Information Systems and Technology

Information systems refers to technology designed to handle
the data that institutions receive, process, generate,
save, backup, disseminate, and use to make decisions.
Designs for such systems vary according to the missions,
goals, objectives, and global market conditions of the
institutions investing in the technology.
DATA, INFORMATION, AND
KNOWLEDGE
Information should not be confused with the related concepts
of data and knowledge. Data are simply characteristics
or descriptions of relevant objects or events that
influence business decisions. Common examples include
inventory, sales, receipts, and payments of transactional
activities frequently stored and retrieved in databases.
Information is an extension of data by adding organization
in ways that add value and relevance to the data.
Institutional users are then able derive interpretation that
leads to conclusions and implications. When data become
more valuable than simple retrieval, information has been
produced.
Knowledge exists when users understand how existing
information can be applied in higher-order tasks such
as explaining phenomena, predicting happenings, or projecting
trends. These abilities allow users to become
experts rather than simply perform operations.
THE SYSTEMS CONCEPT
A system consists of elements that have either been
designed into particular configurations or evolved into
configurations over time. For example, a computer system
for one user may be just one element, a computer, and
related peripheral elements, devices. A system for multiple
users may have many computers and peripheral devices.
The main point of such a system, however, is that the elements
allow users to use the system in some concerted
manner to achieve personal or institutional missions,
goals, and objectives.
THE INFORMATION SYSTEM
An information system is a melding of the concept of
information with a system of technology to best facilitate
organizational needs. An information system requires
designers and users capable of systems thinking to keep
the system dynamic within an environment of constantly
changing variables over time.
CLASSIFICATION OF
INFORMATION SYSTEMS
The need for information systems creates various classifications.
The areas of need reflected in these classifications
are organizational levels, functional areas, support areas,
and the information system architecture.
Organizational Level Classification. Many organizations
are so complex that their technological systems are organized
in a hierarchical structure representative of their organizational
charts. For example, information systems may
be classified by departments, divisions, and/or work units.
A major point, however, is that organizational information
systems must be interconnected.
Functional Area Classification. An information system
can be classified by the major functions of the organization
that cross organizational structure. Typical functional
information systems are developed for accounting,
finance, manufacturing, marketing, and human resource
management.
Support Area Classification. Information systems all have
a support role in facilitating the meeting of institutional
missions, goals, and objectives. Examples of support classification
information systems are transaction processing
systems, management information systems, knowledge
management systems, office automation systems, decision
support systems, group support systems, and intelligent
support systems.
Transaction processing system: A transaction processing
system (TPS) performs the routine functions of an organization,
such as payroll, customer orders, billing, and
expenses. A TPS provides support to the monitoring, collection,
storage, processing, and dissemination need for
these routine business processes.
Management information system: A management
information system (MIS) supports activities to make sure
that business strategies are being efficiently employed.
Those support activities include planning, monitoring,
ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 385

386 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
and control. Specific technology activities might include
providing periodic reports on operational efficiency, effectiveness,
and productivity.
Data and reports from MISs are used in making
decisions, such as projecting inventory and sales levels.
Typical information from a MIS includes statistical summaries,
exception reports, periodic as well as on-demand
reports, comparative analysis, projections, early detection,
routine reports, and communications. Human relations
issues, such as projecting employee retirement liability, are
important to long-term employment policy.
Knowledge management system: Knowledge management
is a collaborative organizational system wherein
knowledge is shared and dispensed. Functions of a knowledge
management system (KMS) include support for
assisting organizations to identify, select, organize, disseminate,
and transfer information that represents expertise.
For example, some individuals know so much about their
organizations that continuing to operate without them, as
in the case of employees accepting employment elsewhere,
dying, or experiencing diminished capacity, is difficult.
Knowledge management as a technological information
system allows organizations to pull together the collective
knowledge of its employees. That collective knowledge is
then available to all of the institution’s employees for decision
making.
Examples of KMS mechanisms include electronic
bulletin boards for posting information needs, threaded
discussion groups for sharing on a particular topic over
electronic mail (e-mail), knowledge tracking, and creating
space on an organization’s Web site for information about
A typical personal computer system may include a tower, keyboard, monitor, mouse, and speakers. PHOTOGRAPH BY KELLY A. QUIN. THE
GALE GROUP.
Information Systems

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 387
Information Systems
the organization and for descriptions of the projects of its
employees.
Office automation systems: One of the earliest information
systems to emerge was the office automation system
(OAS). Functions of the office such as document
processing, imaging, photocopying, data transfer, data
storage, and communications have been forged into single
software systems.
The effects of OAS have had a tremendous impact on
who does the work. In much of the business environment,
positions such being a secretary to an individual or being
in a pool of clerical office workers have changed. Most
employees in organizations do much of their own clerical
work on their own desktops. Employees who were formerly
isolated in offices and pools now have a much richer
array of job duties and responsibilities.
Decision support systems: Decision support depends on
how structured a particular problem that needs solving is.
For example, some problems are unstructured in that similar
problems have not occurred before and no ready routine
exists for problem solving. Other problems have
occurred routinely and a decision process exists for the
problem.
Decision support systems (DSS) contain decisionmodeling
routines, such as what-if analysis, whereby users
can try particular decisions in simulations before actual
implementation. Problems needing decisions can be
developed into scenarios where users enter what they
know about the problem, enter possible decision designs,
make choices among the designs, implement decisions,
and observe effects. Once the effects are within the level of
tolerance set by management, the decision is made.
Group support systems: Group support systems (GSS),
sometimes called groupware, are interactive computerbased
systems that allow groups of people throughout an
institution to work on the same projects. The software
contains routines for generation of ideas, resolution of
conflicts, and freedom of expression.
A major problem encountered in group work is the
development of negative behaviors, such as destructive
miscommunication. Another problem is groupthink, a
condition in which group work emerges as unimaginative
and the members resist taking responsibility for the work.
GSS contain functions that make information instantaneous
and build consensus to make sure that members
remain excited about the project. GSS also provide for
early and continuous voting.
Intelligent support systems: Intelligent support systems
(ISS), sometimes referred to as expert systems, are one of
the more advanced forms of information systems. The
premise of such systems is that they can apply reasoning—
sometimes called artificial intelligence—to a particular
area of problems and generate advice, recommendations,
and solutions.
Problem areas for which ISS has been applied include
early detection of conditions, patterns to identify fraud in
accounting, voice recognition, computer security and
password encryption, health diagnosis and prognosis, and
disaster planning.
SYSTEM ARCHITECTURE
CLASSIFICATION
Information architecture is the conceptualization of the
information requirements of a core business of an organization
as well as the ways in which those requirements are
met. Information architecture can be centralized, such as
for communications architecture, data architecture, and
business architecture. Other strategic, managerial, and
operational architectures may be decentralized.
System architecture is the specific technologies—
such as computers, networks, databases, and communication
devices—that anchor the information system. For
example, an insurance company or an inventory company
may have a system architecture that anchors the remainder
of the institution’s information system.
A frequent way of classifying information systems by
system architecture is by focusing on the device structure
where the actual computing or calculating happens. For
example, the anchor technology may be a mainframe
computer, strategically located stand-alone computers, or
a distributed or networked system of desktop computers.
Mainframe Computers. A mainframe computer contains
the computing power of the system. Computer terminals
that have no computing power contend for access to the
mainframe computer for computing that is then sent back
to the respective computer terminal. Information systems
using a mainframe are referred to as distributed because
computing results must be distributed to users at various
locations. Mainframe architecture is frequently used
where the applications place heavy mathematical demands
on the computer’s brain, the central processing unit
(CPU).
Stand-Alone Desktop Computers. Desktop computers,
also known as personal computers, have the CPU in the
unit on the users’ workspace. The desktop stand-alone
may come with devices on board such as compact disks,
digital video devices, and digital video recorders, in addition
to input and output devices such as keyboards, storage
devices, monitors, and printers. Since a stand-alone
with such devices represents multiple elements, it is also
an information system.

388 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
Information Technology
Networked Desktop Computers. Desktop computers can
be wired together in various ways to produce a network,
sometimes called a local area network. In a network,
devices and information can be shared by desktop users. A
main desktop computer, called a server, maintains traffic
over the writing schemes to make sure that documents, email,
and other communications arrive at the designated
destination computer intact. A system of servers can be
used for added capacity or for distinct purposes, such as email
and printing.
The information systems described here are all technological
mechanisms tailored to meet both enterprisewide
and specific-need missions, goals, and objectives.
SEE ALSO Information Processing; Software
BIBLIOGRAPHY
Jones, Gareth, and George, Jennifer (2004). Essentials of contemporary
management. New York: McGraw-Hill/Irwin.
Stair, Ralph M., and Reynolds, George W. (2003). Principles of
information systems (6th ed.). Boston: Thomson/Course Technology.
Stair, Ralph M., and Reynolds, George W. (2006). Fundamentals
of information systems (3rd ed.). Boston: Thomson/Course
Technology.
Turban, Efraim, McLean, Ephraim, Wetherbe, James, et al.
(2002). Information technology for management: Transforming
business in the digital economy (3rd ed.). New York: Wiley.
Douglas C. Smith
INFORMATION
TECHNOLOGY
Information technology (IT) turns arduous chores into
efficient tasks and corporate activities into achievable
accomplishments. Online banking, electronic mail (email)
communications, ATM transactions, and Internetbased
research are possible because of IT. IT has evolved
into an essential component of everyday life.
The Information Technology Association of America
(ITAA) provides a concise definition of IT as, “the collection
of products and services that turn data into useful,
meaningful, accessible information.” Tony Gunton provides
a more comprehensive definition of IT as “electronic
technologies for collecting, storing, processing, and communicating
information … separated into two main categories
(1) those which process information, such as
computer systems, and (2) those which disseminate information,
such as telecommunication systems” (1993, p.
150). Specific equipment (computers) and software are
needed to process data so that information can be
acquired. IT is reliant upon items to electronically input,
output, process, store, and retrieve data. Data may
include, but are not limited to, text, graphics, sound, and
video. Although IT is a complex entity, it makes daily
tasks easier and more efficient.
Computers, networks, satellites, robotics, videotext,
television, e-mail, electronic games, and automated office
equipment are some of the many tools used in IT. The IT
industry uses hardware and equipment such as computers,
telephones, World Wide Web sites, transaction machines,
and office equipment to transfer information. Specific
software and services are used to ensure rapid processing
of information that is reliable and secure.
HISTORY OF INFORMATION
TECHNOLOGY
Although the term information technology first appeared in
the 1970s, the basic concept can be traced to much earlier
times, when the abacus (c. 1400), the movable press
(1450s), and slide rule (1600s) were considered the first
“computers.” Although these tools may seem primitive,
these “analog” computers provided valuable information
for their users.
IT then took a huge leap as military and business
industries combined their efforts in the early 1900s.
Together they were a major force in IT research and development.
Punched cards and electrical pulses quickly gave
way to vacuum tubes and electronic digital computers.
The first electronic digital computer was designed at
the University of Pennsylvania by John Presper Eckert, Jr.
(1919–1995) and John W. Mauchly (1907–1980) in
1945. The electronic numerical integrator and computer,
or ENIAC, was designed to discover, monitor, and predict
flight paths of weapons. ENIAC was designed using
18,000 vacuum tubes that provided a week’s worth of
information in one hour, but was laden with maintenance
problems.
The first commercial computer was the Universal
Automatic Computer (UNIVAC), developed by Eckert
and Mauchly in 1951. The UNIVAC I was used by the
Census Bureau to predict the outcome of the 1952 presidential
election. The development of ENIAC and UNIVAC
I prompted an increase in IT research and
development that continues into the twenty-first century.
Computers are designed for a variety of purposes and are
divided into four categories: supercomputer, mainframe
computer, microcomputer, and minicomputer. The categories
are defined by size, cost, and processing ability.
Supercomputers are developed for use in science and
engineering, for designing aircraft and nuclear reactors,
and for predicting worldwide weather patterns. These
computers are of significant size and cost millions of doleobf_

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 389
Information Technology
lars. Information is processed quickly using multiple
processors. Few supercomputers exist because of their
cost.
Mainframe computers are large general-purpose computers
requiring special attention and controlled atmospheres.
They are used in large corporations to calculate
and manipulate large amounts of information stored in
databases. Mainframe computers are high-speed, multipurpose
machines that cost millions.
Microcomputers were introduced in 1975 by the
Massachusetts Institute of Technology (MIT). These
desktop computers were designed using a single-chip
microprocessor as its processing element. Tandy Corporation
quickly followed MIT by offering Radio Shack’s first
microcomputer in 1976. The Apple microcomputer was
introduced in 1977. IBM introduced the first personal
computer (PC) in the fall of 1981, causing a dramatic
increase in the microcomputer market. The microcomputer
is generally known as a PC. The cost for PCs ranges
from $500 to $2,000. Because of dramatic improvements
in computer components and manufacturing, personal
computers do more than the largest computers of the
mid-1960s at a fraction of the cost.
Minicomputers came on to the scene in the early
1980s in small businesses, manufacturing plants, and factories.
Minicomputers are multitasking machines that
connect many terminals to each other and a mainframe
computer. As such, they are able to process large amounts
of data. Minicomputer systems (desktop, network, laptop,
and handheld devices) range in price from $15,000 to
$150,000.
Since the 1950s, four generations of computers have
evolved. Each generation reflected a decrease in hardware
size but an increase in computer operation capabilities.
The first generation used vacuum tubes, the second used
transistors, the third used integrated circuits, and the
fourth used integrated circuits on a single computer chip.
Advances in artificial intelligence that will minimize the
Computing in 1951. U.S. Air Force technicians evaluate the UNIVAC computer system which took up 352 square feet of floor space
and ran at a then-astronomical rate of 2.25 megahertz. U.S. AIR FORCE/GETTY IMAGES

390 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
Information Technology
need for complex programming characterize the fifth generation
of computers, still in the experimental stage.
INFORMATION TECHNOLOGY
PHASES
Information processing involves five phases: input,
process, output, storage, and retrieval. Each of these
phases and the devices associated with each are discussed
below.
Input. Input refers to information or stimulus that enters
a system. Input can include commands entered from the
keyboard to data from another computer. Input devices
include the keyboard, pointing devices (such as mouses),
scanners and reading devices, digital cameras, audio and
video input devices, and input devices for physically challenged
users. Input devices are used to capture data at the
earliest possible point in the workflow, so that the data are
accurate and readily available for processing.
Processing. Processing occurs after data have been entered
into the computer. When data are processed, they are
transformed from raw facts into meaningful information.
A variety of processes may be performed on the data, such
as adding, subtracting, dividing, multiplying, sorting,
organizing, formatting, comparing, graphing, and summarizing.
Data processing includes the input, verification,
organization, storage, retrieval, transformation, and
extraction of information from data. Processing can also
include the execution of a program.
Output. Output is information that comes out of a computer.
Four common types of output are text, graphics,
audio, and video. After the information has been
processed, it can be listened to through speakers or a headset,
printed onto paper, or displayed on a monitor. An
output device is any computer component capable of conveying
information to a user. Commonly used output
devices include display devices, printers, speakers, headsets,
data projectors, fax machines, and multifunction
devices. A multifunction device is a single piece of equipment
that looks like a copy machine but provides the
functionality of a printer, scanner, copy machine, and perhaps
a fax machine.
Storage. Storage refers to a variety of techniques and
devices that retain data. Storage devices preserve items
such as data, instructions, and information for retrieval
and future use. Storage is measured in a hierarchy of bytes.
• Bit: single unit of data coded in binary form (0 or 1)
• Byte: most commonly comprised of 8 bits (combinations
of 0s and 1s)
• Kilobyte: 1,024 bytes
• Megabyte: 1,024 kilobytes or 1 million bytes
• Gigabyte: 1,024 megabytes or 1 billion bytes
• Terabyte: 1,024 gigabytes or 1 trillion bytes
Devices used to store data include floppy disks, hard disks,
compact disks (both read-only and disk-recordable),
tapes, PC cards, smart cards, microfilm, and microfiche.
Portable drives (flash drive/jump drive) can also serve as
storage devices.
Retrieval. Retrieval is the ability to search for and locate
information that has been stored. The information can be
text, sound, images, or data. Information retrieved may
include documents, information within documents, and
information within a stand-alone database or hyperlinked
database such as the Internet or intranets.
IT drives the educational, business, medical, and military
worlds. As such, it is imperative that the relationship
between and among the phases of IT work seamlessly to
input, process, display (output), store, and retrieve data.
Continuous research and development is needed to meet
the future needs of the world.
THE FUTURE OF INFORMATION
TECHNOLOGY
The future of IT is promising. People use computers in
new ways every day. Computers are increasingly affordable,
more powerful, and easier to use. Communication
needs will continue to grow; the functions of e-mail,
instant messaging, Weblogs, and wireless communications
will improve as the demands of informational society
increase. Daily tasks will continue to be enhanced as more
people use Web-based technologies.
Potential problems concerning IT center on its delicate
infrastructure. Educational, business, and military
systems are mindful of the underlying foundation necessary
to support its respective communities. In fact,
researchers are already hard at work exploring possible
solutions to the infrastructure concerns. One solution
offered is the creation of a “mobile Internet.” Another
possible solution is the automation of data integration.
What will the future hold for IT? While questions
exist, one thing is certain: IT will continue to grow and adapt making life more enjoyable and efficient