1.3 Types of Information Systems

This section will introduce you to the various types of information systems, which are based on the many areas of business. One way to dissect IS into its subsystems and make it easier to understand is to recognize who is using each type of system. Consider Figure 1.2 below:

At the highest level, information systems can be classified into two main types: sustaining and strategic. Sustaining information systems are the core business systems that help run day-to-day processes. Frontline employees are the primary users of sustaining information systems. These systems enable a company to do simple, daily tasks such as accept money and record purchases. While these functions are critical to sustaining the business from day-to-day, they do not provide any sort of strategic advantage. A strategic information system is one that provides a strategic advantage to the organization. A strategic information system provides an advantage by summarizing or aggregating, analyzing, and interpreting transactional information. This information is then organized into useful dashboards and reports, which are used to inform intelligent business decisions. Managers and executives are the primary users of strategic information systems.

Transaction processing systems (TPS) are the most widely used type of systems. These systems fall into the category of sustaining information systems. They capture the detailed transactional data involved in the routine transactions created by business processes of every type. A good example of a TPS is a checkout system, sometimes called a point of sales system, or POS. A POS system records individual customer sales, like the system used in a grocery store checkout line. Other TPS include accounting systems, purchasing systems, and more. The workers using TPS are primarily dealing with data in its unanalyzed, unsummarized form. In other words, it is not information yet, and there is little need for decision support with TPS. However, TPS must be very easy to use, easy to learn, and always reliable. If TPS “go down” due to technology failure, then business basically stops. In addition, TPS should have adequate logic to prevent the entering of erroneous data. For example, a quantity field should not contain letters. A purchased product should be related to a customer order. A check mailed should be associated with a purchase order, product inventory, and more. There are a great many business rules in place in a TPS to ensure the quality of data used to create information in higher-level systems.

Decision support systems (DSS), management information systems (MIS), and executive information systems (EIS) are used by progressively higher levels of management who need to view summarized forms of the data generated in the TPS for the business processes that fall under their jurisdiction. As systems become more sophisticated (from MIS, to DSS, to EIS), they include not only higher-level data summaries but also more tools to analyze the data in various ad hoc ways. As business problems become less routine and more unique, managers need a greater quantity and quality of objective information to help them create solutions. These types of information systems fall within the category of strategic information systems.

Okay, now let’s split this triangle a bit differently. Each functional area of the organization (e.g., sales, marketing, manufacturing, accounting, and human resources) has its type of systems at each level (TPS, MIS, DSS, EIS). Figure 1.3 depicts the types of systems you might find in each functional area. Study the figure and notice the types of analyses that take place at each level within each area. Let’s talk through a couple of examples. The type of TPS the sales and marketing department is responsible for is order processing—the sales clerk “ringing up” the customer. The order processing TPS records the products purchased, the number of products purchased, the customer, and a timestamp. Marketing managers need to know if their new products are selling well, where they are selling, and which marketing schemes are working. So their MIS and DSS will summarize sales data by all of these factors and show them trends over time. Members of upper management need to decide if the company should even be in certain markets, so they will look at even more data over time and come up with long-term plans and forecasts. Notice that the other functional areas follow a similar pattern of systems.

Here are a few questions you might have: Does each label in the triangle above represent a different system entirely? Are there different programs for each piece? Is there more than one program for each piece? Does the organization buy them separately? Does one program perform all of those functions? If not, how is data shared between systems? Does data even need to be shared among systems?

To help you understand the answers to the questions above, let’s talk about some of the practical details. Let’s say you are the newly appointed chief information officer (CIO). You want to overhaul your IT infrastructure and buy all new systems. Where do you begin? There are usually three options you have for acquiring your IS. First, if you are a large organization with many programmers and IT project managers, you can build these systems yourself. Second, you can hire someone else (e.g., an IT consulting firm) to make your systems for you. If you choose one of these first two options, you can build a custom enterprise information system that is central to the organization and covers all functional areas and levels of employees. In this case, data could be freely shared across any system that needs the data. Some systems need to share data in order to work properly. For example, accounting systems need data from the order processing systems in order to balance the ledger. The problem for most companies is that these two custom options are prohibitively expensive. So, option three is to buy commercial-off-the-shelf (COTS) products. The problem with buying a COTS product is that you can never get exactly what you want. The COTS products are customizable, but they will typically give you more or less than you really need. Also, if you don’t buy a COTS product that covers all of those triangle quadrants in the image above, you’ll run into trouble when it comes to sharing data among the different systems you had to purchase separately. As the CIO, you must make the choice that is the best fit for your company.

Enterprise Resource Planning (ERP)

Next, let’s discuss some of the main types of commercial IS and the common terms for them you’ll hear in your specific area of the organization. Let’s start with the dominant system—enterprise resource planning systems (ERP). An ERP system is a set of integrated programs that manage a company’s vital business operations for an entire organization across each functional area—even for a complex, multisite, global organization. The ERP system fills in all of the spaces in the triangle figure above (Figure 1.3). However, IS didn’t originally have ERP systems. In the past, there were separate systems, sometimes multiple systems, for each functional area and each employee level. It was a nightmare for many IT managers. Eventually, the industry found an IT subsystem used for scheduling resources in the manufacturing process, the resource planning system. The IS industry realized that this subsystem was a good launching point to create an enterprise-wide system and, thus, ERP evolved. So when you hear ERP, think "the system that does everything."

These are some of the advantages of ERP:

1. Improved access to quality data for operational decision-making.

2. Elimination of costly, inflexible legacy systems (outdated systems that few, if any, employees can modify very easily, yet are essential to doing business).

3. Improved work processes because of fewer limitations in the IT infrastructure.

However, ERP is not without its disadvantages. There are two worth discussing here. First, ERP is difficult to implement. There are many documented cases of ERP implementations that took many years and eventually failed because they were so costly and so far over schedule that they were no longer relevant. Scary, right? But it can actually happen. The U.S. Air Force spent $1 billion on a new ERP system only to have it become irrelevant because it took seven years to implement. The other disadvantage of an ERP system is that once all the systems are interconnected, they become more vulnerable to security leaks and attacks. In the famous Target credit card breach of 2013, hackers got into the system that stored credit cards through the HVAC system. Because the heating and cooling employees were given access to the HVAC system online, hackers could work their way straight through Target’s beautifully integrated ERP system and right into the credit card numbers.

Supply Chain Management (SCM)

Now that you understand ERP, let’s talk about the individual subsystems that make up ERP and are also often sold as stand-alone (yet integrable) systems in the IS marketplace. Supply chain management (SCM) systems are those that support the planning, executing, and controlling of all activities involved in raw material sourcing and procurement, the converting of raw materials to finished products, and the warehousing and delivering of finished products to customers. Another way to think of SCM is as the management of materials, information, and finances in the supply chain process from supplier -> manufacturer -> wholesaler -> retailer -> consumer. As such, SCM systems are often interlinked (in a limited capacity) to the SCM systems of the other organizations within the supply chain. This interlinking allows critical customer demand information to be shared with partners and helps the entire supply chain to avoid massive overproduction based on a falsely inflated sense of customer demand, which is known as the bull-whip effect. The SCM process starts with sales forecasting to develop an estimate of future consumer demand. There are many SCM stand-alone system vendors (i.e., not part of an ERP system), such as Fishbowl Inventory, Snapfulfil, U Route, Ramp Enterprise WMS and Interchange EDI, eBid eXchange, 3PL Warehouse Manager, JDA Software, SCExpert, FlexRFP, and ViewPoint Logistics.

SCM TPS: SCM has a TPS portion that would keep track of supplier orders, individual payments, etc.

SCM MIS/DSS/EIS: These portions of SCM would help managers to project customer demand and estimate the specific volumes of materials that need to be ordered as well as to create resource expectations, data analysis tools, and summaries of inventory on hand.

Financial and Managerial Accounting Systems

Financial and managerial accounting systems track the accounting records of a business. The accounting records are divided into assets, liabilities, revenue, expenses, and equity. These sections are further subdivided into categories such as cash, accounts payable, and accounts receivable. More often than not, financial and managerial accounting systems are included in the organization's core ERP system, even if other systems are implemented separately. If the accounting systems are incorporated into the ERP system, then the input into the general ledger occurs simultaneously as certain business transactions are processed in other specific modules. However, there are several popular stand-alone accounting systems. Some of the most common systems include Multiview Enterprise, Intacct Financials and Accounting Systems, NetSuite Financials, Sage 100 Standard, Adaptive Insights, SAP Accounting, Epicor Financial Management, BOARD Management Intelligence Toolkit, Budget Maestro, and Vena 5.

Accounting TPS: The TPS portion of accounting systems would include the individual entries into the general ledger.

Accounting MIS/DSS/EIS: These systems would have querying tools to help managers identify mistakes, prepare financial statements, verify that rules from the Security and Exchange Commission are followed, and so on.

Customer Relationship Management (CRM)

Customer Relationship Management (CRM) systems are designed to help a company manage all aspects that have to do with the customer, including customer information, customer encounters, marketing and advertising campaigns, sales, service after the sale, and customer loyalty programs. The general purpose of a CRM system is to improve customer loyalty. A CRM system is not part of the order processing system, but it must draw data heavily from that system to classify customers and generate useful information.

CRM TPS: The TPS portion of a CRM includes entering information about specific customers, customer encounters, service events, and other transactions. Figure 1.7 shows the customer data from the "leads" category in SalesForce—one of the most popular CRM systems. (Customer leads can be generated by the organization’s own marketing and advertising efforts or purchased from external databases or consulting firms.)

CRM MIS/DSS/EIS: These portions of the CRM system allow managers to view the status and success of advertising campaigns, classify customers into segments, make predictions about future customer preferences, and much more.