by Information system, an integrated set of components for collecting, storing, and processing data and for providing information, knowledge, and digital products. Business firms and other organizations rely on information systems to carry out and manage their operations, interact with their customers and suppliers, and compete in the marketplace. Information systems are used to run interorganizational supply chains and electronic markets. For instance, corporations use information systems to process financial accounts, to manage their human resources, and to reach their potential customers with online promotions. Many major companies are built entirely around information systems. These include eBay, a largely auction marketplace; Amazon, an expanding electronic mall and provider of cloud computing services; Alibaba, a business-to-business e-marketplace; and Google, a search engine company that derives most of its revenue from keyword advertising on Internet searches. Governments deploy information systems to provide services cost-effectively to citizens. Digital goods—such as electronic books, video products, and software—and online services, such as gaming and social networking, are delivered with information systems. Individuals rely on information systems, generally Internet-based, for conducting much of their personal lives: for socializing, study, shopping, banking, and entertainment.
As major new technologies for recording and processing information were invented over the millennia, new capabilities appeared, and people became empowered. The invention of the printing press by Johannes Gutenberg in the mid-15th century and the invention of a mechanical calculator by Blaise Pascal in the 17th century are but two examples. These inventions led to a profound revolution in the ability to record, process, disseminate, and reach for information and knowledge. This led, in turn, to even deeper changes in individual lives, business organization, and human governance.
The first large-scale mechanical information system was Herman Hollerith’s census tabulator. Invented in time to process the 1890 U.S. census, Hollerith’s machine represented a major step in automation, as well as an inspiration to develop computerized information systems.
One of the first computers used for such information processing was the UNIVAC I, installed at the U.S. Bureau of the Census in 1951 for administrative use and at General Electric in 1954 for commercial use. Beginning in the late 1970s, personal computers brought some of the advantages of information systems to small businesses and to individuals. Early in the same decade the Internet began its expansion as the global network of networks. In 1991 the World Wide Web, invented by Tim Berners-Lee as a means to access the interlinked information stored in the globally dispersed computers connected by the Internet, began operation and became the principal service delivered on the network. The global penetration of the Internet and the Web has enabled access to information and other resources and facilitated the forming of relationships among people and organizations on an unprecedented scale. The progress of electronic commerce over the Internet has resulted in a dramatic growth in digital interpersonal communications (via e-mail and social networks), distribution of products (software, music, e-books, and movies), and business transactions (buying, selling, and advertising on the Web). With the worldwide spread of smartphones, tablets, laptops, and other computer-based mobile devices, all of which are connected by wireless communication networks, information systems have been extended to support mobility as the natural human condition.
As information systems enabled more diverse human activities, they exerted a profound influence over society. These systems quickened the pace of daily activities, enabled people to develop and maintain new and often more-rewarding relationships, affected the structure and mix of organizations, changed the type of products bought, and influenced the nature of work. Information and knowledge became vital economic resources. Yet, along with new opportunities, the dependence on information systems brought new threats. Intensive industry innovation and academic research continually develop new opportunities while aiming to contain the threats.
Components of Information Systems
The main components of information systems are computer hardware and software, telecommunications, databases and data warehouses, human resources, and procedures. The hardware, software, and telecommunications constitute information technology (IT), which is now ingrained in the operations and management of organizations.
- Computer hardware
Today throughout the world even the smallest firms, as well as many households, own or lease computers. Individuals may own multiple computers in the form of smartphones, tablets, and other wearable devices. Large organizations typically employ distributed computer systems, from powerful parallel-processing servers located in data centres to widely dispersed personal computers and mobile devices, integrated into the organizational information systems. Sensors are becoming ever more widely distributed throughout the physical and biological environment to gather data and, in many cases, to effect control via devices known as actuators. Together with the peripheral equipment—such as magnetic or solid-state storage disks, input-output devices, and telecommunications gear—these constitute the hardware of information systems. The cost of hardware has steadily and rapidly decreased, while processing speed and storage capacity have increased vastly. This development has been occurring under Moore’s law: the power of the microprocessors at the heart of computing devices has been doubling approximately every 18 to 24 months. However, hardware’s use of electric power and its environmental impact are concerns being addressed by designers. Increasingly, computer and storage services are delivered from the cloud—from shared facilities accessed over telecommunications networks.
- Computer software
Computer software falls into two broad classes: system software and application software. The principal system software is the operating system. It manages the hardware, data and program files, and other system resources and provides means for the user to control the computer, generally via a graphical user interface (GUI). Application software is programs designed to handle specific tasks for users. Smartphone apps became a common way for individuals to access information systems. Other examples include general-purpose application suites with their spreadsheet and word-processing programs, as well as “vertical” applications that serve a specific industry segment—for instance, an application that schedules, routes, and tracks package deliveries for an overnight carrier. Larger firms use licensed applications developed and maintained by specialized software companies, customizing them to meet their specific needs, and develop other applications in-house or on an outsourced basis. Companies may also use applications delivered as software-as-a-service (SaaS) from the cloud over the Web. Proprietary software, available from and supported by its vendors, is being challenged by open-source software available on the Web for free use and modification under a license that protects its future availability.
- Telecommunications
Telecommunications are used to connect, or network, computer systems and portable and wearable devices and to transmit information. Connections are established via wired or wireless media. Wired technologies include coaxial cable and fibre optics. Wireless technologies, predominantly based on the transmission of microwaves and radio waves, support mobile computing. Pervasive information systems have arisen with the computing devices embedded in many different physical objects. For example, sensors such as radio frequency identification devices (RFIDs) can be attached to products moving through the supply chain to enable the tracking of their location and the monitoring of their condition. Wireless sensor networks that are integrated into the Internet can produce massive amounts of data that can be used in seeking higher productivity or in monitoring the environment.
Various computer network configurations are possible, depending on the needs of an organization. Local area networks (LANs) join computers at a particular site, such as an office building or an academic campus. Metropolitan area networks (MANs) cover a limited densely populated area and are the electronic infrastructure of “smart cities.” Wide area networks (WANs) connect widely distributed data centres, frequently run by different organizations. Peer-to-peer networks, without a centralized control, enable broad sharing of content. The Internet is a network of networks, connecting billions of computers located on every continent. Through networking, users gain access to information resources, such as large databases, and to other individuals, such as coworkers, clients, friends, or people who share their professional or private interests. Internet-type services can be provided within an organization and for its exclusive use by various intranets that are accessible through a browser; for example, an intranet may be deployed as an access portal to a shared corporate document base. To connect with business partners over the Internet in a private and secure manner, extranets are established as so-called virtual private networks (VPNs) by encrypting the messages.
A massive “Internet of things” has emerged, as sensors and actuators have been widely distributed in the physical environment and are supplying data, such as acidity of a square yard of soil, the speed of a driving vehicle, or the blood pressure of an individual. The availability of such information enables a rapid reaction when necessary as well as sustained decision making based on processing of the massive accumulated data.
Extensive networking infrastructure supports the growing move to cloud computing, with the information-system resources shared among multiple companies, leading to utilization efficiencies and freedom in localization of the data centres. Software-defined networking affords flexible control of telecommunications networks with algorithms that are responsive to real-time demands and resource availabilities.
- Databases and data warehouses
Many information systems are primarily delivery vehicles for data stored in databases. A database is a collection of interrelated data organized so that individual records or groups of records can be retrieved to satisfy various criteria. Typical examples of databases include employee records and product catalogs. Databases support the operations and management functions of an enterprise. Data warehouses contain the archival data, collected over time, that can be mined for information in order to develop and market new products, serve the existing customers better, or reach out to potential new customers. Anyone who has ever purchased something with a credit card—in person, by mail order, or over the Web—is included within such data collections.
Massive collection and processing of the quantitative, or structured, data, as well as of the textual data often gathered on the Web, has developed into a broad initiative known as “big data.” Many benefits can arise from decisions based on the facts reflected by big data. Examples include evidence-based medicine, economy of resources as a result of avoiding waste, and recommendations of new products (such as books or movies) based on a user’s interests. Big data enables innovative business models. For example, a commercial firm collects the prices of goods by crowdsourcing (collecting from numerous independent individuals) via smartphones around the world. The aggregated data supplies early information on price movements, enabling more responsive decision making than was previously possible.
The processing of textual data—such as reviews and opinions articulated by individuals on social networks, blogs, and discussion boards—permits automated sentiment analysis for marketing, competitive intelligence, new product development, and other decision-making purposes.
- Human resources and procedures
Qualified people are a vital component of any information system. Technical personnel include development and operations managers, business analysts, systems analysts and designers, database administrators, programmers, computer security specialists, and computer operators. In addition, all workers in an organization must be trained to utilize the capabilities of information systems as fully as possible. Billions of people around the world are learning about information systems as they use the Web.
Procedures for using, operating, and maintaining an information system are part of its documentation. For example, procedures need to be established to run a payroll program, including when to run it, who is authorized to run it, and who has access to the output. In the autonomous computing initiative, data centres are increasingly run automatically, with the procedures embedded in the software that controls those centres.
Types of Information Systems
Information systems support operations, knowledge work, and management in organizations. (The overall structure of organizational information systems is shown in the figure.
- Operational Support and Enterprise Systems
Transaction processing systems support the operations through which products are designed, marketed, produced, and delivered. In larger organizations, transaction processing is frequently accomplished with large integrated systems known as enterprise systems. In this case, the information systems that support various functional units—sales and marketing, production, finance, and human resources—are integrated into an enterprise resource planning (ERP) system, the principal kind of enterprise system. ERP systems support the value chain—that is, the entire sequence of activities or processes through which a firm adds value to its products. For example, an individual or another business may submit a custom order over the Web that automatically initiates just-in-time production to the customer’s specifications through an approach known as mass customization. This involves sending orders from the customers to the firm’s warehouses and perhaps to suppliers to deliver input materials just in time for a batched custom production run. Financial accounts are updated accordingly, and delivery logistics and billing are initiated.
Along with helping to integrate a firm’s own value chain, transaction processing systems can also serve to integrate the overall supply chain of which the organization is a part. This includes all firms involved in designing, producing, marketing, and delivering the goods and services—from raw materials to the final delivery of the product. A supply chain management (SCM) system manages the flow of products, data, money, and information throughout the entire supply chain, which starts with the suppliers of raw materials, runs through the intermediate tiers of the processing companies, and ends with the distributors and retailers. For example, purchasing an item at a major retail store generates more than a cash register receipt: it also automatically sends a restocking order to the appropriate supplier, which in turn may call for orders to the supplier’s suppliers. With an SCM system, suppliers can also access a retailer’s inventory database over the Web to schedule efficient and timely deliveries in appropriate quantities.
The third type of enterprise system, customer relationship management (CRM), supports dealing with the company’s customers in marketing, sales, service, and new product development. A CRM system gives a business a unified view of each customer and its dealings with that customer, enabling a consistent and proactive relationship. In cocreation initiatives, the customers may be involved in the development of the company’s new products.
Many transaction processing systems support electronic commerce over the Internet. Among these are systems for online shopping, banking, and securities trading. Other systems deliver information, educational services, and entertainment on demand. Yet other systems serve to support the search for products with desired attributes (for example, keyword search on search engines), price discovery and delivery of digital products (such as software, music, movies, or greeting cards). Social network sites, such as Facebook and LinkedIn, are a powerful tool for supporting customer communities and individuals as they articulate opinions, evolve new ideas, and are exposed to promotional messages. A growing array of specialized services and information-based products are offered by various organizations on the Web, as an infrastructure for electronic commerce has emerged on a global scale.
Transaction processing systems accumulate the data in databases and data warehouses that are necessary for the higher-level information systems. Enterprise systems also provide software modules needed to perform many of these higher-level functions.
- Support of knowledge work
A large proportion of work in an information society involves manipulating abstract information and knowledge (understood in this context as an organized and comprehensive structure of facts, relationships, theories, and insights) rather than directly processing, manufacturing, or delivering tangible materials. Such work is called knowledge work. Three general categories of information systems support such knowledge work: professional support systems, collaboration systems, and knowledge management systems.
Professional support systems
Professional support systems offer the facilities needed to perform tasks specific to a given profession. For example, automotive engineers use computer-aided engineering (CAE) software together with virtual reality systems to design and test new models as electronic prototypes for fuel efficiency, handling, and passenger protection before producing physical prototypes, and later they use CAE in the design and analysis of physical tests. Biochemists use specialized three-dimensional modeling software to visualize the molecular structure and probable effect of new drugs before investing in lengthy clinical tests. Investment bankers often employ financial software to calculate the expected rewards and potential risks of various investment strategies. Indeed, specialized support systems are now available for most professions.
Collaboration systems
The main objectives of collaboration systems are to facilitate communication and teamwork among the members of an organization and across organizations. One type of collaboration system, known as a workflow system, is used to route relevant documents automatically to all appropriate individuals for their contributions.
Development, pricing, and approval of a commercial insurance policy is a process that can benefit from such a system. Another category of collaboration systems allows different individuals to work simultaneously on a shared project. Known as groupware, such systems accomplish this by allowing controlled shared access, often over an intranet, to the work objects, such as business proposals, new designs, or digital products in progress. The collaborators can be located anywhere in the world, and, in some multinational companies, work on a project continues 24 hours a day.
Other types of collaboration systems include enhanced e-mail and videoconferencing systems, sometimes with telepresence using avatars of the participants. Yet another type of collaboration software, known as wiki, enables multiple participants to add and edit content. Collaboration systems can also be established on social network platforms or virtual life systems. In the open innovation initiative, members of the public, as well as existing and potential customers, can be drawn in, if desired, to enable the cocreation of new products or projection of future outcomes.
- Knowledge management systems
Knowledge management systems provide a means to assemble and act on the knowledge accumulated throughout an organization. Such knowledge may include the texts and images contained in patents, design methods, best practices, competitor intelligence, and similar sources, with the elaboration and commentary included. Placing the organization’s documents and communications in an indexed and cross-referenced form enables rich search capabilities. Numerous application programs, such as Microsoft’s SharePoint, exist to facilitate the implementation of such systems. Organizational knowledge is often tacit, rather than explicit, so these systems must also direct users to members of the organization with special expertise.
Management support
A large category of information systems comprises those designed to support the management of an organization. These systems rely on the data obtained by transaction processing systems, as well as on data and information acquired outside the organization (on the Web, for example) and provided by business partners, suppliers, and customers.
Management reporting systems
Information systems support all levels of management, from those in charge of short-term schedules and budgets for small work groups to those concerned with long-term plans and budgets for the entire organization. Management reporting systems provide routine, detailed, and voluminous information reports specific to each manager’s areas of responsibility. These systems are typically used by first-level supervisors. Generally, such reports focus on past and present activities, rather than projecting future performance. To prevent information overload, reports may be automatically sent only under exceptional circumstances or at the specific request of a manager.
