ISDP2: Management information system – UNIT 2 ORGANIZATIONAL CONCEPTS

Organizations such as businesses and government agencies are good examples of the subsystems of society, which is their environment. Organizations themselves consist of many subsystems, such as departments, divisions, and other work groups. Organizations are examples of open systems, since they interface and interact with other systems in their environment. Organizations are also examples of adaptive systems, since they can modify themselves to meet the demands of a changing environment. 2.0 OBJECTIVES By the end of this unit, you should be able to: • Define organizational purpose • Explain the different types of organizational culture • Outline the different departments of a business organization • List the information needs of organizations
  • Overview

At this point, it is useful to apply system terminology to a typical organization. An organization is a formal collection of people and various other resources established to accomplish some set of goals. All organizations receive inputs (resources such as materials, people, money etc.) and produces outputs (goods and/or services) by using a suitable transformation mechanism to achieve some purpose/set of goals within some environment. An organization is part of many environments – physical (geography and ecological), social, political and technological. A changing state of the environment drives change in the organization to maintain consistency with purpose. An organization can affect its environment.

  • Organizational Purpose

Organizational purpose is the glue that holds the organization together. An organization will have several purposes: value to customers, providing excellent working conditions, high returns for shareholders, etc. An organizations manager’s work to bring the system to a state that is consistent with its purpose/goal.

  • Organization Culture

Organization culture consists of the major understandings and assumptions for a business, corporation, or organization. It also includes common beliefs, values, and approaches to decision making. Culture can have a significant impact on the development and operation of information systems within the organization.

  • Organization Structure

Organization structure refers to organizational sub-units and how they are related and tied into the overall organization. How an organization is structured influences its information needs. Types of organization structure:

  • Traditional organization structure: Divided according to function, line position and staff position. It has a hierarchical structure
  • Flat organization structure: a trend to reduce the number of management levels and span of control. Empowerment giving more power, responsibility, and authority to employees
  • Project organization structure: centered on major products or Most project teams are temporary.
  • Team organization structure: centered around work teams or groups
  • Multidimensional organization structure: it may incorporate several structures at the same time, both traditional functional areas and major project units. Matrix structure.
  • Business Organizations

A business is an organizational system where economic resources (input) are transformed by various organizational processes (processing) into goods and services (output). A business organization exists to make money, to provide a service and to control people and resources. Organizations vary in size and in their aims and objectives e.g. business organizations trying to make a profit, charities trying to raise money, service organizations such as the Health Service, special interest groups trying to change public opinion etc.

To achieve its objectives, a business organization creates business work areas or sub-systems (departments, units, and teams) each of which is designed to pursue its own goals. Combining the work and the goals of these individual departments should result in the achievement of the overall organizational objective.

Many business organizations contain the following departments, which interact in order to achieve organizational goals:

  • Sales: Task is to sell the products of the business.
  • Production: Concerned with the internal processes of producing the goods and services and also ensuring that in this production process, raw materials and resources are being used in the most efficient manner
  • Marketing: Concerned with the external links to prospective customers and in determining the potential demand for a product through market research and advertising.
  • Purchasing: Concerned with buying the necessary raw materials so that an organization can produce goods/services to meet the demands of its customers. This will involve forming contracts with suppliers and ensuring that materials are received on time and in the necessary quantities.
  • Accounting: Financial accounting looks at what has been done with the money in the past while management accounting is concerned with deciding how capital can be best employed in the future.
  • Corporate Management: Task is to co-ordinate all of the

organization’s functions. For example, in marketing and production there is frequently a conflict between. Production prefers a uniform output of a limited range of goods throughout the year, marketing on the other hand is likely to encourage a wide product base in the hope of attracting new customers.

  • Personnel: Personnel is often responsible for manpower planning, recruitment and selection, education and training, payment, industrial relations etc.

Every area has links with some or all of the others areas. For example, in a manufacturing organization, stock control receives data, concerning materials, from the purchasing department and passes information, about components required, to production control. It is important that there is close liaison between the sales department and the production department to ensure that the sales team does not take more orders than the production team can produce goods.

Depending on the size of the organization, each department may be responsible for one particular aspect of the business, or in smaller companies, one person may be responsible for a number of different job functions. For example, in a one-man business, the owner will undertake production, sales, marketing, accounting etc. on his own. In a larger company, each of these functions may require a large number of people. Departments then need to set their own goals and objectives but subject to the organizational goals in order to avoid sub-optimization.

Management, either at departmental or organizational level, needs to receive feedback on the performance of the systems for which they are responsible. This feedback comes in the form of information on which management can act as necessary. All business areas have data and information requirements. The information system is a subsystem within a business. Information systems are a critical part of the profitability and survival of many organizations

  • Information Needs of Organizations

All organizations must record information about their operations. The quantity and type of information recorded and the methods used to record it depend on the size and nature of the business. Information systems provide the means for ensuring efficient and effective management of information. The sorts of information that organizations need are:

  • Transactions: Done for every transaction in the organization. Transactions are usually standard for each event/customer/etc.

Includes very detailed specific information and usually done by relatively unskilled staff. Sales example: need to record details of every sales transaction to keep track of income.

  • Managing/Controlling: is based on analysis of aggregate information from many transactions. It uses overall trends or

patterns, not detailed specific information for individual transactions. Often involves recognizing and responding to unusual or unexpected results i.e. something has gone wrong, so action is needed. Done on a short or medium-term basis – daily/weekly/monthly and usually done by managers or skilled staff. Finance example: monitoring cash flow, ensuring accounts (receivable and payable) are being kept under control.

  • Planning: Based on analysis of aggregate information of many types – transaction, business, industry, economy, etc. Needs long-term trends or patterns and requires prediction of future trends, etc. Done

on a medium or long-term basis -quarterly/yearly/5 year and done by senior management. Stock control example: determining most suitable stock management policies for optimum stock turnaround/minimum wastage/etc e.g. just-in-time techniques, automatic ordering systems.

Note the number and variety of information needs the business may have. Each may need a system of its own. Note that although the basic information requirements may be the same, every organization will have a unique blend of specific needs and ways of meeting them. You can have ‘standard’ systems (packages), but every business will have its own variations. Therefore the system developer must analyze the information needs individually for every system.

Only when you understand the business and its information flows can you know what data needs to be input, stored, processed and output; what interactions there are between different parts of the system; what interactions the system has with the outside world, etc.

If you don’t know what sorts of information the business needs and how it uses it, how can you know what sort of systems to build to help it! Business people know their business well, but they don’t know about technology. Technologists know technology well, but they don’t know about businesses. Analysts need to be able to fill the gap by knowing about both!

  • The General Model of the Organization

With all of the various flows through the organization and the complexity of the organization and its environment, it would seem impossible to develop a general model of the organization. Since we are interested primarily in data, information, and decision flows, we can de-emphasize or eliminate the other flows, such as material, manpower, and money flows. In addition, since we are interested in developing a general model of the organization, we can de-emphasize or eliminate detail from the model. We should stop here to make an important point.

  • Organizational Models

A model is developed for a purpose. In this case, we want to develop a general model of the organization to study data, information, and decision flows. Thus, we will include only as much detail as is necessary to analyze the problem or situation. With this in mind, a generalized model of the organization can be developed. See Fig.8.1.


……………….. Material and ……………….. Information
Management Date and Information flow
Physical flow
……………….. Data flow ……………….. Decision flow
Input Transformation Output






Fig 8.1: General model of the organization


As seen in Fig. 8.1, materials, manpower, money, and so forth, are input from the environment, go through a transformation process, and are output to the environment. The outputs are usually goods and services. Data flows from the inputs, the transformation process, and the outputs to the data and information processor. If a computer is used, the information and data processor is another name for the computer system. This data is then manipulated by the information and data processor to produce meaningful information used by managers to make decisions. These decisions can affect inputs, the transformation process, and outputs. These decisions, for example, could be to use different raw materials (inputs), to acquire a new piece of manufacturing equipment (transformation process), or to open new channels of distribution for the products produced (outputs).


You will also note the data and information processor produces data that goes back to the environment. This data is usually business documents and transactions. Examples of this data output are paychecks. invoices, bills, checks to suppliers, information to stockholders, and tax returns.



















  • Organizational Factors


In addition to the general model of the organization, there are several organizational factors important in the design and development of an information or a decision support system. Some of the more important factors include:


  • Purpose of the organization.


  • Size of the organization,


  • Structure of the organization.


  • Philosophy of the organization.




An organization is a dynamic and complex system. Money, manpower, materials, machines and equipment, data, information, and decisions are constantly flowing through the organization. The organization is operating in a dynamic, complex environment. The environment is defined as everything not included as part of the organization. In other words, the organization and its environment make up the entire universe.

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