In the not so distant past, companies were able to collect and process information by hiring a significant number of people that were tasked to collect and sort data and then file the same into storage cabinets. The old system was costly and inefficient.
However, due to the emergence of digital technologies, such as computerized systems and networking capabilities, present-day leaders have access to management information systems that made it easier to handle information especially when it comes to the following components: 1) input; 2) processing; 3) output; and feedback.
When a well designed MIS is enhanced with the integration of principles taken from a well-defined decision structure, corporate leaders are able to improve their ability to make high-quality decisions and improve the cost-efficiency of the business process.
Changes in the way human beings conduct business operations are impressive, to say the least. There was a time when the technological advancements brought about by the Industrial Age, and the modern world was enough to keep human beings busy for centuries to come (Oz, 2009).
However, the emergence of new technologies based on computers and the Internet radically altered the way people view the business, the world, especially when it comes to managing information. In the not so distant past, critical information about the business organization is stored in filing cabinets. Business leaders were forced to hire hundreds of workers to manage voluminous amounts of information.
Nevertheless, the high payroll cost in maintaining the inefficient management of corporate data did little to improve the decision-making capability of the business leaders. More importantly, the said inefficient management of information generated by the company did little to improve the organization’s capability to develop innovative solutions to some of the persistent problems that made life difficult, not only for the corporate leaders but also for the rank-and-file employees.
It is therefore good to know that radical advancements in digital technology made it possible to develop management information systems (“MIS”) that paved the way for efficient knowledge management and decision making.
Defining Management Information System
One can argue that those who do not have an adequate understanding of the nature of information systems oftentimes label it erroneously as an example of a management information system. Thus, before going any further, it is important to define data and information in the context of digital technology. According to computer experts, data refers to “raw facts that describe a particular phenomenon” (Govardus & Heijden, 2009, p. 2).
For example, the number of wheels in a typical car is data. The number of colors in a color wheel is an example of data. Thus, the information goes beyond the simple concept of data because the information is data with a particular meaning based on a particular context (Govardus & Heijden, 2009, p. 2). A car’s color is just data, but a person’s favorite color is useful information if someone is thinking of giving him a gift on his birthday.
There is no need to elaborate on the fact that in a typical business organization, the business leader, CEO, manager, and supervisor is surrounded by different types of information. The amount of products that the factory produces in a single hour is one example. The number of distributors that work in partnership with a manufacturing company is also an example.
The sales volume of a particular distributor is another example of information. However, one can also realize that a corporate leader is surrounded by different types of information that, at first glance, are not related to each other. As a result, there are problems and opportunities that are not obvious to the manager or the CEO. If there is an opportunity to increase the efficiency of the company, this information is not known to the corporate leader.
Thus, there is a need for a system that allows the leader to see the interconnection of different sets of information. For example, the manager or CEO must have access to computer software that helps him see the connection between the production rate of the factory and the demand for the said product. As a result, the production manager or the company chief operating officer can make appropriate decisions that will result in improvements in terms of the production efficiency of the company in order to meet current demands.
Based on the above-mentioned requirement, a management information system is created to provide managers and employees information that they will need to “perform jobs as effectively as possible” (Pride & Kapoor, 2010, p.464). The main purpose of an MIS is to “distribute timely and useful information from both internal and external sources to the managers and employees so that they will have the necessary equipment and information that they will need to make effective decisions” (Pride & Kapoor, p.464).
Therefore, a typical MIS is constructed around a computerized system that is made more powerful by a record-keeping and communication software, making it easy to provide leaders and employees with relevant information based on different types of data (Pride & Kapoor, 2010, p.464).
Types of Information Systems
It is common to see business organizations using computerized systems that are built around record-keeping and communication software. Thus, many people make the mistake of confusing an MIS with an ordinary information system. Therefore, it is important to point out that a company’s MIS is an example of an information system. However, there are many different information systems that a company uses to enhance the efficiency of the business process.
One of the most popular types of information systems is the transaction processing system, and this type of information system provides support to the operation of a particular business. For example, the data related to sales order or production orders are recorded into the said system, and the employees and managers access the said information to keep track of inventory or to inform suppliers that there is a greater demand for a certain component or product.
The difference between an MIS and a transaction processing system is seen in the type of decisions that were made on account of both systems. In the first one, leaders and employees make short-term decisions. However, when it comes to the MIS, corporate leaders make long-term decisions that affect the strategies and policies of the company.
Another popular example of an information system is the Information Systems in Organization and the Decision Support Systems. These two systems go beyond the transaction type model because it collects information and processes the same information to help leaders and manager make effective decisions.
In these two types of information systems, there is a deliberate process of collecting and analyzing information. However, with regards to the Decision Support System model, the system goes beyond collecting information because it also generates statistical projection and data models, helping the leader enhance the quality of decisions made based on certain inputs (Stair & Reynolds, 2015).
The fourth type of information system is the Expert Systems and Neural Networks. This type of system is also known as a knowledge-based system, and corporate leaders utilize this system to analyze data, and at the same time, generate recommendations that leaders can use to make appropriate decisions.
The fifth type of information system is the management information system. It is different and similar to the four types of information systems discussed earlier on the basis of how it collects information generated by real-time business operations. In other words, it goes beyond the transaction processing system, because it utilizes the information generated from the transactions not only to react on the basis of short term needs, such as, the need to create invoices or to communicate to suppliers.
An MIS enables the leader of the company to have an overview of the business process. More importantly, an MIS allows business leaders to see how different components of the business process are interconnected. As a result, business leaders are able to make decisions that will impact the future success of the company.
Decision Structure and Importance to Companies
An effective MIS design is not only based on the ability of the system to collect and analyze data. It is also based on the identification of an appropriate decision structure because this is a need to “feed the results of decisions to points in the organization and other decision-makers affected by and or contributing to that decision” (Frankel, 2008, p.77).
A typical decision structure follows a pyramid form; at the top are leaders responsible for strategic management. The mid-level is made up of leaders responsible for tactical management. Finally, at the bottom of the pyramid are leaders responsible for operational management (Frankel, 2008).
Strategic managers are responsible for the creation of organizational goals and strategies. At the same time, they are also looking after the strategic performance of the business organization (Frankel, 2008). Those who are in the tactical management sphere are responsible for the creation of short and medium-range plans (Frankel, 2008).
Most of the time, the medium-range plans affect the schedules and budgets of a particular organization. When it comes to the sphere of operational management, the leaders develop short-range plans (Frankel, 2008). A good example is the creation of a weekly production schedule (Frankel, 2008).
It is important to create an appropriate decision structure so that the desires of top management must cascade to the mid-level tactical management leaders, and finally, to the operational management leaders. It is not wise to develop sophisticated plans if strategic leaders are unable to communicate their ideas and solutions to corporate problems to the other leaders and workers of the company.
MIS is an Asset
An effective management information system is an asset to the company. The value of an MIS is seen in the following components of the said information system: 1) Input; 2) Processing; 3) Output; and 4) Feedback (Stair & Reynolds, 2015, p. 9). The establishment of an MIS enables the company to enhance its inputs in the context of information systems.
Therefore, there is a way to gather important data that the company will use to improve the cost-efficiency of the business process (Stair & Reynolds, 2015). This will also help the company in terms of knowledge management. Leaders can develop an enhanced MIS design that collects other types of information. For example, leaders in a design firm create a system of collecting sketches and preliminary designs. The information collected forms a significant part of the company’s resources or assets.
With regard to the processing component of the MIS, the company has access to a mechanism that enables leaders to convert raw data into something that is useful. The next step is the output stage, and in this component of the MIS, the leaders are able to access documents and reports that can help them accomplish goals in the most cost-efficient manner. Finally, one of the most important components of an MIS is the feedback, the type of information that leaders use to make changes to a particular business process or policy (Stair & Reynolds, 2015).
A well-designed MIS provides a clear view of the company’s business operation so that a leader can see how the production process flows from one stage to the next. If there are external problems, the leader can analyze the business process using the information generated from the MIS to make necessary changes.
A good example is the case study on how the Pepsi Cola company utilized relevant information about the company’s business process to resolve a difficult dilemma that the organization encountered a few years back. In the said dilemma, there were negative commentaries about the company’s products that were spreading like wildfire across the nation (Rao & Krishna, 2009). The crisis was due to a rumor that says syringes and hypodermic needles were found inside Pepsi cans (Rao & Krishna, 2009).
Company executives had a difficult decision to make. The initial solution to the said problem was to react in a typical manner, and that was to order the recall of the products (Rao & Krishna, 2009. However, Pepsi’s corporate leaders realized that it was extremely expensive to recall Pepsi products, and at the same time, it will destroy the reputation of the company.
The corporate leaders decided to study the business process, and they discovered that there was no way that an outsider could have gained access to the production plants in order to insert syringes and hypodermic needles into the said Pepsi cans. In the end, the leaders found out that they made the correct decision. However, it would have been impossible to make the correct decision if they did not have access to the correct sets of information.
There are different types of information systems that corporate leaders can use to make effective and accurate decisions. However, the best type of information system is the management information system that takes into consideration the following components: 1) input; 2) processing; 3) output; and feedback.
An effective MIS also follows the design based on a decision structure that enables the different leaders of the company to receive feedback regarding strategic, tactical, and operational decisions. In the end, the value of a well-designed MIS is seen in the way it allows leaders to make high-quality decisions, and as a result, their respective subordinates are able to do their job well.
Frankel, E. (2008). Quality decision management. New York: Springer.
Govardus, J., & Heijden, M. (2009). Designing management information systems. New York: Oxford University Press.
Oz, E. (2009). Management information systems. MA: Thomson Learning.
Pride, W., & Kapoor, J. (2010). Business. MA: Cengage Learning.
Rao, V., & Krishna, H. (2009). Management: Texts and cases. New Delhi: Excel Books.
Stair, R., & Reynolds, G. (2015). Fundamentals of information systems.