Understanding Information Systems in Business

Posted on Feb 22, 2025 in Business Administration and Innovation Management

What is a System?

A system is a collection of interrelated elements or components that are organized for a common purpose.

Types of Systems

There are two main categories:

  • Closed systems: The system does not have the capacity to influence or be influenced by the environment in which it is located.
  • Open systems: The system is influenced by its environment and can affect the configuration of that environment.

Information Systems in a Company

Information Systems (IS) are a set of interrelated components that collect, process, store, and distribute information to support business planning and control, as well as decision-making. They have three basic activities: input, processing, and output.

Difference Between Data and Information

  • Data: Raw elements that represent events happening in the organization or its environment.
  • Information: Data that has been processed and presented in a meaningful and useful way for planning, controlling, and making business decisions.

Characteristics of Effective Information Systems

  • Reliable: High-quality information, free of errors.
  • Selective: Avoids unnecessary information.
  • Relevant: Pertinent information for the recipient.
  • Timely: Information available at the right time.
  • Flexible: The system’s design allows for adaptation to changing needs.

Challenges of Globalization for Information Systems

  • Many companies that export products outside their national borders depend on foreign sales for a higher percentage of their total sales.
  • The workforce tends to move to other countries, resulting in many nationalities within a company’s workforce.
  • Multinational companies operating in different countries need to coordinate subsidiaries with the parent company.

Benefits of Information Technologies for IS

  • Increased computing power.
  • Enhanced data analysis capabilities.
  • Easier and faster transmission of information.

Costs of Implementing Information Systems

Analyzing the cost of IS requires considering various infrastructure costs:

  1. Hardware: Purchase price.
  2. Software: License purchases.
  3. Installation: Costs of installing hardware and software.
  4. Training: Costs of training end-users.
  5. Support: Costs of ongoing technical support.
  6. Maintenance: Costs of updating hardware and software.
  7. Infrastructure: Costs of acquiring and maintaining related infrastructure.
  8. Idle time: Loss of productivity.
  9. Space and energy: Costs of housing the technology and the energy to run it.

Benefits of Implementing Information Systems

Both direct and indirect advantages must be considered. Measuring the advantages derived from IS can be challenging, so caution should be exercised when considering investments. Benefits may arise in the long term, and in some cases, the investment is obligatory to remain competitive. Despite the costs, investments in IT and IS are generally increasing.

Strategic Objectives Companies Pursue with IS

  1. Operational excellence.
  2. New products, services, and business models.
  3. Improved customer and supplier intimacy.
  4. Improved decision-making.
  5. Competitive advantage.
  6. Survival.

Components of an Information System

  • Hardware: The physical space where data processing occurs.
  • Software (Logical System): Program instructions that dictate tasks for the physical system.
  • Communication System: Enables communication between devices and access to remote computers.
  • Data System: Data from which the system obtains useful information.
  • Human System: Internal or external technical staff, plus IS users.
  • System of Procedures: Organizational routines regarding system usage.

Difference Between Communication and Data Systems

  • Communication System: Organizations need to share information internally (between factories, warehouses, delegations, etc.) and externally (with suppliers, customers, public entities, etc.). Workgroups and individuals must coordinate, which requires interconnected computers.
  • Data System: The set of data from which the information system will obtain useful output information after processing. Company data is stored in a structured way, grouped in files and databases.