to determine the best advertising and sales approaches.

Manufacturing

IT is extensively used in manufacturing for:

• Processing customer orders.
• Controlling inventory levels.
• Developing production schedules.
• Monitoring product quality.

The application of IT to design and manufacturing has led to the evolution of specialized disciplines like Computer-Aided Design (CAD) and Computer-Aided Manufacturing (CAM).

Human Resource Management (HRM)

Companies utilize IT systems for screening applicants and conducting various employment tests.

Data Analysis and Investment

Investment firms heavily rely on information systems to analyze stocks, bonds, and options, providing better service to their clients. Due to internet connectivity, this application is highly sought after by other firms dealing with large datasets.

Computer-Aided Decision Making

A decision system supports and assists all aspects of problem-specific decision-making. A Decision Support System (DSS), also called a Computer-Aided Decision System (CADS), is used when the problem is complex and the necessary information is difficult to obtain or utilize.