Information Systems in Business: Types, Roles & Applications

TAKEAWAYS:

• Information systems transform raw data into actionable insights for businesses, improving operations and strategy.
• Transaction Processing Systems (TPS) automate routine tasks like order processing (e.g., Daraz, Pathao).
• Management Information Systems (MIS) provide reports for mid-level managers (e.g., NTC’s network performance dashboards).
• Decision Support Systems (DSS) help executives analyze trends (e.g., NEPSE’s stock trend analysis tools).
• Enterprise Resource Planning (ERP) integrates business functions (e.g., banks using SAP for loans and accounts).
• Cloud-based systems (e.g., eSewa’s payment gateway) enable real-time data sharing across departments.

What is an Information System?

An information system (IS) is a combination of hardware, software, data, people, and processes that collects, stores, processes, and distributes information to support decision-making and business operations. Unlike raw data, information is organized, meaningful, and useful for users.

Key Components of an Information System

classDiagram
    class Hardware {Servers, PCs, Routers, Storage}
    class Software {Applications, OS, Databases}
    class Data {Raw facts, Structured/Unstructured}
    class People {Users, IT Staff, Managers}
    class Processes {Workflows, Procedures, Policies}
    Hardware --> Software : Runs on
    Software --> Data : Processes
    Data --> People : Used by
    People --> Processes : Follows
    Processes --> Hardware : Relies on

Why does this matter?

• Hardware (e.g., servers at Ncell’s data center) stores and processes data.
• Software (e.g., ERP systems at banks) automates tasks.
• Data (e.g., customer records in eSewa) is the raw material.
• People (e.g., Daraz’s customer service team) interpret and act on information.
• Processes (e.g., Khalti’s payment verification) ensure consistency.

Types of Information Systems in Business

Businesses use different IS types based on their needs. Below is a comparison table:

In the Real World

1. eSewa’s Payment Gateway (TPS + DSS)

   • How it uses IS: eSewa’s system processes transactions (TPS) in real-time when you pay bills or transfer money. It also uses DSS to detect fraudulent activities by analyzing unusual transaction patterns (e.g., multiple payments from the same device in a short time).
   • Example: When you pay your NTC bill via eSewa, the system:
     • Records the transaction (TPS).
     • Checks your balance and payment history (DSS).
     • Updates NTC’s records automatically.

2. Pathao’s Driver-Customer Matching (SCM + CRM)

   • How it uses IS: Pathao’s algorithm matches drivers to riders based on location, demand, and vehicle type (SCM). It also tracks customer ratings and driver performance (CRM).
   • Example: When you request a ride, Pathao’s system:
     • Uses GPS to find the nearest available driver (SCM).
     • Matches your preferences (e.g., bike vs. car) with driver availability.
     • Updates your ride history and driver ratings (CRM).

3. Global IME Bank’s Loan Approval (ERP + DSS)

   • How it uses IS: Banks like Global IME use ERP systems (e.g., SAP) to integrate customer data, loan applications, and credit scores. DSS helps loan officers analyze risk by comparing applicant data against historical trends.
   • Worked Example: Suppose Mr. Thapa applies for a ₹5,00,000 loan with a 10-year repayment plan at 8% interest. The bank’s ERP system:
     • Pulls his credit score (720), income (₹80,000/month), and existing loans (₹2,00,000).
     • The DSS calculates his Debt-to-Income (DTI) ratio: $$\text{DTI}=\frac{\text{Monthly Debt Payments}}{\text{Gross Monthly Income}}=\frac{20,000+(5,00,000\times 0.08/12)}{80,000}=28.3\%$$
     • Since his DTI (28.3%) is below the bank’s threshold (30%), the ERP system approves the loan and updates his account in real-time.

How Information Systems Work: A Layered Model

Information systems can be visualized in layers, similar to how the OSI model works for networks. Here’s how data flows in a business IS:

flowchart TD
    A["User Input\n(e.g., Daraz order)"] --> B["Data Collection\n(Sensors, Forms, APIs)"]
    B --> C["Data Processing\n(Software, Algorithms)"]
    C --> D["Data Storage\n(Databases, Cloud)"]
    D --> E["Information Generation\n(Reports, Dashboards)"]
    E --> F["Decision Making\n(Manager/Automated)"]
    F --> G["Action\n(e.g., Ship order, Approve loan)"]
    G -->|"Feedback"| A

Example: When you order a product from Daraz:

1. User Input: You select items and checkout.
2. Data Collection: Daraz’s system captures your order details (product IDs, address, payment method).
3. Data Processing: The system checks inventory (via ERP) and payment status (via TPS).
4. Data Storage: Order details are saved in Daraz’s database.
5. Information Generation: A confirmation email is sent, and the warehouse team gets a dispatch alert.
6. Decision Making: The system auto-approves the order if stock is available.
7. Action: The order is packed and shipped (action), and you receive updates (feedback loop).

Transaction Processing Systems (TPS)

TPS are the backbone of business operations. They handle high-volume, repetitive transactions efficiently.

How TPS Works

sequenceDiagram
    participant Customer
    participant TPS
    participant Database
    participant ActionSystem

    Customer->>TPS: Place order (e.g., Daraz)
    TPS->>Database: Check inventory
    Database-->>TPS: Stock available (Yes/No)
    alt Stock available
        TPS->>ActionSystem: Update inventory
        TPS->>Customer: Confirm order
        ActionSystem->>Database: Record sale
    else Stock unavailable
        TPS->>Customer: Notify out-of-stock
    end

Worked Example: NTC’s Billing System (TPS)

• Scenario: You pay your ₹500 NTC bill via eSewa.
• Steps:
  1. eSewa’s TPS records your payment request.
  2. NTC’s TPS verifies your account and updates your usage.
  3. Both systems update their databases in real-time.
  4. You receive a confirmation SMS (automated by TPS).

Advantages and Disadvantages of TPS

Management Information Systems (MIS)

MIS provides structured reports for managers to monitor performance. Unlike TPS (which processes transactions), MIS summarizes data for decision-making.

Example: NTC’s Network Performance MIS

NTC uses MIS to generate reports like:

• Daily internet traffic (to plan bandwidth upgrades).
• Customer complaints (to identify service issues).
• Revenue trends (to set pricing strategies).

stateDiagram-v2
    [*] --> RawData
    RawData --> DataCleaning
    DataCleaning --> Aggregation
    Aggregation --> ReportGeneration
    ReportGeneration --> DashboardDisplay
    DashboardDisplay --> [*]

Worked Example: Suppose NTC’s MIS generates a report showing:

• 30% increase in Kathmandu traffic in the last month.
• 5% drop in Chitwan’s connectivity due to a damaged fiber line. Action: NTC’s manager decides to:

1. Upgrade Kathmandu’s bandwidth.
2. Send a repair team to Chitwan.

Decision Support Systems (DSS)

DSS helps managers analyze data to make non-routine decisions. It often uses what-if analysis and predictive modeling.

How DSS Works (Example: NEPSE Stock Analysis)

sequenceDiagram
    participant Trader
    participant DSS
    participant Database
    participant ExternalData

    Trader->>DSS: Input: "What if I sell 100 shares of NMB?"
    DSS->>Database: Fetch current stock price (₹450)
    DSS->>ExternalData: Fetch market trends (e.g., inflation rate)
    DSS->>DSS: Run simulation
    DSS-->>Trader: Projected return: ₹44,500 in 6 months (with 5% risk)

Worked Example: Daraz’s Pricing DSS

• Scenario: Daraz wants to set a price for a new smartphone.
• DSS Analysis:
  1. Fetches competitor prices (e.g., Xiaomi’s ₹45,000, Samsung’s ₹50,000).
  2. Analyzes demand trends (e.g., Xiaomi sells 3x more in Nepal).
  3. Simulates profit at ₹47,000 vs. ₹49,000.
• Decision: Daraz sets the price at ₹47,500 to balance demand and profit.

Enterprise Resource Planning (ERP)

ERP systems integrate all business functions (finance, HR, supply chain) into a single system. Example: SAP (used by Global IME Bank, Coca-Cola).

How ERP Works (Example: Bank Loan Processing)

flowchart TD
    A["Customer Applies for Loan"] --> B["ERP: Credit Check"]
    B --> C["ERP: Income Verification"]
    C --> D["ERP: Collateral Check"]
    D --> E["DSS: Risk Analysis"]
    E --> F["Approval/Rejection"]
    F -->|"Approve"| G["ERP: Disburse Funds"]
    F -->|"Reject"| H["Notify Customer"]

Worked Example: Global IME Bank’s ERP

1. Loan Application: Mr. Gurung applies for a ₹2,00,000 home loan.
2. ERP Modules Activated:
   • Finance Module: Checks his savings and existing loans.
   • HR Module: Verifies his employment status (via payroll data).
   • DSS Module: Runs a risk score model (e.g., "Low risk if DTI < 30%").
3. Decision: ERP approves the loan and triggers:
   • Disbursement (finance module).
   • EMR update (HR module).
   • Customer notification (CRM module).

Advantages of ERP

• Single source of truth: All departments use the same data.
• Automated workflows: Reduces manual errors (e.g., double-entry accounting).
• Real-time analytics: Managers get live updates (e.g., cash flow).
• Scalability: Works for small businesses (e.g., local shops using Odoo) and multinationals (e.g., Unilever).

Customer Relationship Management (CRM)

CRM systems manage customer interactions to improve satisfaction and retention. Example: Salesforce (used by Coca-Cola), HubSpot (used by startups).

How CRM Works (Example: Pathao’s Driver-Customer System)

erDiagram
    Customer ||--o{ Ride : places
    Driver ||--o{ Ride : drives
    Ride {
        string ride_id PK
        datetime start_time
        datetime end_time
        decimal fare
        int rating
    }
    Customer {
        string customer_id PK
        string name
        string contact
        int loyalty_points
    }
    Driver {
        string driver_id PK
        string name
        string vehicle_type
        decimal rating
    }

Worked Example: Pathao’s CRM

1. Customer Profile: When you sign up, Pathao stores:
   • Your name, contact, and payment details.
   • Ride history (e.g., "Usually takes bikes in Thapathali").
2. Personalization: Pathao’s algorithm:
   • Suggests bike rides based on your past choices.
   • Offers discounts if your loyalty points are high.
3. Feedback Loop: After each ride, you rate the driver. Pathao’s CRM:
   • Updates the driver’s rating.
   • Sends a thank-you message if you rate 5 stars.

Supply Chain Management (SCM)

SCM optimizes the flow of goods and services from suppliers to customers. Example: Daraz’s logistics, FedEx’s tracking system.

How SCM Works (Example: Daraz Order Fulfillment)

flowchart LR
    A["Supplier\n(e.g., Xiaomi)"] --> B["Daraz Warehouse\n(Inventory Management)"]
    B --> C["Order Processing\n(TPS)"]
    C --> D["Packing\n(Automated/Manual)"]
    D --> E["Logistics Partner\n(e.g., Ncell Logistics)"]
    E --> F["Customer Delivery\n(GPS Tracking)"]
    F --> G["Customer\n(You!)"]

Worked Example: Daraz’s SCM for a Smartphone Order

1. Supplier: Xiaomi ships 100 smartphones to Daraz’s warehouse in Kathmandu.
2. Inventory Management: Daraz’s ERP tracks stock levels and alerts when stock is low.
3. Order Processing: You buy a phone → TPS checks stock and reserves it.
4. Packing: The warehouse packs your order (barcode scanned).
5. Logistics: Ncell Logistics picks up the package and tracks it via GPS.
6. Delivery: You receive an SMS with the estimated delivery time.

Cloud-Based Information Systems

Many businesses now use cloud-based IS (e.g., eSewa, Google Workspace) for scalability and accessibility.

Advantages of Cloud IS

Real Picture of Cloud Infrastructure:

Challenges of Information Systems

While IS improves efficiency, businesses face challenges:

1. Data Security: Cyberattacks (e.g., Ncell’s 2021 data breach).
   • Solution: Encryption, firewalls, and regular audits.
2. High Costs: Implementing ERP (e.g., SAP costs ₹50 lakhs+).
   • Solution: Start with cloud-based ERP (e.g., Odoo).
3. User Resistance: Employees may reject new systems (e.g., bank staff resisting digital loans).
   • Solution: Training and incentives.
4. Integration Issues: Legacy systems (e.g., old NTC billing software) may not connect with new IS.
   • Solution: Use APIs or middleware.

Exam Tip

For the Pokhara University exam, focus on:

1. Definitions: Know the difference between TPS, MIS, DSS, and ERP.
2. Real-World Examples: Be ready to explain how eSewa, Daraz, or Ncell use IS. Use the layered model or flowcharts in your answers.
3. Worked Examples: Practice calculating DTI ratios (for loans), inventory turnover (for SCM), or profit simulations (for DSS).
4. Diagrams: Draw sequence diagrams (for TPS), ER diagrams (for CRM), or flowcharts (for ERP). These fetch extra marks.
5. Advantages/Disadvantages: Compare cloud vs. on-premise IS or ERP vs. standalone systems.
6. Case Studies: Relate IS to Nepali businesses (e.g., "How would an ERP help a local hotel manage bookings and payments?").

Common Exam Questions:

• "Explain the role of TPS in Daraz’s order processing system with a diagram."
• "How does a bank use DSS to approve loans? Show calculations for DTI."
• "Compare MIS and DSS with examples from NTC and NEPSE."
• "Draw an ER diagram for Pathao’s CRM system."

Summary Table: Key Information Systems