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What are Systems

What are Systems?

A system is a group of elements that are integrated with the common purpose of achieving an objective.
Organization having common goal for the achievement are functionally interactive units. All systems
have inputs, outputs, and feedback, and maintain a basic level of equilibrium. For example, in the human
body the heart functions to support the circulatory system, which is vital to the survival of the entire

Purchase System
A simple example can be given of a purchase and sales system. In a typical purchase system information
related to purchase of materials is kept, for instance,
􀂾 Orders for the purchase of various materials
􀂾 Status of deliveries received against specific orders
􀂾 Changes in the order quantity, time, day or other information
􀂾 Quality inspection reports and whether they need to be communicated to the supplier
􀂾 Updated status report of stock
􀂾 Issues made out of the stock
All and more of information is required to be linked and provided in an organized way.

8.1 Components of a system
Every system comprises of basic components which in a coordination formulate a system. These are as

Input elements
The information entered into a system. For instance raw data input to the computer system.

Any specific treatment defined in the system to be performed on the data entered into the system, for
instance, computation, analysis, application of any model
Output elements
The results given by the system after the process has been performed on the data being input to the

Control mechanism
Every system is expected to generate some sort of standardized output. Hence actual output needs to be
compared with what it is supposed to generate. This comparison of actual with expected output is done
with the help of control mechanism.

Feedback system
Once the control mechanism has been devised, it needs to a reporting mechanism, which should
respond with a corrective action, if required.

We just mentioned that a control mechanism should compare actual output with expected/Ideal output.
But before this is being done, there needs to be a list of specific objectives which define expected output.

8.2 Types of Systems
Open System
Closed System
Open loop System
Closed loop system

Every system that is constructed is expected to generate some sort of output based upon the information
fed into it. The output is expected to be used to evaluate system performance – whether the output
complies with stated objectives of the system and generate instruction to change input to improve/change
output. In this manner the system helps in establishing/re-defining:
Objectives-What needs to be achieved
Control Mechanism – Output Vs. Expected
Feed back – Corrective Action

Types of System
The first issue therefore is to define the environment where the systems are required to be operated and the
second issue is to describe the system itself. Let us look at some examples.
Book Store
Open system – any and everyone is allowed to view and purchase the books available.
Closed system – entry to the is restricted to the students only.
Thus in an open system we refer to the connection it has to its environment by means of inflows and
outflows of resources between the environment and organization. When we refer to a closed system we talk
of a system that is dependant on internal resources and data for decision making rather than external

THE BOOK STORE may have:
An Open loop – if customer feedback is not taken for the purchase of books for the store OR
A Closed loop – if Customer feedback/interest is taken into account when selecting the books to
be purchased and displayed in the store.

The SCHOOL may have:
An Open loop – if students’ feedback is not taken for the kind of books to be stocked in the
A Closed loop – if students’ interest is the determinant criteria for the kind of books that are to
be carried out in the .
For many years the computer profession and business have formed a partnership which operated under
what can be termed as open-loop architecture. Advances in data warehouse technology and the Internet
have enabled what can be termed as closed-loop architecture for the comprehensive usage in business of

8.3 Open Loop System
In open-loop architecture, business decisions made by management have an impact in the marketplace,
and the impact of that decision is measured only indirectly by the company's computer systems. For
example, if a bank decides to raise interest rates, the results of the decision impact the lenders, the
present and future borrowers. The results are measured indirectly as loan applications increase or
decrease. Another example can be given of an insurance company which decides to offer a new kind of
insurance. The market expresses its approval or disapproval by buying or not buying the new insurance
By measuring the response within the open-loop architecture, the marketplace response is quantified. In
every case of an open-loop business / computer architecture, the impact of the corporate decision is felt
indirectly through the reactions of the marketplace and is measured indirectly by the computer systems
that are used by the company. Such interactions between the decision process and the measurement of
the effectiveness of the decisions made can be called an open-loop decision environment. In an openloop
decision environment, there is no direct relationship between a corporate decision and a
consequence, although there certainly is an indirect relationship. A big challenge in an open-loop
business/computer architecture is that of measuring the consequences of the decisions made by the
company. This is due to the fact is that there is a time lag between the time the corporate decision has
been made and the time when the marketplace gives its verdict on the decision.
Another difficulty is that in an open-loop environment, there may be factors other than the decision
made by corporate management affecting the results achieved in the marketplace. Trying to measure
precisely the effect of management's decisions is an imprecise science at best. Trying to quantify the
impact of management's decisions in an open-loop environment is difficult in every case. For Example
take the case of a soft-drinks company. It has no idea of the identity of its ultimate consumer. They deal
through distributors who for them is the final customer and not the man on the street who actually
buys the soft drink from the retailer. The feedback on the product, pricing or any other matter related
to the product would be provided by the distributor and not the final consumer. Open-loop decision
making is for mass marketing companies. Companies that really don't know who their customers are
employ open-loop decision making.

8.4 Closed Loop System
Feedback is an integral part of the closed loop system. The corrective action as a response to the output
requires two other components
o Control Mechanism – Variance Analysis
o Objectives – Predefined expected output from the system
Closed loop system is a system where part of the output is fed back to the system to initiate control to
change either the activities of the system or input of the system. In a closed-loop decision environment,
the impact of decisions can be measured very precisely. In a closed-loop decision environment,
management makes a decision, the computer system singles out exactly to whom the decision applies
and a direct action is taken as a result of the decision. The response to the action can then be measured
on a case-by-case basis. The results of the management decision can be measured quickly and directly.
As an example of a closed- loop decision environment, suppose a department store can use its data
warehouse to determine who has made purchases of more than Rs. 15000 in the past year. Once that
information is collected, those customers can be offered a personalized credit card. In such a manner,
management can measure the effect of the decision quickly and very accurately.
Another example can be given where management selects all customers who have shown an interest in
James Bond movies. The data about such an interest, is stored in a database. If those customers are
offered a new James Bond t-shirt at a discount price, the results of the promotion can be accurately and
quickly calculated.
With a closed-loop decision environment, there is the possibility of having very quick and very accurate
feedback on the decision process. The ability to make this assessment is very valuable. Let us illustrate the
usage of the systems through an every day example. Take any international sports event: Olympics, soccer,
cricket, tennis, every event is commercialised. To catch the interest of every individual, highly integrated
information systems are used. For instance
o To sell tickets
o To advertise
o Sports accessories
o To set up a system for commentators to extract information for instant analysis for viewers
o Comparative Scores
o Projected Scores
o Team Performances
o Match Performances
All of the above requirements are not possible without the availability of an information system which
serves the information requirements of all the interested in a timely fashion. The system has to be intelligent
system capable of performing necessary tasks and providing the requisite output.

8.5 Attributes of an IS/CBIS
The attributes an Information System should have, to be worthy of being used by an organization for
meeting its information requirements. Although information requirements may vary from organization to
organization, however common premise is quite the same for many.
Efficient Processing, including query time
Large Storage Capacity
Reduced information Load
Cross-functional boundaries
Competitive Tool
Electronic Document Management/Paper Free environment
Let’s consider each of these one by one.

Efficient Processing
Every transaction affects our records in a number of ways. CBIS helps in updating every change being
triggered in less time and with less effort.

Large Storage Capacity & Instant Access
Efficient and effective decision making requires two aspects
– Availability of processed corporate data – occurrence of every event relating to a company affects
policy making and implementation, thus recording and processing of every data results in huge amount
of information
– Instant access to right chunk of information presented in comprehensible format – both the above
requirements are easy to handle when a well structured information system is in place.

Reduced Information Load
With such huge amounts of information available, managers can feel overloaded, hence taking more time in
decision making. CBIS/IS help to tailor loads of information w.r.t. every manager’s requirements. The way
information is presented can also save time for decision making. Hence, report formats can be tailored in
accordance with the nature of problem being faced.

Cross-Functional Coordination
There are various functions in an organization that need to be managed.
o Manufacturing
o Purchasing
o Warehousing
o Marketing
o Accounts
o Finance
o Human Resource
In every transaction, every department has its own share of responsibility. Thus uncoordinated effort by
every department won’t help in achieving the successful completion of transaction and meeting
commitments. CBIS help in keeping an updated record for easy access by every department in an

A customer order is received by Sales/Marketing department. Record for customer profitability and
recovery pattern are also kept by sales dept.
Manufacturing requires
Customer order in quantitative terms
Raw material availability for production
Time available for delivery
Procurement schedule
Accounts require an intimation the delivery is made along with the sales invoice
Customer wants the status of its/his/her order

Competitive Tool
Businesses invest to earn profits or for other non-profit based objectives. There seems no point in pouring
in Co.’s hard earned money on IS if they don’t add to the quality and value of information. Hence CBIS/IS
can and should work to enhance the competitive advantage for the organization.

Paper Free Environment
Information overload enhances paper work.
Maintenance of records in hard form has always proven to be a cumbersome task.
An IS/CBIS should be efficient enough to properly manage of documents electronically.
Customer orders met through Virtual Private Networks and intranets (to be discussed later).
Payments made through Electronic payment system.
Report generation and record analysis gets convenient and easy.

Hence an Information System / Computer Based information system should help an organization in
achieving the above mentioned goals. If put differently, an organization should not proceed with the
implementation of an IS unless it helps in achieving the above goals.

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