Information Technology for Management Transforming Organizations in the Digital Economy, 7th Edition by Ace Test Banks

Information Technology for Management Transforming Organizations in the Digital Economy, 7th Edition BY Turban, Volonino, McLean, Wetherbe

Chapter 1 IT Supports Organizational Performance in Turbulent Business Environments Goals of the Chapter This chapter focuses on the environmental business pressures impacting organizational performance and the role of Information Technology in overcoming these pressures. There are seven learning objectives to the first chapter, and upon completion of the chapter material, students should be able to understand the concept of the digital economy and of digital enterprises, the impact business pressures play on the organization and their responses and adaptations to these pressures. They will also understand the role information technology plays both within and outside of the organization. An Overview Chapter 1 is designed to give the student an understanding of how business processes and activities have been fundamentally altered with the advent of the digital economy. Information technology has become a major facilitator in organizations, changing how, why, and where we do business. The “New Versus the Old” sections of the chapter are ideal for showing students how topics that are taken for granted (for example, buying or renting a movie online) have been changed through technology. This is often an excellent place for a class discussion where the students give examples of things that have been dramatically changed through technology. Banking, ticket sales, education, testing, movies special effects, job searches, and access to libraries are good examples. If you can excite your students with web searches and activities, they will appreciate the course more. I often divide them into teams and give ten minutes to research a topic, often pulled from a recent magazine or newspaper article, and have them return with an answer. At some point early in the course, I usually have them create a two- or three-page personal website. There are many free hosting services that will assist the student with the construction of their site like geocities.com, tripod.com, and angelfire.com. Not only does this tend to give them a sense of accomplishment, but because they are expandable, I often find that students continue to add to their site, and distribute their URLs to their friends. Perhaps an ideal starting point for the course is the section “What is ‘new’ about Information Technology and the business environment?” which covers understanding knowledge management, finding employment opportunities in IT, and using IT to become a more successful manager, what the ‘digital economy’ is, and how IT is changing the commercial landscape. Students are interested in anything that can help them to find a job once they graduate and to earn as much money as possible. Section 1.1 - Doing Business in the Digital Economy – This section gives the student a 1

basic understanding of the importance of information technology as a facilitator of business activities. It show organizations using IT to engage customers more effectively, boost employee productivity and improve employee efficiency. It discusses what the digital economy is and looks at future opportunities for Entrepreneurs. This section also compares and contrasts the old economy with the new and explores various business models in the digital economy. Section 1.2 – Information Systems and Information Technology – This section explains the difference between an Information System and Information Technology. The section also discusses what a Computer based information system is and also discussed its components. Section 1.3 – Business Performance Management, Business Pressures, Organizational Responses and IT Support – This section centers on various drivers: market pressures, technological advancements, social and political pressures, as well as the contemporary organizational responses. Selecting a current ethical or business problem (for example, outsourcing overseas, exchange rate fluctuations, free trade agreements, local and global competition, business alliances, or the dot-com failures) for small group discussion can be useful. Section 1.4 – Strategy for Competitive Advantage and IT Support – This section focuses on the need for an organization to have a defined strategy for success and to increase its competitive edge. It also discusses the Porter’s Competitive Forces Model and also Porter’s Value Chain Model. With the ever-changing world of Information Technology, companies need to be very adaptive to this change and remain competitive by having a scalable and appropriate IT infrastructure. Section 1.5 – Social Computing and Networking and Virtual Worlds – This section explores the world of social computing (for example blogs and instant messaging) and social networking services (for example myspace.com and facebook.com). It also discusses Virtual worlds and “Second Life” which is computer based simulated environments intended for its users to inhabit and interact with other users via avatars. The section discusses how businesses can take advantage of these technological changes to stay competitive. Section 1.6 - Why Should You Learn About Information Technology? – This section explains why information technology is an important facilitator of organizational practices. It explains that its exploitation will make the student more effective and successful in their future careers. Section 1.7 - Plan of the Book – This section explains the layout of the chapters to students, so that they can have a more enriching experience. Section 1.8 – Managerial Issues – A focus on the special concerns a manager will face throughout the adaptation process of organization to technology and vice versa. 2

Questions for Review 1. Define a digital enterprise. A digital enterprise refers to an organization that uses computers and information systems (ISs) to perform or support its activities. 2. Define and describe digital economy. The term digital economy refers to an economy based on digital technologies and whose members are better informed and able to communicate because of IT. The term digital economy emphasizes the convergence of computing and telecommunications via the Internet and the resulting flow of information that’s stimulating e-commerce, online transactions, and organizational changes. In this economy, wired and wireless networking and communication infrastructures provide the platform over which people and organizations devise strategies, interact, communicate, collaborate, and search for information. 3. Define electronic commerce. Electronic commerce (e-commerce or EC) is the process of buying, selling, transferring, or exchanging products, services, or information via the Internet or other networks. 4. Define Networked Computing Networked computing enables computers and other electronic devices to be connected via telecommunication networks like the internet, private value added networks or company intranets, giving users access to remote information. 5. Define a business model. A business model is the method of doing business by which a company can sustain itself by generating revenue through the sale of some service or product. The business model determines how a company makes money by specifying where it is positioned in the value chain. 6. Define an Information System. An information system (IS) collects, processes, stores, analyzes, and disseminates information for a specific purpose. An information System includes inputs (data, instructions) and outputs (reports, calculations). It processes the inputs by using technology such as PCs and produces outputs that are sent to users or to other systems via electronic networks. 7. Describe a Computer Based Information System. A computer-based information system (CBIS) uses computer technology to perform some or all of its intended tasks. Such a system can include a personal computer and software, or it may 3

include several thousand computers of various sizes with hundreds of printers, plotters, and other devices, as well as communication networks databases, and in most cases, people. 8. Define information technology. Information technology refers to the technical (as opposed to the social) side of an information system including hardware, software, networks, and other devices. 9. Describe the impact of the business environment and list some of its components. Companies need to respond frequently and quickly to both the threats and the opportunities resulting from changes in their business environment. With the pace of the change and degree of uncertainty in competitive environments accelerating, organizations are under increasing pressures to produce more, using fewer resources. In order to succeed, companies must take traditional actions, such as lowering costs, and also undertake innovative activities, such as changing organization structure, business processes, or devise a competitive strategy. These reactions are known as critical response activities. Components 1. The company: core competencies, business processes, critical responses solutions 2. IT: support, infrastructure and applications 3. Performance and the feedback to mission, goals, strategies and plans 4. The environment and problems, pressures and opportunities. 10. What is Green IT and why has it become important. With an increased awareness about the damage to the physical environment and ecosystem, organizations and individuals are looking at potential improvements and savings that can be made in the IT industry. These efforts are known as Green IT. 11. List some environmental issues of data centers. 1. Data center servers are known to consume a lot of energy and generate a lot of heat 2. PCs generate CO2 (carbon dioxide) that damages the atmosphere 3. Discarded PCs and other computer equipment cause waste disposal problems 12. Describe organizational responses. Organizations can respond in many different ways by developing innovative products, developing strategic systems, introducing customer focused systems and restructuring business processes among others. 13. Define Ethics

Ethics relates to standards of right and wrong, and information ethics relates to standards of right and wrong in information management practices. 14. Describe business strategy. Business strategy defines how a company plans to attain their mission, goals and objectives. It specifies the necessary plans, budgets, and resources. Strategy addresses fundamental issues such as the company’s position in its industry, its available resources and options, and future directions. A strategy addresses questions such as: • Long-term direction of the organization • Overall plan for deploying the organization’s resources • Necessary trade-offs and resources • Unique positioning vis-à-vis competitors • Achieving sustainable competitive advantage over rivals to ensure lasting profitability 15. Explain the Porter Model and relate them to business strategy. Porter’s competitive forces model recognizes five major forces that could endanger a company’s position in a given industry, New Competitors, Supplier Bargaining Power, Customer Bargaining Power, Threat of Substitute Products and Rivalry among existing firms. Porter’s value chain model categorizes the activities conducted in any manufacturing organization into two parts: primary activities and support activities. Primary Activities: • Inbound Logistics (Raw Materials and Other Inputs) • Operations (Manufacturing and Testing) • Outbound Logistics (Packaging, Storage and Distribution) • Marketing and Sales • Services Support Activities: • Firm’s Infrastructure • Human Resource Management • Technology Development (R&D) • Procurement All of these factors need to be considered and seen as a guide when planning business strategy. 16. Describe adaptive and agile organizations. An adaptive or agile organization is one that can respond in a timely manner to environmental changes. To be adaptive, an organization needs to: • Recognize environmental and organizational changes as quickly as they occur, or even before they occur • Deal with changes properly and correctly • Not wait for competitors to introduce change 5

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Have a scalable and appropriate IT architecture Develop an innovation culture

17. Describe real-time business and information systems. A real-time information system is one that provides quick access to information or data so that an appropriate decision can be made, usually before data or situation changes. 18. Describe failure of IT systems. IT systems are not always successful. Failures usually occur and often cost companies millions of dollars in either lost business or misappropriation of resources among others. 19. Define social computing and list its types? Social computing is a general term for computing that is concerned with the intersection of social behavior and Information Systems. Types of social networking include Blogs, mashups, instant messaging, social network services, wikis, social bookmarking, and other social software and marketplaces. 20. List some characteristics of social computing. Social computing concentrates on improving collaboration and interaction among people. People can collaborate online, get advice from one another and from trusted experts, and find goods and services they really like. The premise of social computing is to make socially produced information available to others. 21. Define social network services Social network services (SNSs), allow people to build their home pages for free, and provide basic communication and other support tools to conduct different activities in the social network. 22. What is an enterprise social network? An enterprise social network is a network whose primary objective is to facilitate business. 23. Define virtual worlds and list their characteristics. A virtual world is a computer-based simulated environment intended for its users to inhabit, and virtual spaces to interact via avatars Characteristics: • The avatars are usually textual, two-dimensional, or three-dimensional graphical representations • Some, but not all, virtual worlds allow for multiple users 6

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The computer-simulated world presents perceptual stimuli to the user, who in turn can manipulate elements of the modeled world and thus experiences telepresence to a certain degree

24. Why is IT a major enabler of business performance and success? IT is a major enabler of business performance and success because it enables increased performance and competitiveness. 25. Explain why it is beneficial to study IT today. A person stands a better chance of succeeding in their chosen career if they understand how successful information systems are built, used, and managed. They also will be more effective if they know how to recognize and avoid unsuccessful systems and failures. Also, in many ways, having a comfort level with information technology will enable you, off the job and in your private life, to take advantage of new IT products and systems as they are developed. Finally being knowledgeable about IT can also increase employment opportunities 26. Why might it be easier to find jobs in a functional area if you know more about IT? Most functional areas depend on IT networks and infrastructure and knowing more about IT and how it works increases a person’s marketability in those fields. Questions for Discussion 1. Discuss the motivation for becoming an e-business. In today’s global economy every Mom and Pop business has a web presence. As companies search to differentiate themselves and to focus on products and markets, it has become a necessity to expand onto the Internet and to offer goods and services to a wider market. Conducting business over electronic channels has been around for decades (EDI), but modern applications range from informational sites to online sales. Companies searching for new customers, more discriminating customers, or simply more exposure have found a vigorous and active outlet in the Internet. Personalization has allowed greater flexibility and opened even more venues, while the potential of reaching most of the world’s citizens is an exciting possibility. 2. Review the examples of the new versus the old economy cases. In what way did IT make the difference? In the movie rental example, Information Technology significantly simplifies the rental cycle and gave the consumer a wider variety of options. In the old economy, a movie customer had to physically go to a movie rental store and look through a list of titles and may not even find what 7

they want. The new economy gave the consumer other options including renting online and being able to look through as many titles as they want on a computer and have the movie mailed to them. They can also watch the movie directly online from the Netflix website. The checkout case talks about the innovations that have come about as a result of advances in IT. Unlike the old economy where you a customer, after shopping, had to go to a cashier to get checked out, the new economy allows the customer to check themselves out and pay using several options at their disposal including credit cards, checks and also cash. In upcoming technological advances, a customer only needs to shop and simply walk out of the store, with specially installed equipment scanning all items in the shoppers cart and instantly debiting their account using fingerprint and facial recognition technology. The E-Commerce example discusses several examples. The first example shows a blogger who, using the internet was able to, after several iterations, was able to trade a paper clip for a house. A shopper can take the picture of a bar code on a product in one store and send that information to a central computer and receive the ingredients and nutritional content of the product. The computer also calculates how much exercise the shopper will have to do to burn off the calories based on the shopper’s height, weight, age, and other factors. Several banks in Japan issue smart cards that can be used only by their owners. When using the cards, the palm vein of the owner’s hand is compared with a pre-stored template of the vein stored on the smart card. When the owner inserts the card into the ATM or a vendor’s card reader that is equipped with the system, it dispenses the person’s money. During the 2008 Olympics in Beijing, over 12 million tickets were equipped with RFID. Over 1,000 gates leading to all events were equipped with RFID readers. The major purpose was to eliminate counterfeiting. 3. Explain why IT is a business pressure and also an enabler of response activities that counter business pressures. Boyett and Boyett (1995) maintained that in order to survive or to succeed in a dynamic world, companies must not only take traditional actions such as lowering costs, but also must undertake innovative activities such as changing structure or processes. Business pressures are forces that create pressure on organizations’ operations. The successful application of IT can provide a competitive advantage for one organization (for example, Amazon.com), while forcing another organization to radically alter the way it tries to compete (Borders.com, BarnesAndNoble.com). 4. Why are there more opportunities for entrepreneurs in the digital economy? The increased access to information and communication has, among other things, drastically decreased the costs of researching and starting a business. The digital economy is part of a cycle of the development and enhancement of innovations that are creating new opportunities, and new problems – all of which require an entrepreneur to address them.

5. It is said that networked computing and the Web change the way we live, work, and study. Why? This is the age of networked computing. It is used to power the Internet, to send e-mail, and to manage daily affairs. We are all cognizant that information superhighways and e-commerce have altered the lives of a great number of people living on this planet. It is only natural to state that networked computing has changed, and will continue to change, the way we live, work and study. Students use the Web to ask questions of the instructor, to download assignments to check grades, and to obtain information for research papers. People use the Web daily to get the news, to buy goods and services, and to carry on their daily lives. 6. Explain the sequence of events in the business performance management model (Figure 1.5) The environment creates opportunities and problems that an organization can respond to, in light of its goals and objectives, and subsequently determining how to attain these goals that have been set. The organization also needs to periodically access where they stand with respect to its goals and based on that, adjust its performance and or goals. That is, find ways of raising performance if it is too low or if performance is vey high, elevate its goals for the next period. This is an ongoing cycle that needs to be addressed periodically. 7. Why is the Internet said to be the creator of new business models? The Internet challenges the economic, social, political, physical and technological foundations of the old economy. A new generation of entrepreneurs is using the digital economy to find new ways to attracting customers and suppliers, as well as disseminating information to new sources and finding new markets for their goods and services. Most of these business models are not new. Indeed, many (bartering, exchanges, auctions) have been around since before the advent of money. They should be viewed, instead, as alternative ways of conducting business, locating the best quality product, and finding the best price. By providing a location for these entrepreneurs to “set-up-shop’ and by providing buyers with an easy method for locating and transacting business with these sellers, the Internet is helping to create new business models. Since every business and organization now has the potential to reach the entire world, the Internet has opened new doors and created a rapidly changing marketplace. 8. Discuss why some information systems fail. Information systems can fail because companies do not know how to properly make use of and distribute the information that is collected. Knowledge workers must insure against information overload, while securing proper distribution of reports and documents in order to aid in executive and management decisions. Information systems can also be unsuccessful because they are too difficult to use, either due to the actual functionality of the system or to improper training of the users. Additionally, it is necessary to convince management to support the use of the system. The rapidly changing field of available technologies can also lend themselves to the failure of systems. Technology becomes obsolete quickly, and easier to use devices are constantly being created.

9. Relate the real-time enterprise to the adaptive enterprise. The adaptive organization has adopted an orientation that is focused on or capable of, recognizing the environmental and organizational changes as quickly as they occur, or before; and deal with changes properly and correctly. This latter aspect of an organization is indicative of the adaptive organization. One of the characteristics of the adaptive organization, however, is the orientation around the information economy, such that it will be by necessity a digital enterprise. It needs such an orientation to be able to examine and respond to the environment quickly. This compares to a real-time enterprise which is one that is able to develop, manage and make use of real-time information systems and business processes. It is an organization that ensures the business operations are as reflective as possible of the actual environment of the organization. Some of the characteristics are: companies must design IS that support all business processes, are tightly integrated, available at all times, and including as much automation of business processes as possible. Thus a real-time enterprise is an enhancement of the agility of an adaptive organization. 10. Enter http://www.attik.com/work/littledeviant and check into “Little Deviant.” Check the content of two chapters and explain your experience with the advergame. 11. Is the strategy to target children really worthwhile? Find additional research on this topic (see Scion opening case). Targeting children as a marketing strategy can be worthwhile. The children have the tendency to influence their parents’ purchasing habits, giving the brand an edge over others. As this generation of children grows, they carry experiences with them in real life and as they reach their respective driving ages, they tend to transfer experiences gained throughout their childhood years into their real purchasing habits. 12. Examine Scion’s presence in two different virtual worlds. Summarize your experience from an advertising point of view. Whyville.net targets children basically between the ages of 8 to 15 and this social network, from the first few pages introduces the Scion to the user. The site makes use of avatars created by the user and can move from place to place with the option of buying and customizing your own Scion. Second life portrays a similar function with users but targets an older crowd with more sophisticated avatars. From an advertizing point of view, information from cars purchased on these websites can be used to target buyers from different demographics and from different geographical areas. Users can customize their cars online as is done when a potential car buyer visits a showroom for a test drive. This is a very good strategy where features of this car can be seen online in a play atmosphere but at the same time have a potential buyer develop a liking for the car before walking into the showroom, thus knowing exactly what they want before walking in.

13. Explain why business process management is a cyclical process Decide on desired performance levels, determine how to attain the performance levels, periodically assess where the organization stands with respect to its goals, objectives, and measures, Adjust performance and/or goals. After an organization adjusts its performance goals, the cycle loops back to the beginning. This is because competitors are always looking for new ways of gaining a competitive edge and all organizations need to continuously determine their newer and higher performance levels, attain them and determine another level. It keeps the organization alert and constantly searching for new heights to attain. 14. Describe the commerce activities in social networking Enterprise social networks are networks whose primary objective is to facilitate business. Private networks are owned and operated by one company. Public networks are owned and operated by an independent company like Craigslists.org. Its major objective is to help people find accommodations, barter items, or conduct other business-oriented activities. Some companies spend large amounts of money on social networks in order for their customers to share experiences with other customers of similar interests while advertizing to these members at the same time. Exercises 1. Review the examples of IT applications in Section 1.1, and identify the business pressures in each example. Also identify the business models used. These can be used to stimulate classroom discussions on a number of socio-technological issues. You can raise the pressures of global business operations, increase productivity, and ensure financial success. Managing Accounting and The Mariners raise the issues of decision making and the management and dissemination of information, while Campusfoods and Handelsbanken look at customer service. 2. The market for optical copiers is shrinking rapidly. It is expected that by 2008 as much as 90 percent of all duplicated documents will be done on computer printers. Can a company such as Xerox Corporation survive? a. Research about the problems and solutions of Xerox on the web (Google is a good place to start) b. Identify all the business pressures on Xerox. c. Find some of Xerox’s response strategies (see xerox.com, yahoo.com, and google.com). d. Identify the role of IT as a contributor to the business technology pressures. e. Identify the role of IT as a facilitator of the critical response activities. This exercise can also be answered in a classroom discussion. A thorough understanding of the business pressures and responses is necessary to answer this question. Students should understand the requirements of and the role played by the CIO. .

3. The group’s mission is to explore the role of IT in support of agility and innovation. Check what the Advanced Practices Council (APC) of the Society for Information Management (SIM) is doing in this area. Also check MIT Center for Information Systems Research (mitsloan.mit.edu/cisr) and other sources. Prepare a report. Group and Role-Playing Activities The group assignments considered in this chapter require a group effort to review literature, research for new information, conduct surveys, collect and analyze the information, and prepare necessary reports. Since these assignments pose questions that are not extremely difficult to solve, I will not attempt to answer them here. Internet Exercises These assignments are useful in a classroom environment where each student (or each team of two students) has access to a computer. Quite often, it works well for students to post their findings to an electronic journal (on a course website). Minicase NHS Hospitals adopts co-operative WiFi This case explores the British National Health Service going wireless throughout many of its hospitals using Wi-Fi. Hospitals are incorporating wireless networks to allow them to monitor patients, tag important clinical equipment, and use PDAs to help support medical staff. This has proved easy to manage and resulted in improved efficiency on wards. Problem Solving Activity Saving the Family Business This scenario and the suggestions that follow allow students to think in a business setting putting them in a real world situation to use lessons learned from this chapter to solve a critical problem involving a modern marketing strategy using the internet. Appendices The Appendix raises ethics issues, which is an excellent topic for group discussions, particularly in light of the recent U.S. corporate scandals of Enron and WorldCom. Summary This chapter explores the digital economy, business models, business pressures, and critical responses to the pressures. Additionally, it gives the student an introduction to information systems and information technology, as well as the current trends in information systems. The chapter concludes with a section on the importance of learning information systems.

What’s Next? The next chapter deals with various types of information systems, establishing the concepts of architecture and infrastructure for information technology. It will also look at how IT supports organizational departments and activities.

Chapter 2 Information Technologies: Concepts, Types and IT Support Goals of the Chapter This chapter has nine major learning objectives which involve learning the basics of information systems, information resource management, and end user computing. Emphasis is placed upon the various types of information architectures and upon the importance of solid information infrastructure. This chapter also discusses web-based information systems and their functionalities and also talks about the emerging technologies in IT. An Overview 2.1 - Information Systems: Concepts and Definitions – This section provides definitions of terminology and an explanation of the concepts that a student must acquire to understand the material that will be presented in the text. 2.2 - Classification and Types of Information Systems – This section provides a classification of information systems by a variety of formats. These include classification by organizational structure, by functional area within the organization, by use across the organization, by the use across multiple organizations, by the types and level of support provided by the systems, and by the system architecture including an introduction to information architecture and information infrastructure. 2.3 - How IT Supports People – This section introduces operational, managerial, and strategic systems as well as hierarchal support. Operational, managerial, and strategic systems are classified according to the management activities they support, with operational covering the day-to-day activities, managerial comprising the short-term tactical activities, and strategic traditionally including long-term activities and planning. Strategic systems have developed to include strategic responses to changes in the environment and strategic innovation systems where the organization attempts to be successful by being an initiator of change, e.g., by beating their customers to market with a new product or service offering. 2.4 - How IT Supports Supply Chains and Business Processes – This section explains how IT supports supply chains in terms of the multiple parts, including the internal supply chain, the upstream and downstream flows. It also explains the difficulty in supporting and managing the chain. 2.5 - Information Systems Infrastructure, Architecture and Emerging Computing Environments – This section presents information systems architectures and their infrastructures and also discusses emerging computing environments. Information architecture is the guide for the organizations’ current operations and is a blueprint for future directions. Types of architectures covered include mainframe, PC, and distributed environments. Client/servers architectures, 1

enterprise-wide systems, legacy systems, and peer-to-peer architectures fall under this umbrella and are introduced here. Information infrastructure includes the system hardware, development software, networks, communications facilities, databases, and information management personnel. Emerging computing environments discusses the need for faster and more powerful computers as the number of applications and their variety increases. 2.6 – Innovative and Futuristic Information Systems – This section discusses information systems of the future. Most of these futuristic systems are not in use yet but they are definitely being researched and may be in use in the not too distant future. A typical example of this kind of system is intelligent traffic control system using predictive analysis tools. 2.7 – Managerial Issues – This section deals with which resources are managed, by whom, and why. Approached from a business standpoint, this is an important section for understanding the many managerial issues that arise relative to IT.

Practical Applications Mary Kay’s IT Systems Mary Kay is a company with a sales force of about 1.8 million spread across 34 countries. Its business model is based on door to door sales of its merchandise making it a challenging feat to try to implement an effective information system. Presently, over 95% of the sales force of the company conveniently places their orders online. The problem Mary Kay had was the increasing need to harness the power of the Internet to market their products and to reach as many customers as possible. With this in mind, the company had put together different systems for different purposes with no communication between the systems. Their first major IT infrastructure project was the introduction of a technology called Business Service Management which was a way Mary Kay could connect to its consultants in the field. Goals of the project were set to industry best practices. The solution implemented allowed the company to serve all consultants in a standardized way. It implemented a global electronic ordering system called Atlas which linked its consultants to their warehouses facilitating faster ordering and timely delivery of orders. Mary Kay has also made use of social computer networks like using myspace.com to post jobs, using youtube.com to post movies about the company, ebay.com for marketing their goods, blog sites comments and a company sponsored website to locate a consultant. All these initiatives are supported by an extensive hardware and software infrastructure including a wireless remote management system with IT managers sharing information from a single database. Overall, this infrastructure has produced benefits such as greater efficiency, reduced costs, reduced downtime and improved service. 2

IT@Work IT at Work 2.1 – Generating $62 Million per Employee at Western Petroleum – This section briefly illustrates the development of an IT infrastructure that allowed Western Petroleum to generate $3.6 billion with only 56 employees. The company automated most of its critical operational functions and outsources the rest to external firms. With total process automation with its IT infrastructure the company has been able to cut out a lot of waste thus increasing profits tremendously. IT at Work 2.2 - Business Problems at J.P. Morgan - This section discusses how problems were identified and solved by grid computing. A major success factor was the emphasis on problemsolving rather than on pushing a new technology. IT at Work 2.3 - Wireless Pepsi Increases Productivity – This section demonstrates the money that PBG was able to save with the use of handheld devices by their service technicians. These devices allowed wireless connectivity to a database that included repair inventories for each truck, as well as a back-office support system. The use of these systems has led to greater efficiency and significantly reduced costs.

War Stories Story 1 Many years ago in a city far, far away, I was asked to help a small business streamline their work processes. The president of the company felt that transactions were taking far too long to process, with too many errors. Productivity was falling as demand for their services increased. The firm distributed movies to theaters throughout the country, and delays in processing transaction requests directly affected the bottom line, not to mention employee morale, effectiveness and efficiency. After a brief discussion with the president, I asked if I could see the information system so I could understand a little better how operations were undertaken, and also, I asked to meet some of the personnel. I had a data input clerk show me how a new theater would be set up in the system. The clerk began punching keys at a phenomenal rate. I asked her how long it had taken to become so proficient, and her reply was “Oh, I don’t know where things are. I just keep pressing keys until I see something I recognize.” Once the screen had been located (it took about 5 minutes) we created a new theater and I asked how difficult it would be to generate an invoice from the system. The answer was that on the computer we were using, the task would be impossible. The information on the theater would have to be printed out, then the information on the movies would be printed out from another computer, and finally, both sets of information would be manually input into a third computer. It 3

turned out that the three machines used different programs running under different operating systems and were completely incompatible. Having decided that a “quick fix” was not likely, I asked to see the documentation for the various systems. I was met with blank stares. There was no documentation. It turned out that the various systems had been built by an employee who had become disenchanted with the boss and had quit before documenting any of the systems. Interestingly, the systems seemed to break down every week or so, and the former employee was the only person who seemed to be able to fix the systems. He was paid as a consultant at $500 per hour which was vastly superior to his $12,000 per year salary when employed at the company. With no documentation, incompatible systems, and redundant processes, this company seemed like a good candidate for a new system. I asked questions about their backup procedures and was met with more blank stares. There were no backups. The organization’s entire data store covering 5 years of operations was on these three computers. The president was, with much politicking, finally convinced to buy an external hard drive (which in the late 1980s was quite costly), and the data was backed up. The next day the building was hit by lightning and the entire set of three computers was lost. Fortunately the company was able to use existing forms to keep the business running and to process transactions, and the forms provided a starting point for building a new system. With the forms, the backups, and with some rapid programming, the new information system was up and running in one week, and within a month, a new system was in place that was rather “quick and dirty” but which worked, was well tested on their historical data, and was documented. The staff was trained in the system, and productivity increased along with morale. An interesting note was that the former employee called two weeks after the lightning storm to ask how the systems were running. One can imagine his shock to find that his meal ticket had disappeared. With a poor infrastructure and a total lack of system architecture, a system has no chance to provide quality service and is very much a liability rather than an asset. Story 2 In the mid-1990’s, when e-commerce was still in its infancy, I placed an online order with one of America’s leading telephone catalog companies. It was the Tuesday afternoon before Thanksgiving, and my order consisted of several items, two of which were to be monogrammed and all of which were to be shipped by a three-day delivery system. The order had been placed via e-mail to a special address, following the instructions set forth on their web site. CGI bins and other forms’ return methods were not employed by them at that time. Delivery for both telephoned and e-mailed orders was offered as quickly as overnight. Realizing the close proximity of the Thanksgiving holiday, I was not uncomfortable when my order did not arrive at the beginning of the following week. I began to become concerned, however, when the products did not arrive by the end of that week, and early the next week I instigated a search for my order. My e-mails went unanswered, and my phone inquiries were shunted from person to person, with numerous promises of return phone calls, all of which went unfulfilled. By the end of that week (seventeen days after placing the order), I had no product and no answers. With Christmas rapidly approaching, I found alternative presents for my friends. Three weeks after I had e-

mailed my order, I sent an e-mail canceling it. Two days before the holiday, I received a phone call apologizing that they would not be able to fill my order for delivery before Christmas and asking, did I still want the items? I explained what had transpired and wondered if, after the holiday season, I could speak to someone who actually understood what had happened. It was obvious that my order had been received and was not just lost in cyberspace. I explained that I was a professor and was curious about their system. Imagine my surprise when, two weeks after the beginning of the new year, I received a call from the company president. She explained that they were just starting out in e-business, and my case had demonstrated many of their problems. First, the e-mail address to which the orders were directed were downloaded once a day by a single person. She had already left for an extended holiday weekend when my order was sent. When she returned on Tuesday, there were almost one hundred orders that had to be printed out and sent to the phone order desks to be entered and serviced. It took several days to open, download, and print the orders. These were transferred (again, once a day) to a different department in another building, where the phone order clerks, when they were not busily engaged in taking phone orders, would enter them into the system. This apparently took my order another seven days. After this, my order would have been sent to two different departments, one to handle the monogrammed orders and one for the rest. In actuality, my order went to four departments, since the items were all placed in a backlog department, as they were no longer available. The monogrammed backlogged item went to one department, and the others were sent to still another. At this point, it again took several days to be processed and for me to be notified that the items would not be received in time for the holidays. (I had yet to get the same notification regarding my monogrammed items.) I was astounded by the explanation and I proceeded to ask several probing questions. As a result, I offered to have one of the student teams in my class do an evaluation of their system, a suggestion that she leapt upon. Here are their findings: First, their Internet access was available only through modems, and there were three, all located in a single building. Most of the employees had no e-mail access, even at home, and most were not Internet-savvy. The woman who was in charge of downloading the e-mail orders was not business-savvy enough to be able to send out notices of their receipt, nor did she understand that you could hit the “Reply” button to send an acknowledgement. She had extremely limited experience on a computer, and, in fact, her college-age son had taught her how to dial-up access and get e-mail. She “didn’t have enough time” to create a new letter for each order and had problems with filling in the “to” addresses, since she could not type. In fact, she apparently crashed her system on a regular basis, just downloading the e-mails. I soon found that this was quite typical. Their phone order system was all done by hand – no computers were used initially. After the orders

were taken down, they were sent to another department where they were processed by data entry persons into dumb terminals that produced a printed output report from the mainframe. This was delivered to the shipping warehouse twice a day. Since the data entry people only worked Monday through Friday, orders taken on Friday afternoon, Saturday, and Sunday were not entered until the beginning of the week. There was no connection between the mainframe and the warehouse. The sheets of mainframe output were then separated into orders, and two shipping clerks entered the orders into the warehouse desktop computers and then used shipping software (from the delivery company) to generate a shipping label. The product was pulled by one of a number of assistants, using the printed output from the mainframe, and then it was boxed and placed at the shipping dock for pick-up. Since the delivery company came twice a day for pick-up, there was no need to have an Internet connection. I pointed out that this system was remarkably inefficient. Why didn’t their systems talk to each other? Why weren’t they using forms on their website? Here’s what else we found: The woman who monitored the e-mail had her son’s old Macintosh computer. It had a different GUI and connected to the Web using a special browser. He had taught her how to download the e-mail by printing it, but she did not even know how to erase “read” messages. He cleaned up her machine every few months when he came home for the holidays. Occasionally, her nephew would stop by and handle this task. The other computers, all IBM-compatibles with modem access, were not really used to access the Internet, except to review a few e-mails, and this was checked erratically. In fact, the computers were usually used for word processing. The Unix-based mainframe ran an order-entry program that was written in an already obsolete language. Their database held up to ten thousand items and was almost completely filled, since no items were ever deleted, even if they had not carried it in ten years. They had five data entry people that spent their days entering data. The program and data were run as a batch once a day, with the orders output as one long strip and with each order on a different perforated page that would have to be separated from the rest of the stack. This output was sent over to the warehouse, where the sheets were separated and entered into the shipping database, and shipping labels were generated based on the average weight of the items, instead of the packed boxes. The shipping database maintained a daily total of the remaining stock, which was printed once a day and delivered back to the mainframe data entry people. Once a week, they would enter the data to see if the stock levels “came close” to those thought to be had by the mainframe. All of these computers were running Microsoft operating systems. Orders with back-ordered items were sent to a third building, where deliveries were accepted. These were entered into a third set of computers running a Novell client/server operating system, which also maintained the receiving database. The printouts of the deliveries were also sent to the mainframe data entry people once a day, where they were entered “first thing in the morning”, Monday through Friday, unless the single individual that was in charge of that duty

was out sick or on holiday, and then it would be done upon his return. Our suggestions were simple. They needed to coordinate their front end with their back end. They also needed to get rid of several operating systems, or incorporate a way for all of them to talk to each other, so that data could be entered directly into the system. Train the order takers to use computers for the orders, and the data could flow directly to the mainframe. If the shipping and receiving database could be linked to the mainframe, all the data could be entered once, and this would give them a real idea of their actual stock levels. We located several middleware packages that could handle the conversions, explained how to set up the hardware and software for the suggested changes, and supplied all pertinent details to them. We also suggested training additional persons on computers, so that they could do more than one job. To solve the e-mail problem, we explained how HTML forms worked and designed pages for them. We also made a number of other suggestions regarding their e-business site. It was not inexpensive to make the changes, and they took the company about eighteen months to complete, but they successfully made the change from a telephone catalogue company to a web-based e-business. Within the initial two years, even as they were making the changes, their revenues had increased 20%; their costs decreased 12%, primarily due to being able to better maintain stocking levels; and their online sales with their totally redesigned interactive website and online catalogue accounted for some 35% of their sales. (It now accounts for some 75% of their sales.) Review Questions 1.

Define information system.

An information system (IS) collects, processes, stores, analyzes, and disseminates information for a specific purpose. 2.

What is an application system?

An application program is a computer program designed to support a specific task or a business process (such as execute the payroll) or, in some cases, to support another application program. 3.

Define data, information, and knowledge.

Data are raw facts. An example of data is “78.” It is a representation of something, but the data has no meaning. Data items can be alphanumeric, auditory, or visual; they are merely a description of something. When one is told that “78” represents the current temperature in Honolulu, Hawaii, then this is now information. Information is data that has been organized so that it has a meaning and value. Knowledge is information that has been organized and processed. 4. What types of information systems are used at Mary Kay?

Some of the systems Mary Kay included a supply chain management system, an e-commerce system and some functional systems for the service desk, ticketing system for events, and service requests and back office support for order fulfillment, accounting, and finance. 5. Define TPS and provide an example. A transaction processing system handles the day-to-day, routine, repetitive tasks that are essential to the operation of the organization. TPS systems support activities in all functional areas but are most frequently employed in the areas of sales, accounting, and finance, for order entry, payroll, and shipping. Activities supported include the monitoring, collection, storage, processing, and dissemination of the organization’s basic business transactions. A good example of a TPS is a point-of-sale (POS) terminal that is linked to a database in a grocery store. When a sale is completed, an information transaction reduces the level of inventory on hand, and the collected revenue from the sale increases the company’s cash position 6. What is a functional information system? Functional information systems are organized around the traditional departments in a company like accounting, finance, production/operations, marketing and sales, and human resources management. 7. Define an enterprise information system; list the major types. Enterprise systems support business processes that are performed by two or more departments. An example is evaluating a request for a loan which is a business process. Types: • Enterprise resources planning (ERP) • Customer relationship management (CRM) • Knowledge management (KM) • Business intelligence 8. Describe a global information system. A global information system is an inter-organizational information system that connects companies located in two or more countries. 9. List five types of IT Support Systems • • • • •

Management Information System Decision Support System Office Automation System Document Management System Desktop Publishing System

10. Define operational, managerial and strategic activities.

• • •

Operational activities deal with the day-to-day operations of an organization, such as assigning employees to tasks and recording the number of hours they work, or placing a purchase order. Managerial activities, also called tactical activities or decisions, deal in general with middle-management activities such as short-term planning, organizing, and control. Strategic activities deal with situations that may significantly change the manner in which business is done (hopefully for the better). For example, mergers and acquisitions.

11. List the levels of employees (e.g., executives) in an organization. • • • • •

Executives—Strategic Decisions Staff Support—Knowledge Workers Middle Managers—Tactical Decisions Lower-level Managers and Frontline Employees — Operational Decisions Clerical Staff

12. What is the role of IT infrastructure? The role of IT infrastructure is to support all information systems that provide support to all levels of an organization. 13. Describe knowledge workers and data workers. •

•

Knowledge workers are people who create information and knowledge as part of their work and integrate it into the business. Knowledge workers are engineers, financial and marketing analysts, production planners, lawyers, accountants etc., and they are responsible for finding or developing new knowledge for the organization and integrating it with existing knowledge Data workers are clerical workers who use, manipulate, or disseminate information in an organization.

14. Describe how IT supports the three segments of the supply chain. •

•

Supporting the internal supply chain involves transaction processing systems and other corporatewide (enterprisewide) information systems, and it covers all of the functional information systems. Special software called supply chain management (SCM) software is available to support segments of the internal supply chain. The major IT support of the upstream supply chain (between a company and its suppliers) is to improve procurement activities and relationships with vendors. E-procurement is done in private and public exchanges. Relationships with suppliers can be improved by using a supplier portal and other supplier relationship IT tools. IT support of the downstream segment of the supply chain (between a company and its customers) is done in two areas. First, IT supports customer relationship management (CRM) activities, such as providing a customer call center and secondly supports order taking and shipments to customers.

15. What is RFID? What are its major benefits? Radio frequency identification (RFID) is a technology that uses electronic tags (chips) instead of bar codes to identify objects or items. The tags can be attached to or embedded in objects, animals, or humans. Benefits: • Quick tracking of where items are (their location) in real time • Finding extensive information about the items • Enabling quick inventory of items 16. How does IT support non-supply-chain-related activities? The systems can be specific for one or two applications, or they can be suites that cover multiple needs. These systems usually are implemented to streamline operations and have several divisions of a company communicate with one another in real time. 17. How does IT support EC and social networks? The use of e-commerce implies using business models such as e-auctions, exchanges, eprocurement, or the use of electronic meetings. To accommodate the large amount of traffic on some major social networks, they need an extensive network of services, security protection, many servers, and a large number of software-based applications. 18. How does IT support online search? Searching the entire Internet quickly requires the support of IT hardware (e.g., Google uses over 600,000 servers), analytical programs (e.g., search algorithms), and other IT tools for its search engine 19. Define Information infrastructure and information architecture. • •

Information infrastructure includes the system hardware, development software, networks and communications facilities, databases, and information systems personnel, and explains how these are connected, operated and managed. Information architecture is the high-level map or plan of an organization’s information requirements, which is used to guide current operations and plan future ones. The information architecture ties together the information requirements, the infrastructure, and the support technologies.

20. Describe Web-based systems and Web-based EC systems. •

Web-based systems refers to those applications or services that are resident on a server that is accessible using a Web browser and is therefore accessible from anywhere in the world via the Web.

•

Most e-commerce applications run on the Internet and intranet using Web-based features. Web-based systems are therefore the engines of e-commerce. They enable business transactions to be conducted seamlessly 24 hours a day, seven days a week with the ability to instantly reach millions of people, anywhere, any time.

21. What is the Web 2.0 environment? Web 2.0 is a supposed second generation of Internet-based service that lets people collaborate and share information online in perceived new ways—such as social networking sites, wikis, and blogs. 22. Describe SOA and its benefits. Service-oriented architecture (SOA) is an architectural concept that defines the use of services to support a variety of business needs. The basic idea of SOA is to reuse and reconnect existing IT assets rather than more time-consuming and costly development of new systems Benefits Include • Reduced integration cost • Improved business/IT alignment • Extension and leveraging of existing IT investments • Faster time to assemble new applications • Lower IT maintenance cost 23. Describe software-as-a-service and its benefits. Why is it referred to as utility computing? Software as a Service (SaaS) is software delivery where the software company provides maintenance, operation, and support for the software provided. Benefits: • Users can access applications over a network • Usually there is no hardware and software to purchase since the applications are used over the Internet • Paid for through a fixed subscription fee, or payable per an actual usage fee The SaaS concept is usually referred to as utility computing drawing from the analogy of the use of an electrical appliance. The user does not directly negotiate with the electricity company to use power for a specific appliance. The electrical utility company takes care of the complexity of power generation, including matching capacity to demand, and it can change which generators and circuits deliver the power. 24. Define open source. Open source means that the source code for software is available to the public. 25. Describe virtualization

The major type of virtualization is hardware virtualization (usually referred to just as virtualization). In general, virtualization separates business applications and data from hardware resources allowing companies to pool hardware resources rather than to dedicate servers to applications. In essence, this means to create a virtual version of something. In a server environment, this could mean that an application like Microsoft Virtual PC is used to create a virtual web server and a virtual mail server on just one physical computer. 26. Describe an intelligent traffic control system. Some of the most innovative information systems are those that are aimed at reducing traffic congestion and air pollution, eliminating accidents, providing aid to travelers requiring the use of all forms of information technology including the use of technology like predictive analysis. 27. How can an intelligent system help you avoid a traffic jam? Predictive analysis tools can help determine the probable future outcome for an event or the likelihood of a situation like the occurrence of a traffic jam. Traffic cameras for example can calculate the amount of time needed for a traffic light to change using the number of cars waiting at an intersection. 28. What are the essential elements of the NRI model? • • • •

Providing support for making business forecasts and decisions Personalizing and automating services Establishing the ubiquity of services Responding to energy savings, welfare and environmental problems

Questions for Discussion 1. Discuss the logic of building information systems in accordance with the organizational hierarchy structure. Information systems traditionally have been built in accordance with an organization’s hierarchy structure to reflect how information flows up the hierarchy and how control of data has been directed down through the organization. Most of today’s systems have exploited this structural hierarchy. In some situations, the functional systems do replicate the processing of information at various layers of the organization. It is evident in all situations that the building of information systems reflects the organizational hierarchy to support the management style and the operations established in the organization. 2. Distinguish between inter-organizational information systems (IOS) and electronic markets. Inter-organizational systems are systems that connect two or more organizations and are common among business partners. These are frequently used for electronic commerce through an extranet. Electronic markets are networks of interactions and relationships through which information, products, services, and payments are exchanged. In inter-organizational systems,

the participants know each other and are partners in business-to-business e-commerce and cooperation. In electronic markets, the individuals or groups involved in a transaction rarely know each other. 3. Relate an MIS to a functional information system Management information systems (MISs) are IT systems that support functional managers by providing them with periodic reports that include summaries, comparisons, and other statistics. An example is: A weekly sales volume and comparison of actual expenses to the budget. MIS falls under the umbrella of a functional information which supports all the functional areas of a company.

4. Explain how operational, managerial, and strategic activities are related to various IT support systems. Operational activities are performed by supervisors, operators, and clerical employees. These activities are day-to-day operations of an organization and are supported by transaction processing systems. Managerial activities are performed by the middle management of an organization. Short term planning, organizing, and control are included as managerial activities and are guided by MIS and DSS. Top management or executives deal with the long-term situations and the major decisions that affect an organization’s business performance. This level of management uses executive information and group support systems to direct their activities. 5. Relate an enterprise information system to business processes Enterprise systems support business processes that are performed by two or more departments. The activities in the process are frequently done in sequence, but some can be conducted simultaneously 6. Web-based applications such as e-commerce and e-government exemplify the platform shift from legacy systems to Web-based computing. Discuss the advantages of a web-based computing environment. Users of a web based application can access it through a web browser and is therefore accessible from anywhere in the world via the Web Usually there is no hardware and software to buy since the applications are used over the Internet Paid for through a fixed subscription fee, or payable per an actual usage fee They enable business transactions to be conducted seamlessly 24 hours a day, seven days a week A central property of the Web and e-commerce is that you can instantly reach millions of people, anywhere, anytime 7. Is the Internet an infrastructure, an architecture, or an application program? Why? If none of the above, then what is it?

The Internet has an infrastructure based on the connections between the computers and the protocols used, it has a basic architecture that is free-form, and it consists of applications programs. 8. Discuss why SOA is considered key to business agility SOA is key to agility because it allows organizations to react efficiently to the fluctuating IT demands of a commercial organization. It is a more cost efficient means of investment in IT, and it allows for responsive change but provides computing power without being locked into legacy systems. 9. Some speculate that utility computing will be the dominating option of the future. Discuss why or why not. Utility computing is a service provisioning model through which computing resources and infrastructure management are delivered to customers by a service. The idea of an ever-available, on-demand, pay-as-you-go system is intriguing. Why pay for an entire set of Office Suite products when you will only use the word document creation program? This also eliminates the need to constantly install updates to programs, as the download you use at the time will encompass their latest version. During the recent blackout in the Eastern United States and Canada, these systems were used successfully to keep the mission-critical businesses up and running, because they were able to bring up additional capacity and servers from locations around the world. The flip side of this is the time to connect and use these programs. If you are on a slow 14.4mbps dial-up connection, the time spent in getting the product may make this a near impossibility. Also, the expense may be too extreme for many persons in countries that pay on a per minute/per distance connection rate. 10. Compare & Contrast grid computing and utility computing. Utility computing is computing that is as available, reliable, and secure as electricity, water services, and telephony (Bill Gates, public speech, January 2003). The vision behind utility computing is to have computing resources flow like electricity on demand from virtual utilities around the globe—always on and highly available, secure, efficiently metered, priced on a payas-you-use basis, dynamically scaled, self-healing, and easy to manage. However, utility computing is hard to do in heterogeneous data centers. Also, the utility concept works better for some applications than for others. Furthermore, utility computing needs extra security when traveling online. Finally, distribution of software differs from distribution of utilities. An interesting alternative to utility computing is grid computing. In grid computing, the unused processing cycles of all computers in a given network can be harnessed to create powerful computing capabilities. Grid computing coordinates the use of a large number of servers and storage, acting as one computer. Thus problems of spikes in demand

are solved without the cost of maintaining reserve capacity 11. Discuss the relationship between SOA and on-demand computing On-demand computing is an orientation to the SaaS model, a means to maintain an organization’s agility. SOA is an approach to IT architecture that can enhance / is a component of an agile organizational orientation that would be part of a SaaS approach. 12. RFID is considered superior to bar codes. Discuss why this is so. Radio frequency identification (RFID) is a technology that uses electronic tags (chips) instead of bar codes to identify objects or items. The tags can be attached to or embedded in objects, animals, or humans. RFID readers use radio waves to interact with the tags. The major benefits of RFID are the following: • Quick tracking of where items are (their location) in real time • Finding extensive information about the items • Enabling quick inventory taking of items In contrast with a barcode, the information can be read from a much greater distance (30 feet or 10 meters) and no line-of-sight is required. Also, much more information can be stored on the RFID tag and it is more durable. 13. Discuss the benefits of predictive analysis Predictive analysis tools help determine the probable future outcome for an event or the likelihood of a situation occurring. They also identify relationships and patterns. Predictive analysis uses sophisticated algorithms designed to sift through a data warehouse and identify patterns of behavior that suggest, for example, which offers your customers might respond to in the future, or which customers you might be in danger of losing. This can help a department store in identifying which customers that need to grant rebates to in order to keep them shopping at their stores. A doctor may also use equipment using predictive analysis to help with early diagnosis of heart failures. Red light cameras also use the technology to calculate wait times at traffic lights thereby allowing smooth flow of traffic. 14. Compare and contrast information architecture and infrastructure Information infrastructure consists of the physical facilities, services, and management that support all shared computing resources in an organization. There are five major components of include computer hardware, software, networks and communication facilities, databases with data workers, and information management personnel. Information technology architecture is a high-level map or plan of the information assets in an organization, including the physical design of the building that holds the hardware. IT architecture is a guide for current operations and a blueprint for future directions. Information architecture therefore gives a general picture of how the IT infrastructure is set up in its physical location.

Exercises 1. a. b. c. d.

Classify each of the following systems as one (or more) of the IT support systems: A student registration system in a university. Transaction processing system. Supports repetitive yet mission-critical activities A system that advises farmers about which fertilizers to use. Expert system. Provides a decision based upon a set of rules and knowledge. A hospital patient-admission system. Transaction processing system. Supports repetitive yet mission-critical activities A system that provides a marketing manager with demand reports regarding the sales volume of specific products. Management information system. Provides reports for management decision making. A robotic system that paints cars in a factory. Intelligent support system. Recognizes the vehicles based upon past training and paints them according to specifications.

2. Enter teradatastudentnetwork.com (ask your instructor for the password) and find the Webcase on “BI Approaches in Healthcare, Financial Services, Retail, and Government” (2006). Explain the IT support. What challenges are common across the industries? Write a report. This is an excellent business assignment, exploring basic management goals relative to information technology systems. This is a good way for students to go searching for information and writing reports based on lessons learned from this chapter and relating it to the case on the web. This assignment can be either be done by individuals or in groups. 3.

Review the following systems in this chapter and identify the support provided by IT: • J.P. Morgan (IT at Work 2.2) • Best Buy online (See Online Mini-case 2.1) • Mary Kay (Opening Case) • Pepsi (IT at Work 2.3)

This is an interesting exercise. The instructor may wish to draw Figure 2.5 on the board or have it as a PowerPoint slide and then ask students to identify where each of the systems listed above belongs. A system can belong to more than one cell. Group and Role-Playing Activities 1. Observe a checkout counter in a supermarket that uses a scanner. Find some material that describes how the scanned code is translated into the price that the customers pay. a. Identify the following components of the system: inputs, processes, and outputs. b. What kind of a system is the scanner (TPS, DSS, ESS, ES, etc.)? Why did you classify it as you did? c. Having the information electronically in the system may provide opportunities for additional managerial uses of that information. Identify such uses. d. Checkout systems are now being replaced by self-service checkout kiosks and scanners. Compare the two.

The first group assignment is an example of using IT in our daily lives, more specifically, at the supermarket. Although we usually do not notice how the bar code scanner converts a code into a price, this is an information system. The code is matched against a price listed in a database, which may be located in the store manager’s office or in the computer at the sales counter, and then displayed on an LCD panel. 2. Explore the relationship of IT and innovation. The group explores sites that deal with innovation such as ideablog.com. Explore the innovations they sponsored within the last 12 months and identify those which are related to IT. Explore google.com for similar sites. Prepare a report. Internet Exercises These exercises are based on the availability of the websites on the Internet at the time of the assignment. It is advisable that the instructor check the web sites before assigning the exercises to the students. A wise precaution is to download the files to the instructor’s computer, in case the host sites are not available. Minicase Airbus Improves Productivity with RFID Airbus solved a cumbersome parts and tools tracking inside their warehouses by embarking on a project to use RFID technology. The software also manages data from bar codes which remain an important part of Airbus’ supply chain. The technology was implemented across Non-flyable processes consisting of ground-based processes, such as supply chain, transportation, logistics, manufacturing, and assembly-related applications. It was also implemented on Flyable processes consisting of all in-service processes, including operational, maintenance, and payload-tracking applications Problem Solving Activity Handling the High Cost of Gasoline This exercise will help students think in a real world setting on a topic we all deal with on a day to day basis. Students will have to go online and use different tools for this assignment. Summary This chapter provided a broad outline of information systems and how they have evolved over the last few decades. In order to understand the trends in the industry today, it is very important to acquire a clear vision of information systems and to visualize their functions. This chapter offers substantial information on the significance of information architecture, infrastructure, and enterprise-wide computing. This information helps the instructor explain the most modern information systems and their application to the students.

What’s Next? The next chapter deals with data management and their impact on the decision making capabilities of business managers. The chapter also deals with databases and database management systems and improvement of data security within organizations. The chapter also deals with the tactical and strategic benefits of data warehouses, data marts and data centers. There is also the discussion on transaction and analytic processing systems.

Chapter 3 Managing Data to Improve Business Performance Goals of the Chapter This chapter contains seven learning objectives with the main objective of emphasizing the importance of data and the management issues that relate to it, and its life cycle. Other objectives include document management, explaining the concept of data warehousing, data mining, analytical processing, and knowledge discovery management. The chapter also discusses transaction and analytic processing systems and also the effects of data improvement on business. An Overview Section 3.1 – Data, Master Data, and Document Management – This section illustrates the importance of managing data and the difficulties involved. It explains why managing data is a critical success factor. It also explores the data life cycle process and document management issues. Section 3.2 – File Management Systems– This section focuses on understanding the hierarchical nature of how content is managed in a database. Section 3.3 – Databases and Database Management Systems – This section aims at having students understand the interface between applications, physical data files and the information needs of the user. The focus is on the (group of) program(s) that provides access to the database. Section 3.4 – Data Warehouses, Data Marts, and Data Centers – This section focuses on the need for businesses to have better ways of handling the data they use. The section focuses on data warehouses and the trend towards real time support from data warehouses. The section also talks about building a data warehouse. Section 3.5 – Enterprise Content Management – This section talks specifically about enterprise content management as an important data management technology in relation to large and medium sized companies. It talks about proper data management for easy retrieval by people who need it. Section 3.6 – Managerial Issues – Provides a discussion of the issues managers should be concerned with regarding data management. Practical Applications Applebee’s International Learns and Earns from its Data – Applebee’s International had a major problem which was a lack of the necessary infrastructure to adequately measure some key parameters in their business. This included measuring customer satisfaction with services rendered and regional food preferences.

After implementing their enterprise data warehouse, the company was able to capture an accurate understanding of sales, demand and costs. The system helped the company be able to capture sales data from their point of sale systems on a daily basis and consolidate that data to give them the information they need. The company managed to gain a clearer insight into their operations in real time to identify regional preferences and has been able to improve their customer experience, satisfaction and loyalty. War Stories For this chapter, I am going away from the practice of having a set of war stories because I have found that there is not a lack of interesting and often humorous stories available on the Web. What I have provided here is a set of links to stories of successes, failures, common mistakes, not so common mistakes, and so on. The instructor can rather quickly find a set of articles that will assist in either stimulating classroom discussion or the completion of group projects. 1. A very useful slide presentation with three cases of failures and subsequent re-evaluation of data warehousing ventures can be found at: http://www.mitre.org/support/papers/tech_papers99_00/d-warehouse_presentation The slides at the end which indicate reasons for failures are great! 2. A nice article on data warehouse performance measurement and industry best practices can be found at http://www.tdan.com/i010ht03.htm 3. Interesting article on the use of data warehousing for business intelligence can be found at: http://cutter.com/itgroup/reports/dwissues.html 4. An inside story of a fatally flawed data warehousing project can be found at: http://www.idgnet.com/english/crd_data_4839.html 5. A very interesting article on the politics of data warehousing can be accessed at: http://www.hevanet.com/demarest/marc/dwpol.html 6. A nice source containing articles, successes and failures can be seen at: http://www.commerce.virginia.edu/dwresearch/restricted/participants_welcome.html 7. An article covering keys to data warehousing success is at: http://www.formula.com/products/sdwwpkeys.htm Questions for Review 1. What is the goal of data management? The goal of data management is to provide the infrastructure and tools to transform raw data into usable corporate information of the highest quality. 2. What constraints do managers face when they cannot trust data?

Managers face constraints like uncertainty to make intelligent business decisions. Data errors and inconsistencies lead to mistakes and lost opportunities, such as failed deliveries, invoicing blunders, and problems synchronizing data from multiple locations. 3. Why is it difficult to manage, search, and retrieve data located throughout the enterprise? •

• • • • • •

The volume of data increases exponentially with time. New data are added constantly and rapidly. Only a small percentage of an organization’s data is relevant for any specific application or time, and those relevant data must be identified and found in order to be useful. External data that need to be considered in making organizational decisions are constantly increasing in volume. Data are scattered throughout organizations and are collected and created by many individuals using different methods and devices. Data are frequently stored in multiple servers and locations and also in different computing systems, databases, formats, and human and computer languages. Data security, quality, and integrity are critical, yet easily jeopardized. In addition, legal requirements relating to data differ among countries, and they change frequently. Data are being created and used offline without going through quality control checks; hence, the validity of the data is questionable. Data throughout an organization may be redundant and out-of-date, creating a huge maintenance problem for data managers.

4. How can data visualization tools and technology improve decision making? Data visualization tools present data in ways that are faster and easier for users to understand. This enables business managers to consolidate vast amounts of data into a simple visual form enabling faster decision making. 5. What is master data management? Master data management (MDM) is a process whereby companies integrate data from various sources or enterprise applications to provide a more unified view of the data. 6. What are the three benefits of document management systems? •

Enables a company to access and use the content contained in the documents

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Cuts labor costs by automating business processes

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Reduces the time and effort required to locate information the business needs to support decision making

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Improves the security of the content, thereby reducing the risk of intellectual property theft

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Minimizes the costs associated with printing, storage, and searching for content

7. What are three limitations of the file management approach? •

Data redundancy

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Data inconsistency 3

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Lack of data integrity

8. Why does each record in a database need a unique identifier (primary key)? Records in a database need primary keys to uniquely identify them so that the record can be retrieved, updated, and sorted. 9. How do the data access methods of sequential file organization and direct file access methods differ? In sequential file organization, data records must be retrieved in the same physical sequence in which they are stored. The operation is like a tape recorder. In direct file organization, or random file organization, records can be accessed directly regardless of their location on the storage medium. The operation is like a DVD drive. 10. What is a database? What is a database management system (DBMS)? A database is a collection of information organized in such a way that a computer program can easily record and retrieve it. Databases are organized into files, records, and fields. A DBMS is a program that provides access to databases. The DBMS permits an organization to centralize data, manage them efficiently, and provide access to the stored data by application programs. 11. What are three data functions of a DBMS? •

Data filtering and profiling - Inspecting the data for errors, inconsistencies, redundancies, and incomplete information.

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Data quality - Correcting, standardizing, and verifying the integrity of the data.

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Data synchronization - Integrating, matching, or linking data from disparate sources.

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Data enrichment - Enhancing data using information from internal and external data sources.

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Data maintenance - Checking and controlling data integrity over time.

12. What is the difference between the physical view of and the logical view of data? The physical view of data deals with the actual, physical arrangement and location of data in the direct access storage devices (DASDs). The logical view, or user’s view, of data is meaningful to the user allowing the users to see data from a business-related perspective rather than from a technical viewpoint. 13. What is the main difference in the designs of databases and data warehouses? The main difference is that databases are designed and optimized to store data, whereas data warehouses are designed and optimized to respond to analysis questions that are critical for a business. 14. Compare databases and data warehouses in terms of data volatility and decision support. Databases are volatile because data are constantly being added, edited, or updated. To overcome this problem, data are extracted from designated databases, transformed, and 4

loaded into a data warehouse and this cannot be modified like that of a database. Unlike databases, then, data warehouse data are not volatile With decision support, many companies have built data warehouses out of the frustration of having raw and inconsistent data. 15. What is the advantage of an active data warehouse? Companies can make better decisions because they have access to better information 16. What are the data functions performed by a data warehouse? Data warehouses deliver information effectively and efficiently. Data can then be more easily utilized in areas of the business such as marketing and sales, pricing and contracts, and forecasting. 17. How can a data warehouse support a company’s compliance requirements and going green initiatives? For compliance initiatives, a company can store integrated data in an EDW (enterprise data warehouse), making it easier for the company to control which people can access and use sensitive financial data. In addition, there is increased accuracy in reporting financial results, data security, encryption of sensitive data, and disaster recovery planning. Maintaining separate data marts impacts the environment. Consolidating power-hungry servers, which are often underutilized, reduces both electricity consumption and the amount of heat produced, which in turn reduces the amount of energy required for cooling the equipment. 18. Why are data centers important to performance? Data centers integrate networks, computer systems, and storage devices and they provide users access to all data from one central area. Their existence alone increases efficiency and accuracy of business decisions. 19. Define ECM Enterprise content management (ECM) includes electronic document management, Web content management, digital asset management, and electronic records management (ERM). It has become an important data management technology, particularly for large and mediumsized organizations. 20. What is the difference between a document and a record? Documents contain unstructured content like emails and instant messages, spreadsheets, faxes, reports, case notes, Web pages, voice mails, contracts, and presentations that cannot be put into a database. To be retrievable, records must be organized and indexed like structured data in a database. Records are different from documents in that they cannot be modified or deleted except in controlled circumstances. In contrast, documents generally are subject to revision. 21. Why is ERM important to an organization? An organization needs to decide which records to either retain or destroy and thus a lot of thought is put into records management. Companies need to be prepared to respond to an 5

audit, federal investigation, lawsuit, or any other legal action which might require the use of some important records, the management of which needs to be done carefully. 22. Define discovery and e-discovery Discovery is the process of gathering information in preparation for trial, legal or regulatory investigation, or administrative action as required by law. When electronic information is involved, the process is called electronic discovery, or e-discovery. 23. How does creating backups of electronic records differ from ERM? Creating backups of records is not a form of ERM, because the content is not organized so that it can be accurately and easily retrieved. Questions for Discussion 1. How would reducing uncertainty lead to an improvement in net earnings? Use the net income model in your answer. When data is retrieved and converted into useful information, it becomes accurate information which acts as a basis for sound decision making on the part of executives of a company allowing them to cut out waste in terms of avoiding spending on useless ventures. Viewed from the basic profitability or net income model (profit=revenues-expenses), profit increases when employees learn from and use the data to increase revenues, reduce expenses, or both. When sound decisions are made, informed investments are made which ends up increasing revenues and allowing executives to reduce expenses. This ultimately increases profits. 2. Explain how having detailed real-time or near real-time data can improve productivity and decision quality. When companies have access to real time data, they can make quicker and more accurate decisions based on what is happening in the field. Thus they are able to respond more accurately to issues that need to be responded to in a timely manner. 3. Why does data management matter? Why are data an organizational asset? Data management helps companies improve productivity by insuring that people can find what they need without having to conduct a long and difficult search. Data management determines the productivity of managers and employees. The goal of data management is to provide the infrastructure and tools to transform raw data into usable corporate information of the highest quality. To maximize earnings, companies need to invest in data management technologies that increase the opportunity to increase revenues and the ability to cut expenses. 4. List three types of waste or damages that data errors can cause. Data errors and inconsistencies lead to mistakes and lost opportunities, such as failed deliveries, invoicing blunders, and problems synchronizing data from multiple locations. Data analysis errors have also resulted from the use of inaccurate data. 5. Explain the principle of 90/90 data use. According to the 90/90 data-use principle, a majority of stored data, as high as 90 percent, is 6

seldom accessed after 90 days (except for auditing purposes). In other words, data lose much of their value after three months. In certain industries that deal with perishable goods or ones that deal with seasonal sales merchandise, getting sales data many weeks later could result in lost sales both from being unresponsive to customers’ likes and dislikes and from higher food costs and also seasonal changes. 6. How does data visualization improve decision making? Data visualization tools present data in ways that are faster and easier for users to understand. This enables business managers to consolidate vast amounts of data into a simple visual form enabling faster decision making. This can be in the form of tables and graphs and dashboards which can be updated in real time to allow decision makers to have access to real time information. 7. Discuss the major drivers and benefits of data warehousing. Some of the drivers of data warehousing include: • The need to restructure the IT strategy of the organization by moving information onto servers and away from mainframes • Increased empowerment of the end-users by allowing the users to conduct advanced data analyses • The development of consolidated views of data in contrast to the silo effect • Moving information processing from high-cost mainframes to low-cost servers • Improved business knowledge • The development of competitive advantage – knowing the customer, knowing the business, knowing the environment • Enhanced customer service and satisfaction • Facilitation of decision making • Streamlining of business processes The major drivers of data warehousing are the improvement of business knowledge, the attainment of competitive advantage, the enhancement of customer service and satisfaction, and the facilitation of decision making. Once the data is in the data warehouse and can be accessed by end users, end users can conduct several activities with the data, ranging from decision support and executive support analysis to knowledge discovery. 8. Why is master data management (MDM) important in companies with multiple data sources? Master data management (MDM) is a process whereby companies integrate data from various sources or enterprise applications to provide a more unified view of the data. An MDM includes tools for cleaning and auditing the master data elements as well as tools for integrating and synchronizing data to make the data more accessible. MDM offers a solution for managers who are frustrated with how fragmented and dispersed their data sources are. When this solution is implemented with an organization of this nature, managers can easily have access to all their data from one terminal regardless of their geographical location thereby reducing the time spent collecting data from different sources. 9. A data mart can substitute for a data warehouse or supplement it. Compare and discuss these options. 7

A data mart is a replicated subset of the data warehouse that is dedicated to a functional or regional area. In practice, companies may have a data mart for a particular operation, or they may have several data marts that work together. In this respect, data marts can substitute for a data warehouse or add to it by holding a part of the data warehouse content. In either case, end users can use the warehouse or the marts for many applications. 10. What ethical duties does the collection of data about customers impose on companies? Collection of people’s personal information imposes the burden of securing these bits of information from unscrupulous people who may be aiming at using such information for the purpose of stealing identities. The company needs to put measures in place to protect these bits of sensitive personal information from snooping and sabotage. 11. How are organizations using their data warehouses to improve consumer satisfaction and the company’s profitability? Data warehouses allow managers to have access to real-time, time-sensitive information for better decision making. When customer satisfaction information is collected, managers can have quick access to this information and act timely on them to address their customers’ concerns before they choose competitors products. Addressing these customer concerns in a timely manner allows the company to retain its customers and also draw new customers from the competition, thus increasing profitability. 12. Relate document management to imaging systems. Document management systems usually include imaging systems that can result in substantial savings. In many organizations, documents are now viewed as multimedia objects with hyperlinks. The Web provides easy access to pages of information. Document management systems excel in this area with the help of imaging systems. 13. Discuss the factors that make document management so valuable. What capabilities are particularly valuable? Document management is the automated control of electronic documents, page images, spreadsheets, word processing documents, and complex, compound documents through their life cycle within an organization, from initial creation to final archiving. Document management allows organizations to exert greater control over production, storage, and distribution of documents, yielding greater efficiency in the reusing of information, the control of a document through a workflow process, and the reduction of product cycle times. The major valuable capabilities of document management depend on the tools such as workflow software, authoring tools, and databases that are available. 14. Distinguish between operational databases, data warehouses, and marketing data marts. Operational databases are the databases supporting the transaction processing systems. The data in such cases is organized mainly in a hierarchical structure and is processed by the IS department as summaries and reports. The operational databases might not be as flexible and efficient as a user might want them to be. This calls for data warehousing and marketing data marts. We have previously discussed the data warehouse and data marts. 8

15. Discuss the interaction between real time data and profitability in the Applebee’s case. Applebee’s International had a major problem regarding the lack of necessary infrastructure to adequately measure some key parameters in their business, an example being customer satisfaction with services rendered and regional food preferences. After implementation of their enterprise data warehouse, the company was able to capture an accurate understanding of sales, demand and costs in real time. The system helped the company to capture sales data from all their point of sale systems on a daily basis and consolidate that data to give them the information they need. They were then able to respond to customers’ food preferences by geographical area which guided them on how to move their supplies by geographical area. The company managed to gain a clearer insight into their operations in real time to identify regional preferences and has been able to improve their customer experience, satisfaction and loyalty. This in turn improved service and ultimately their profits. Exercises 1. Read A Closer Look 3.1 “Data Errors Cost Billions of Dollars and Put Lives at Risk.” Answer the further exploration questions. Then visit the SAS Web site at sas.com and search for their data synchronization or data integration solution. List the key benefits of the SAS solution. This exercise involves some research on the part of the students. They would have to apply their knowledge from the case to their findings on the SAS website and seek to find ways they can solve the problems in the case with the solution provided. 2. Interview a knowledge worker in a company for which you work or to which you have access. Find the data problems they have encountered and the measures they have taken to solve them. Relate the problems to Strong’s four categories. The answer to this question requires interviewing a knowledge worker in an organization. The concepts of knowledge management have been addressed in Chapter 9 of the textbook. Chapter 9 mentions various useful references that can be used in answering this question. Group Assignments 1. Prepare a report on the topic of “data management and the intranet.” Specifically, pay attention to the role of the data warehouse, the use of browsers for query, and the use of data mining. Also explore the issue of GIS and the Internet. Finally, describe the role of extranets in support of business partner collaboration. Each student will visit one or two vendors’ sites, read the white papers, and examine the products (Oracle, Red Bricks, Brio, Siemens Mixdorf IS, NCR, SAS, and Information Advantage). Also, visit the website of the Data Warehouse Institute (dw-institute.org). 9

Ocean Spray Cranberries is a large cooperative of fruit growers and processors. Ocean Spray needed data to determine the effectiveness of its promotions and its advertisements. Furthermore, it needed to make itself able to respond strategically to its competitors’ promotions. The company also wanted to identify trends in consumer preferences for new products and to pinpoint marketing factors that might be causing changes in the selling levels of certain brands and markets. Ocean Spray buys marketing data from Info-Scan (infores.com), a company that collects data using bar code scanners in a sample of 2,500 stores nationwide and from A. C. Nielsen. The data for each product include sales volume, market share, distribution, price information, and information about promotions (sales, advertisements). The amount of data provided to Ocean Spray on a daily basis is overwhelming (about 100 to 1,000 times more data items than Ocean Spray used to collect on its own). All the data are deposited in the corporate marketing data mart. To analyze this vast amount of data, the company developed a DSS. To give end users easy access to the data, the company uses an expert system–based data-mining process called CoverStory, which summarizes information in accordance with user preferences. CoverStory interprets data processed by the DSS, identifies trends, discovers cause and effect relationships, presents hundreds of displays, and provides any information required by the decision makers. This system alerts managers to key problems and opportunities. a. Find information about Ocean Spray by entering Ocean Spray’s website (oceanspray.com). b. Ocean Spray has said that it cannot run the business without the system. Why? c. What data from the data mart are used by the DSS? d. Enter scanmar.nl and click the Marketing Dashboard. How does the dashboard provide marketing and sales intelligence? The answer to this question requires a visit to the Ocean Spray web site, so that students can explore various aspects of their system. Internet Exercises These exercises are based on the availability of the websites on the Internet at the time of practice. I would recommend that the instructors check the websites before assigning the exercises to the students. Minicase Pushing Corporate Data to Employees’ Facebook Pages This case talks about a company allowing its employees to share information about projects and personal expertise over the social networking site Facebook and build networks based on that knowledge. Students will have to thoroughly read this case and answer the questions that follow. It includes visiting the company’s website at myworklight.com to learn more about the product. 10

Summary This chapter has focused on dealing with data and managing data to make various decisions. As the volume of available data is growing, it has become increasingly important to acquire and store it appropriately, and to incorporate a strategy of sharing the data all across the enterprise. This chapter has discussed various methods to accomplish this such as data warehousing, data mining, knowledge management, and online analysis processing. This chapter also considered the various issues and benefits of using various approaches to data management. What’s Next? The next chapter directs attention to intelligent and emerging technologies. The chapter discusses the impacts of collaboration on business performance and discusses the different types of network infrastructures. The chapter concludes with a very interesting and useful section on supporting creativity, which is where new developments are born.

Chapter 4 Networks and Collaboration as Business Solutions Goals of the Chapter The primary objective of this chapter is to develop an understanding of the complexity of organizational networks, and more importantly of the benefits of the importance of communication and collaboration in gaining competitive advantage for the organization. An Overview Section 4.1 – Enterprise Networks, Connectivity and Trends – This section provides a background on the importance of private networks and other modes of connectivity to a business. It also talks about network devices and their contributions to the business environment. Section 4.2 – Network Management and Collaboration Technology – The collaboration of different networks in large organizational networks in addressed. The section also addresses network computing infrastructure and information portals. Section 4.3 – Wireless, Enterprise Mobility and IP Telephony – This section pays special attention to the importance of mobile and wireless infrastructure. The section also discusses the advantages of having a mobile enterprise. Section 4.4 – Discovery, Search and Customized Delivery – This section focuses on the development and application of search engines and their contribution to the ease of finding information on the Internet. Section 4.5 – Collaboration and Web-based Meetings – This section addresses the impact of collaboration on business performance. Section 4.6 – Social, Legal and Ethical Issues – This section presents some of the ethical and social issues that both users and corporations should consider as communication technologies, and access to information continues to expand and evolve. IT@Work IT at Work 4.1 - Kaiser Permanente uses Google to build a web portal – This case presents the use of advanced search technology in the development of a corporation’s web portal. The importance of efficient and effective data search is discussed. IT at Work 4.2 – Thrifty Car Rental Uses IP Telephony to Increase Operational Efficiency and Customer Service – This anecdote talks about how Thrifty Car Rental was able to Cisco’s IP Communications and Intelligent Contact Management to effectively help with automated, self help services across all channels of interaction to improve its customer service initiatives. IT at Work 4.3 – Mobile Developments - This case outlines the various developments in the mobile phone industry in the past few years. Mobile phones are not just used for making phone calls anymore. They have become an integral part of business connectivity at various levels.

IT at Work 4.4 - Browsers Compete for Business through Sharing and Collaboration Applications - This case details the increasing market of specific applications that Internet web browsers can offer individuals and organizations through sharing and collaboration of files. IT at Work 4.5 – Virtual Teams at Sabre Inc. – The case discusses the evolution of Sabre from its early days as a travel reservation application developed by American Airlines to its modern incarnation. IT at Work 4.6 – Internet 2007 – Life in the connected world – Discusses the evolution of the Internet up to and beyond its present state of development.

Questions for Review 1. How can networked devices improve collaboration and personal productivity? Network devices allow information to be rapidly collected, processed, shared and acted upon. 2. What is micro-blogging and how is it done? Micro blogging is the sending of messages up to 140 characters. It is usually done via mobile phones through social networking sites utilizing the web, phones, or IM. 3. What advantages do Twitter and other micro-blogging web sites offer over traditional forms of communication? •

They have the ability to send information to millions of people instantly

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They also allow people to send and receive messages while on the move. i.e. via mobile devices

4. Why are handsets replacing computers? Mobile devices are now equipped with high-speed data transfer technology and have the capability of sending and receiving all types of media at very high speeds. All these functions can be done by computers but in the case of handsets, they are mobile. 5. What are the unique characteristics or features of 4G network standards compared to 2G and 3G •

4G networks allow for faster data transfer rates.

•

They do not have a circuit-switched subsystem like 2G and 3G networks. 4G networks are based purely on the Internet Protocol.

6. How might a company’s business performance be affected by its network’s capabilities? Network capabilities depend on proper planning, maintenance, management, upgrades and bandwidth to ensure sufficient capacity and connectivity to link people, locations and data. If

these support systems are not in place, those who need access to the data will be adversely affected and thus affecting businesses performance negatively. 7. What is the difference between IP and UDP? Under IP, data and documents are converted into packets based on the Internet Protocol and sent via packet-switched computer networks called LANs which connect network devices over a relatively short distance. IP makes use of an error checking approach. UDP protocols do not check for errors during transmission and therefore have less overhead and are thus faster. 8. What are the benefits of an IP based network strategy? •

Cost savings

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Better operations from using one converged network instead of several smaller networks dedicated to specific purposes.

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Packets can be transmitted over high speed networks wireline, wireless or both

9. What is a virtual private network (VPN) VPNs are created using specialized software and hardware to encrypt and decrypt transmissions creating a private encrypted tunnel within the Internet or other public network 10. What is the difference between an extranet and an intranet? An intranet is a network designed to serve internal informational needs of a company using Internet tools. An extranet on the other hand is a private, company owned network that uses IP technology to securely share part of a business’s information or operations with suppliers, vendors, partners, customers or other businesses. Intranets are internal to the company and extranets are external to the company. 11. What factors are contributing to a consolidated and enterprise-wide approach to mobility? • • • • • • •

New wireless technologies and standards, primarily the arrival of the 802.11n standard High speed wireless networks Ultra-mobile devices More robust operating systems and applications Increased competitive pressure as others start adopting mobile technology Overall increased speed of business Operational inefficiencies from wasted use of human operators

12. What is IP telephony? IP telephony, also known as Voice over Internet Protocol (VoIP) is the delivery of voice communications over IP networks such as the Internet. 13. What is a mobile enterprise? A mobile enterprise is one that has the ability to connect and control suppliers, partners, employees, products and customers from any location. 3

14. What major vendors are helping drive the mobile enterprise? 3Com Corporation, Cisco and Motorolla 15. How do search engines function? What are the three types of search engines? •

Search engines perform three basic tasks o They search the Internet based on key words o They keep an index of the words they find and where they find them o They allow users to search for words or combinations of words found in that index

•

The three types of search engines are: o Intelligent agents or crawler-based o Human powered o Hybrids

16. What is enterprise search and what does it offer enterprises? Enterprise search takes advantage of available metadata to provide access control, simple and advanced search and browser based administration to obtain information from external websites, networks and local file servers. 17. What are blogs and how can they reduce IT hardware costs? •

Blogs are personal publishing tools provided by certain websites that allow people to add entries and broadcast whatever they want on their personal pages.

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Blog servers require fewer dedicated resources than an enterprise intranet freeing IT hardware and support resources.

18. What are wikis and what are they capable of replacing? Why? Wikis are server software that allows users to freely create and edit web page content. They are capable of replacing major collaboration tools and emails. This is because wikis are open source and spam free. 19. What is podcasting? Why is it popular? Podcasting is a way to distribute or receive audio and video files called pods or podcasts over the Internet. They are becoming very popular due to the fact that they can be downloaded from a computer onto an MP3 player or iPod. 20. How does RSS customize delivery of content to users? RSS readers are software that monitors blogs or sites for new content and delivers the content automatically on a newsreader. 21. How do XML and XBRL support locating and sharing information? XML is a meta-language for describing markup languages for documents containing 4

structured information. XBRL is a version of XML for capturing financial information throughout a business’s information processes. It makes it possible to format reports that need to be distributed to shareholders, regulators, banks and other parties.

Questions for Discussion 1. Why would 4G wireless networks bring about significant changes in connectivity? 4G networks do not have a circuit switched sub-system as do 2G and 3G networks. 4G networks are based solely on the Internet Protocol which makes it significantly faster. 4G networks provide a ubiquitous connection and will integrate wired and wireless networks to enable seamless service anytime, anywhere. 2. There is a growing demand for video to handheld devices. Explain at least three factors that contribute to this demand. • • •

The quality of digital signal The expansion of capacity and infrastructure that allows for richer forms of communication Transmission over the Internet has contributed to this demand.

3. Why attend class if you can view or listen to a podcast? Students should recognize the difference between interaction and absorption; synchronous and a-synchronous communication; and the nature of ‘one-way’ communication. 4. Discuss some of the potential applications of collaborative technologies in the service and manufacturing sector. The answer to this question will be dramatically affected by the evolution of technology from the time of the printing of this manual and the time it is actually read. However, as a principal, students should recognize the importance of connectivity and access to information. More efficient and effective operations can lead to better production and customer service. A good example might be the ability for geographically dispersed members of a product design team to collaborate effectively in real-time. 5. Discuss some of the potential applications of wireless technologies in the financial sector. The answer to this question will be dramatically affected by the evolution of technology from the time of the printing of this manual and the time it is actually read. However, as a principal, students should recognize the importance of connectivity and access to information. More efficient and effective operations can lead to better production and customer service. An example might be the ability for individuals to have real-time access to financial data anywhere. 6. Discuss the components of a mobile communication network Students should be able to recognize and discuss the various elements of a mobile communication network. Additionally they should be able to identify where weak points of the network are, e.g., where data communication efficiency might be compromised. 7. Explain the roles of protocols in mobile communications and their limitations. Students should be able to discuss the nature of protocols and understand that they are a 5

necessary ‘basic vocabulary’ to allow for communication. However, they should also understand that by establishing protocols, one is also erecting walls through which services that prescribe to different protocols may not operate – thus closing off potential markets and communication. 8. Discuss the impact of wireless computing on emergency response services. In an environment that relies on real-time access to vital data, where time is a resource in short supply, students should recognize how Wi-Fi adds value: Whether it is the ability to respond more quickly to large scale disasters like the flooding of New Orleans, or the ability to communicate accurate information between ambulance and doctor while a patient is en route to the hospital, wireless is important. 9. Describe the ways in which WiMax is affecting the use of cellular phones for m-commerce. The mechanics of WiMax, concurrent with the level discussed in the text, should be understood such that students can relate the increased access and availability of m-commerce to benefit the market. They should also understand the requirements and ramifications for security and communication protocols and how they must be developed in light of concern for secure data communication of financial information. 10. Which of the current mobile phone limitations will be minimized in the next five years? Which will not? The identification of limitations in the technology surrounding mobile phone use is an important aspect of this question. Students should also be able to explain the logic as to why they believe a problem might be resolved. For instance, one might suggest that the use of rich media might become more prevalent in the next five years – i.e., the ability to watch an entire movie on a cell phone. The logic might be that transmission of data has historically shown that efficiency of data transmission and compression is steadily increasing and is likely to continue in this direction. 11. It is said that Wi-Fi is winning the battle against 3G. In what sense is this true? In what sense is it not? Students should be able to identify the current applications of both Wi-Fi as well as the limitations. 12. Discuss the ethical issues of social networks and anytime anywhere accessibility? The answer to this question will be dramatically affected by the evolution of technology from the time of the printing of this manual and the time it is actually read. However, as a principal, students should recognize the importance of connectivity and access to information. 13. What health and quality of life issues are associated with social networks and a 24/7 connected life style? These discussions are based on research studies that have been conducted over time by some reputable research organizations. These include statistics about car crashes that have happened as a result of people either talking on the phone or sending text messages. Research has also shown that people suffer from disconnect anxiety when they are deprived the use of the internet or wireless devices over a period of time. There are some health risks that have been talked about in research concerning people developing brain tumors after a prolonged 6

exposure of the brain to radio frequency waves after the use of cell phones.

Internet Exercises These exercises are based on the availability of the websites on the Internet at the time of practice. I would recommend that the instructors check the websites before assigning the exercises to the students.

Minicase Wikis, Blogs and Chats Support Collaboration at DrKW This mini-case presents the use of Wikis and blogs by an international investment bank in developing a means for sharing knowledge, communication and collaboration. The various efficiencies as compared to other forms of digital collaboration and communication (such as email) are addressed.

Problem-Solving Activity Comparing the costs of Using Web Meetings and Collaboration. This is a chance for students to explore the use of web meeting tools like WebEx and Windows LiveMeeting. Students will read the case and also conduct independent research from multiple sources to be able to understand the complexities and usefulness of web meetings and also their impact on a business.

Summary This chapter has focused on the organizational impacts and applications of communications and collaboration technologies. It also addressed the complex evolution of the infrastructure for networks that has resulted in the current state of advancement. The potential for future applications, but also ethical issues arising from the applications, is a central aspect to how the organization should plan for the future to maximize the strategic benefits IT brings to the organization.

What’s Next? The main goal of the next chapter is to recognize the difficulties in managing information resources, while learning how to recognize the vulnerabilities and weaknesses of information systems security.

Chapter 5 Securing the Enterprise and Business Continuity Goals of the Chapter The main goal of this chapter is to recognize the difficulties in managing information resources, while learning how to recognize the vulnerabilities and weaknesses of information systems security. Other goals include distinguishing between security measures, analyzing disaster planning and recovery, and appreciating the need for business continuity and disaster recovery.

An Overview Section 5.1 – Data and Enterprise Security Incidents – This section introduces the threats posed to external infiltrations into organizational data and the financial obligations of these organizations to restore security to breached networks. Section 5.2 – IS Vulnerabilities and Threats – This section explores the various possible threats to which an IS might be exposed and the various methods and modes of attack on computing facilities and the defense mechanisms that can be deployed to fight these attacks. Section 5.3 - Fraud and Computer-Mediated Crimes – This section discusses various IS vulnerabilities and computer crimes that must be recognized and considered to protect information systems. Section 5.4 – IT Security Management Practices – This section presents various plans that can be adopted to protect information systems from the attacks described in the previous section. Issues of security, firewalls, access control, and authorization, as well as auditing, are important in addressing system vulnerability. Section 5.5 – Network Security – Concepts such as access control, modem types and problems, encryption, troubleshooting, and payload security are discussed, as well as the problems unique to wireless networks. Section 5.6 – Internal Control and Compliance Management - This section presents various procedures for maintaining and monitoring systems. Section 5.7 - Business Continuity and Disaster Recovery Planning – Disaster recovery planning is explained, including the need for backup arrangements and the need to ensure business continuance. Section 5.8 - Auditing and Risk Management –This section introduces the audit process, types of audits and auditors, and the execution of an audit. The concepts of risk management and costbenefit analysis are developed.

Practical Applications IT at Work 5.1 – $100 Million Data Breach at the U.S. Department of Veterans Affairs - The case details an example of why it is so important to have established procedures for protecting sensitive information on networks, and why these procedures should be followed. IT at Work 5.2 Business Continuity and Disaster Recovery This case highlights the importance of forward planning for issues of data loss and data recovery. It discusses the importance of implementing a solid Business Continuity and Disaster Recovery to the survival of a company in the event of significant data loss.

War Stories Story 1 Security is a function that is provided to you by technology but the decision remains with the individual to ensure that the security works. Every bank, when issuing ATM cards, is telling the consumer not to keep the PIN number with the card, for security reasons. In one of the European banks, a customer went to see the President of the Bank with a complaint that by repainting the wall by the ATM machine, they prevented him from taking money out of his account. System security people were completely baffled by this statement and could not figure out how repainting the wall around the ATM would impact accessibility to the account. After investigation, a story came out as follows: The customer listened to the instruction not to keep the PIN number with the ATM card and he scribbled his number on the wall by the ATM machine. One would think that this is perhaps the ultimate breach of security as everyone passing that machine would be able to read the number. On the other hand, it was quite convenient for the customer. In another instance, a person took the instructions to keep the PIN numbers and the ATM card separate, but possessed a large number (9) of ATM cards. The individual wrote the PIN number for card A on card B, the number for card B on card C, and so on. His argument was that the person would try the number a few times and would then have the card seized by the ATM machine. Story 2 Hired to perform a security investigation of several major corporations, I was surprised to find how easy it was to find codes, passwords, etc., in even those operations claiming the tightest security measures. Secretaries often write their authentication codes on the first or last page of their desk calendar. Emergency Repair Disks for the computers are often (upon advice of Microsoft) taped to the back of a computer. Servers are out in the open, not in secured rooms. Appropriately attired, I entered a major brokerage house at lunch time and was able to sit down at a computer. After a few minutes of growing frustration, I called out and asked if anyone could give me that day’s password. A chorus of voices shouted the answer back. On another occasion, I was able to ring up several individuals, to identify myself as working in the IT department, and to say that I was trying to fix their machines, accessing them through the

main system to make the necessary repairs. All were happy to supply me with their passwords, granting me rapid access to the systems. Story 3 Every bank system requires a mirror reflection (an exact copy) on a backup hard drive system that will prevent losing data in case of disaster. This raises an interesting question: If you have two machines placed 60 miles apart, is your system really secure? With today’s SANs, there might be thousands of miles separating the two hard drives. In the first place, the real question is “Do we really have a mirror reflection of the data on the second machine, and if not what should be done to ensure that there is a full reconciliation of the database?” Every transaction takes a very short period of time to be written first to the main machine, and then a bit more time to be replicated to the backup machine. Even if this time is a few nanoseconds, it still means that there may be transactions on the first machine that did not get recorded on the second when disaster struck. Is this data important, and can you recover it?

Questions for Review 1. Why are cleanup costs after a single data breach or infosec incident in tens of millions of dollars? This amount comes from all the activities that need to be conducted in the event of a breach like informing all affected customers, hardware and software upgrades etc. 2. Who are the potential victims of an organization’s data breach? Potential victims of breaches are often third parties, such as customers, patients, social network users, credit card companies, and shareholders. 3. What is time-to-exploitation? What is the trend in the length of such a time? Time-to-exploitation is the elapsed time between when vulnerability is discovered and when it is exploited. The trend has shifted from months to days due to the sophisticated nature of today’s spyware and mobile viruses 4. What is a service pack? Service packs are the means by which product updates are distributed. Service packs may contain updates for system reliability, program compatibility, security, and more. 5. What are two causes of the top information problems at organizations? Human Error and Malfunctioning systems 6. What is an acceptable use policy (AUP)? Why do companies need an AUP? An AUP informs users of their responsibilities, acceptable and unacceptable actions, and consequences of noncompliance to security policies. An AUP is needed for two reasons: •

To prevent misuse of information and computer resources

•

To reduce exposure to fines, sanctions, and legal liability

7. Define and give three examples of an unintentional threat. Unintentional threat is the unintended exposure of a company or organizations network to a security breach. Examples are: • • •

Human errors Environmental hazards Computer systems failures

8. Define and give examples of an intentional threat. Intentional threat is the deliberate threat posed by people deliberately trying to compromise secure networks. Examples are: • • •

Theft of equipment and/or programs. Deliberate manipulation in handling, entering, processing, transferring, or programming data. Malicious damage to computer resources.

9. What is social engineering? Give an example. Social engineering is a trick used by criminals or corporate spies to trick insiders into giving them information or access that they should not have. 10. What is a crime server? A crime server is a server used to store stolen data for use in committing crimes 11. What are the risks from data tampering? Data tampering is extremely serious because it may not be detected. The risks include malware, viruses, worms and Trojan horses. 12. List and define three types of malware Virus - It attaches itself to and infects other computer programs, without the owner of the program being aware of the infection. When the infected software is used, the virus spreads, causing damage to that program and possibly to others. Worm - A worm spreads without any human intervention, such as checking e-mail or transmitting files. Worms use networks to propagate and infect anything attached to them including computers, handheld devices, Web sites, and servers. Trojan horse or RAT - A Trojan horse attaches itself to a zombie’s operating system and always has two files, the client file and the server file. The server, as its name implies, is installed in the infected machine while the client is used by the intruder to control the compromised system 13. Define botnet and explain its risk A botnet is a collection of computers infected by software robots called zombies, which can

be controlled and organized into a network of zombies on the command of a remote botmaster. They expose infected computers to spyware, adware, spam, phishing and DoS attacks. 14. Explain the difference between an IDS and an IPS An IDS scans for unusual or suspicious traffic and can identify the start of a DoS attack by the traffic pattern, alerting the network administrator to take defensive action. An IPS is designed to take immediate action such as blocking specific IP addresses whenever a traffic-flow anomaly is detected. Both of these are defense mechanisms against malware. 15. Define fraud and occupational fraud. Give two examples of each. Fraud is a nonviolent crime, using deception, confidence, and trickery and by the abuse of power and position or taking advantage of the trust of others. When a person uses his or her occupation for personal gain through deliberate misuse of the organization’s resources or assets, it is called occupational fraud. Examples include employee theft-Embezzlement, reporting false financial information and bribery. 16. Explain why data on laptops and computers should be encrypted. Data encryption is the transforming data into scrambled code to protect it from being understood by unauthorized users. Doing this prevents data from being stolen even if a laptop containing sensitive information is stolen. 17. What is a rootkit? Explain why hackers use them. Rookits are sets of network administration tools to take control of the network. Hackers use them to take control of networks they want to hack into. 18. Why are Web 2.0 applications vulnerable? Web 2.0 applications that are vulnerable because user-supplied data (which could have been supplied by hackers or others with malicious intent) cannot be trusted. 19. Why is spyware expected to grow more malicious? Network systems are getting more complex with their security capabilities and criminals continue to improve the capabilities of their spyware to help preserve the attacker’s control of a victim machine. 20. What are the major objectives of a defense strategy? Prevention and Deterrence, Detection, Containment, Recovery, Correction, Awareness and compliance. 21. What are general controls? What are application controls?

General controls are established to protect a system regardless of the specific application. Application controls are safeguards that are intended to protect specific applications. 22. Define access control Access control is the management of who is and is not authorized to use a company’s hardware and software. 23. What are biometric controls? Give four examples. A biometric control is an automated method of verifying the identity of a person, based on physical or behavioral characteristics. Examples are Thumbprints or fingerprints, Retinal scan, Voice scan and signature. 24. What is the general meaning of intelligent agents? Intelligent agents, also referred to as softbots or knowbots, are highly intelligent applications meaning applications that have some degree of reactivity, autonomy, and adaptability. 25. What are network access control (NAC) products? NAC technology helps businesses lock down their networks against criminals 26. Define authentication, and give three examples of authentication methods. An authentication system guards against unauthorized access attempts with the major objective of proof of identity. Examples: Username/password, Biometrics and single sign-on 27. Define authorization. Authorization refers to permission issued to individuals or groups to do certain activities with a computer, usually based on verified identity. 28. What is a firewall? What can it not protect against? A firewall is a system, or group of systems, that enforces an access-control policy between two networks. It is commonly used as a barrier between a secure corporate intranet or other internal networks and the Internet, which is unsecured. Firewalls do not stop viruses that may be lurking in networks. 29. Define war driving and a resulting risk. War driving is the act of locating wireless local area networks while driving around a city or elsewhere. Through war driving, malicious users can obtain a free internet connection, and possibly gain access to important data and other resources. 30. Define internal control. The internal control environment is the work atmosphere that a company sets for its employees to achieve reliability of financial reporting, operational efficiency, compliance with laws, regulations and policies, and safeguarding of assets. 6

31. What is the role of IT in internal control? The role of IT in internal controls is manifested in the following ways • • • • • • • •

Safeguard assets Ensure the integrity of financial reporting Disclose security breaches in a timely manner Prevent, detect, and investigate fraud and intrusions Visibly monitor employee behavior Retain electronic business records Provide for recovery from devastating disasters Provide a defensible basis for investigations and audits

32. How does SOX Section 302 deter fraud? SOX section 302 deters corporate and executive fraud by requiring that the CEO and CFO verify that they have reviewed the financial report, and, to the best of their knowledge, the report does not contain an untrue statement or omit any material fact. 33. List three symptoms or red flags of fraud that can be detected by internal controls. • • • • •

Missing documents Delayed bank deposits Holes in accounting records Numerous outstanding checks or bills Disparity between accounts payable and receivable

34. What does the Basel II Accord recommend? The Basel II Accord imposes rigorous antifraud requirements for banks. This Accord aims to promote enhanced risk-management practices among large, international banking organizations. 35. Why do organizations need a business continuity plan? Organizations need a business continuity plan because disasters may occur without warning and they need to be prepared at all times. Such a plan outlines the process by which businesses should recover from a major disaster. 36. List three issues a business continuity plan should cover. A business continuity plan should cover Recovery planning, recovery from a total loss of all capabilities and keep the business running after a disaster occurs. 37. Identify two factors that influence a company’s ability to recover from a disaster. • •

Planning should focus first on recovery from a total loss of all capabilities. Critical applications must be identified and recovery procedures addressed in the plan.

38. What types of devices are needed for disaster avoidance? Many companies use a device called uninterrupted power supply (UPS)

39. Explain why business continuity/disaster recovery (BC/DR) is not simply an IT security issue. In case of a disaster, companies can transmit vital accounting, project management, or transactional systems and records to their disaster recovery facilities, limiting downtime and data loss despite an outage at the primary location. Even though IT plays a vital role in disaster recovery, business managers need all the information they can get to make timely business decisions. 40. What are auditing information systems? Auditing information systems are systems that act as an additional layer of controls or safeguards. It is considered as a deterrent to criminal actions, especially for insiders. 41. Why should Web sites be audited? Auditing a Web site is a good preventive measure to manage the legal risk. Legal risk is important in any IT system, but in Web systems it is even more important due to the content of the site, which may offend people or be in violation of copyright laws or other regulations. 42. How can expected loss be calculated? Expected loss = P1 x P2 x L Where: Probability of attack (estimate, based on judgment) Probability of attack being successful (estimate, based on judgment) Loss occurring if attack is successful 43. List two ethical issues associated with security programs. Some people are against any monitoring of individual activities. Imposing certain controls is seen by some as a violation of freedom of speech or other civil rights IT security measures are needed to protect against loss, liability, and litigation. Losses are not just financial, but also include the loss of information, customers, trading partners, brand image, and ability to conduct business, due to the actions of hackers, malware, or employees 44. How have wireless technologies and a mobile workforce influenced the scope of employment? With wireless technologies and a mobile workforce, the scope of employment has expanded beyond the perimeters of the company. 45. Define the doctrine of duty of care. Under the doctrine of duty of care, senior managers and directors have a fiduciary obligation 8

to use reasonable care to protect the company’s business operations.

Questions for Discussion 1. Many firms concentrate on the wrong questions and end up throwing a great deal of money and time at minimal security risks while ignoring major vulnerabilities. Why? Many times companies do a bad job in recognizing the seriousness of certain threats to their systems and end up concentrating on the wrong threats. These could also stem from how complex these threats are getting from the point of view of hackers who make it difficult system administrators to detect their work. Some companies may also detect certain threats but may not place a high priority of the ones that need paying the most attention to, probably relying on past experiences which may not necessarily be a good thing to do. 2. How can the risk of occupational fraud be decreased? Internal audits and internal controls are critical to the prevention and detection of occupation frauds. Controls are established to ensure that information systems work properly. Controls can be installed in the original system, or they can be added once a system is in operation. An audit is an important part of any control system. Auditing can be viewed as an additional layer of controls or safeguards. It is considered as a deterrent to criminal actions, especially for insiders. 3. Why should information security and control be of prime concern to management? There are several reasons why a company needs to take information security very seriously. In operations, companies need to safeguard the security of their information to guard against encroachment from competitors. They need to keep safe, their trade secrets to stay ahead of the competition. Legally and ethically, companies are bound to keep their customer information safe. A good example includes companies that have clients’ sensitive information like names, addresses and social security numbers have a legal and ethical obligation to safeguard the information that has been entrusted to them by their clients. 4. Compare the computer security situation to with that of insuring a house. When you insure your house, you know your house is safe even if an unfortunate event happens. Meaning, you will be able to get your house back if it is destroyed. In the case of computer security, you can be assured that whenever there is a disaster or a security breach, your data is still protected and that the integrity is safeguarded and not compromised in any way. 5. Explain what Firewalls protect and what they do not protect. Why. A firewall is a system, or group of systems, that enforces an access-control policy between two networks. It is commonly used as a barrier between a secure corporate intranet or other internal networks and the Internet, which is unsecured, protecting against unauthorized access by some unscrupulous people. Firewalls do not stop viruses that may be lurking in networks. Viruses can pass through the firewalls, especially if they are hidden in an email attachment.

6. Describe how IS auditing works and how is it related to traditional accounting and financial auditing? An audit is an important part of any control system. Auditing can be viewed as an additional layer of controls or safeguards. It is considered as a deterrent to criminal actions, especially for insiders. Auditors try to answer several questions like •

Are there sufficient controls in the system? Which areas are not covered by controls?

•

Which controls are not necessary?

•

Are the controls implemented properly?

•

Are the controls effective? That is, do they check the output of the system?

•

Is there a clear separation of duties of employees?

•

Are there procedures to ensure compliance with the controls?

•

Are there procedures to ensure reporting and corrective actions in case of violations of controls?

7. Why are authentication and authorization important in eCommerce? Authentication and authorization are complimentary but different aspects of security in eCommerce. Student should be able to identify their functionality, and thereby their necessity to he overall system and procedures for an organization. 8. Some insurance companies will not insure a company unless it has a computer disaster recovery plan. Why? Insurance companies need to be sure that a company has taken the necessary safeguards on the security of their computer systems and has instituted the necessary disaster recovery plan. This move lessons the liability that the insurance company has to bear in the event of data loss to the company. In this case the insurance company knows that the data can be recovered after the initial disaster. 9. Explain why risk management should have the following elements: threats, exposure associated with each threat, risk of each threat occurring, cost of controls, and assessment of their effectiveness. Risk management should include the threats posed to the system so system administrators can adequately prepare for these threats individually. This allows for a more tailored approach to addressing these threats. Administrators need to know the amount of exposure associated with each threat and the risk of each threat occurring so they can prioritize their efforts in stopping them. Assessments of their effects also need to be addressed. 10. Some people have suggested using viruses and similar programs in wars with other countries. What is the logic of such a proposal? How could it be implemented? Viruses can of course be used as a weapon during war with other countries. Since computer systems have taken over all military systems around the world, a computer virus can be used to cripple the entire computer systems of some major armies which will weaken their ability

to navigate, operate their equipment, and even track enemy movement. 11. Why is cyber crime expanding rapidly? Discuss some possible solutions. Cybercrime is safer and easier than selling drugs, dealing in black market diamonds, or robbing banks. This is because the criminal does not need to move around. They only need a computer and the knowhow to engage in such activities. Some of these activities can be solved by the use of security defenses like Anti-Malware Technology, Intrusion Detection Systems and Intrusion Prevention Systems. Students should recognize the parallels between the advantage IT brings to business as a dispersed entity and how illegal activities can take similar advantage and avoid law enforcement. 12. Discuss why the Sarbanes-Oxley Act focuses on internal control. How does that focus influence infosec? The Sarbanes-Oxley Act (SOX) was enacted as a result of corporate executives of public companies not divulging accurate financial information about their companies thus deceiving investors about the true state of their companies. SOX requires public companies to follow complex and costly provisions and that has had a major impact on corporate financial accounting. These controls outlined in the mandate are specifically for companies to institute internal controls that will allow investors to have an accurate view if the company’s financial state. Regarding infosec, fraud prevention and detection require an effective monitoring system. If the company shows its employees that the company can find out everything that every employee does and use that evidence to prosecute that person to the fullest extent, then the feeling that “I can get away with it” drops drastically Students should stay current and research the latest evolution to the S-Ox Act and similar legislation and discuss its implications for the IT function. 13. Discuss the shift in motivation of criminals. Improvement in technology over the years have made it very easy for criminals to sit at a computer and hack into various computer systems around the world and be able to transfer large amounts of money across bank accounts. Criminals no longer need to leave their houses to commit a bank robbery for example. Group Assignments and Exercises The group assignments considered in this chapter involve a substantial effort in literature review, research for new information, conducting surveys, collecting and analyzing the information and preparing necessary reports. These questions are not extremely difficult to solve, and since they require a group effort, I will not attempt to answer them here. Internet Exercises These exercises are based on the availability of the websites on the Internet at the time of practice. I will leave it to my fellow instructors to check and validate the websites before assigning the exercises to the students.

Summary This chapter has focused attention on the security issues related to the protection of information systems. The responsibility of the ISD and end users in managing these systems and maintaining access to them has also been discussed. Other goals included exploring the role of CIO and ISD in managing information resources, distinguishing between security measures, and analyzing disaster planning and recovery.

Chapter 6 E-Business and E-Commerce

Goals of the Chapter The primary objective of this chapter is to focus on electronic commerce, or EC, in its various forms, including B2B (Business to Business), B2C (Business to Consumers), and C2C (Consumer to Consumer) among others. Now a standard for doing business, the importance of EC, its infrastructure, its applications, and its support services, are ignored at one’s own peril. Ripe with legal and ethical issues, the strategies for a successful electronic-based business cannot be ignored. It is useful for instructors to emphasize the practical applications, to discuss benefits and limitations, and to encourage students to explore further EC advances. With the numerous court cases and problems based on EC, an instructor can easily produce twenty or thirty hour’s worth of discussion material on the legal and ethical issues arising out of the topic.

An Overview Section 6.1 - Overview of E-Business and E-Commerce – This section covers briefly the various types of organizations involved in EC, the types of transactions employed, and the basic business models used. The section also takes a look at the benefits and limitations of EC and their links to various groups. Section 6.2 – Major EC Mechanisms – This section gives a brief history of EC and demonstrates its scope, as well as addressing the mechanisms it employs. Section 6.3 - Business-to-Consumer Applications – This section covers methods of putting customers and sellers in contact including electronic retailing, storefronts, and malls. It includes a comprehensive discussion of the essentials of e-tailing, as well as of the issues that need to be resolved to successfully operate. This section also includes a discussion of various service industries that have been established online, including banking, securities trading, travel, and job searching. It introduces buyer behavior and the methods used to determine customers’ needs and wants. Customer support is discussed, specifically its importance before and after the sale. This section also discusses the issues related to e-tailing including conflict resolution, order fulfilment issues, risks of trading online and appropriate revenue models. Section 6.4 – Business to Business Applications – B2B applications are presented, including sellside marketplaces, buy-side marketplaces, and different types of public exchanges. The concepts of e-procurement, desktop purchasing, and group purchasing are also covered. Section 6.5 – Major Models of E-Business: From E-Government to C2C – This section discusses the major models of e-business which involves the various ways companies do business with their employees, among employees of a company and also among business units within a company. The section also discusses the government’s use of technology to deliver up documents, accept court filings, post bills, and transfer benefits to its citizens. This includes the payment of taxes; transfers of monies; distribution of proposed bills, acts, and rules by a 1

governmental body or administrative agency; employment opportunities; and, in general, transaction of its businesses. Section 6.6 - E-Commerce Support Services: Payment and Order Fulfilment – The section discusses the major modes of conducting market research online and provides an overview of web advertising and strategy. The many forms of electronic payments, electronic checks, credit cards, and cash, are covered, as well as smart cards, purchasing cards, and stored value cards. This section also discusses the various forms of electronic bill presentation and payment, ewallets, and virtual credit cards, as well as the security issues arising from their use. Section 6.7 - Ethical and Legal Issues in E-Business – This section includes aspects related to buyer and seller protection. Other topics include ethical concerns such as privacy, web tracking, disintermediation, and reintermediation. Legal issues also include concerns of fraud when dealing with buyers and sellers over the Internet.

Practical Applications Since the field of EC is ever-evolving, the concepts of this technology require extensive nurturing. A discussion of the practical applications may be the most appropriate resource for this. This chapter has an abundant number of examples, cases, and business situations that cover the subject well. However, as the evolution of EC continues, more issues will arise, further advances will be made, and additional applications will be developed. As a result, we have to make ourselves aware of new innovations and concepts in this field from recent research and industrial periodicals. IT at Work 6.1 - eBay—The World’s Largest Auction Site – eBay, a globally operating auction site is, arguably, the most successful e-business site, and certainly one of the most profitable. With almost 50% of American adults purchasing online, auctions have become the dominant online purchase mechanism. eBay has expanded into retailing with both low and high ticket retail sales items, establishing themselves as a portal to other retail sales outlets like Gateway and expecting to do over a billion dollars in apparell sales in 2003. The section poses a question ripe for discussion: does this change from auctions to e-tailing make sense for eBay? From what has been discussed in this case and the understanding gained from this chapter, students can discuss the pros and cons of eBay’s decision to add e-tailing to its business model. IT at Work 6.2 - Amazon.com: The King of E-Tailing – In contrast to the financial success of eBay, next we will review the model employed by Amazon, an online leader in sales with an excellent customer relationship management system. Although hugely successful at selling, Amazon has rarely posted a profit, sustaining huge losses due to overextension and real estate expenses. Closing a number of its warehouses and reducing the massive assortment of products that it actually stocked, it decided to rely, instead, on partnerships with suppliers. Amazon is an excellent case for further exploration of the critical success factors and the strategic business alliances. IT at Work 6.3 – Netflix Increases Sales Using Movie Recommendation – The case describes the use of CineMatch (a recommendation intelligent agent) by Netflix in tailoring its products to individual customers, rather then mass-market appeals; and elaborates on the success of the 2

strategy. IT at Work 6.4 - Chemical Companies “Bond” at ChemConnect – ChemConnect has more than 9000 members located in 150 countries around the world and services markets for chemicals, plastics, pharmaceuticals, paper, and several others. Its members use market information, industry expertise, e-commerce solutions, and the network of trading partners to optimize their purchasing and sales processes as buyers, sellers, or through the ChemConnect’s commodity market platform. The students should discuss why ChemConnect needs to supply all three platforms or whether it would be more beneficial to sustain a competitive advantage by focusing on servicing a single platform.

War Stories The Submerged One Percent - Internet Fraud While most Internet transactions are carried out effectively and efficiently to the mutual benefit of all parties, there are always going to be unscrupulous people who will try to trick or cheat honest individuals. In 2002, losses totalling almost fifty-four million dollars were reported from Internet transactions, with almost ninety percent of these losses coming from online auction frauds. This example illustrates how such a thing can occur and what can happen as a result. In late 1998, the first iMac computers were sold by Apple Computer. They were extremely popular and consumers often had to wait to obtain a machine. The iMacs frequently were listed on auction sites such as eBay for more (and for some models, much more) than the manufacturer’s suggested retail price (MSRP). One of the unique features (some would call it a drawback) was that the iMac was developed to be used primarily for Internet surfing. As such, it only came with a built-in CD-ROM drive and hard drive. There were no other drives such as a floppy disk drive or a Zip drive. While such drives were available for most machines, the iMac’s reliance on the USB interface meant that no peripheral devices were readily available when the iMac came to market. Most peripherals did not conform to the USB interface, and the means to connect them to the USB interface through cables were not yet to market. One of the first peripherals available for the iMac was a device called a Superdrive by Imation Corporation. This device accepted a floppy disk or a Superdisk (which had a storage capacity of 100 Mb) and had a MSRP of approximately US$150. These drives became very popular and very hard to obtain. This type of situation with high demand and scarce supply often leads to fraud. One individual decided to attempt to make money using this demand. The actual setting was very simple. Using a type of auction called a “Dutch auction” this individual listed twenty of these Superdrives on eBay. A Dutch auction is an interesting option where a seller places several items of the same type (the 20 Superdrives) for sale. Buyers bid on one or more of these items. The important thing to remember is that it is the total dollar value of the bid (number of items multiplied by bid price per item) that determines the winner. A bidder could offer $100 for a single item but be beaten out by another individual offering $125 for two items, even though the first bidder’s amount per item was higher. 3

Once the auction closed, e-mail messages were sent to the successful bidders giving them an address where they should send their checks and money orders and specifying the type of delivery options possible (UPS, regular mail, and so on). The bidders sent in their money and waited. Several bidders followed up with e-mails to the seller’s e-mail address asking if there were delays and requesting to know when their drives would be delivered. A number of excuses were given, including ill-health, time required for checks to clear, and problems with suppliers. A number of bidders left “negative feedback” (see the third war story for this chapter) about the seller, and the seller replied with flaming e-mails complaining that he had valid reasons for the delays and that the bidders were ruining his selling career. The truth of the matter was that the seller never intended to send out the drives and indeed never owned any of the drives. The seller pocketed the money, cancelled the e-mail account, and disappeared. In many cases, this is all that happens. However, in this case, one of the bidders had a brother in the FBI. After a lot of work by the determined bidder, he was able to tell his brother the name and address of the seller. Early one morning, the seller was visited by a number of FBI agents, a visit that no doubt scared the seller to no end. Eight months after the fraud was perpetrated, the bidders began receiving money orders in the amount of $25 from the seller. These money orders continued to come in every month until the money was repaid. Had it not been for one bidder being determined to solve the mystery of who the fraudulent seller was, all bidders would have lost their money. Many of the bidders made promises never to buy or sell online again. As recently as May 2003, the Subcommittee on Commerce, Trade, and Consumer Protection addressed the problem of “On-line Fraud and Crime: Are Consumers Safe?". They discussed the problems of online auctions (the Beanie Baby scam), business opportunity frauds like the Nigerian money laundering scam, and credit card fraud (where charges were laid against thousands of credit cards for nonexistent purchases), as well as a number of others. The FTC and twenty-nine State Attorney Generals launched a law enforcement crackdown targeting Internet auction scams that bilked thousands of consumers out of their money and merchandise, called "Operation Bidder Beware," in 2003. Identity Theft Identity theft and identity fraud are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person's personal data. Electronic identity theft is not new, but has become more widespread with the use of the Internet. Lawrence E. Williams became the first person tried under the 1998 federal identity fraud statute. He opened accounts at the Internet bank Wingspan and credit-card accounts under the names of a number of prominent New Orleans citizens, using computers at a local university. He acquired personal information on his victims through his job at a local bank. Abraham Abdallah, a 32-year-old former dishwasher, pled guilty in a New York court recently to masterminding a scam in which he fraudulently obtained loans from finance companies using the stolen identities of numerous celebrities including Microsoft co-founder Paul Allen and filmmaker Steven Spielberg. He used computers in public libraries and made phone calls to get the credit records. 4

Identity theft in 2002 resulted in reported losses of $343 million in the United States alone, and the problem is not restricted to that country. Over a billion British pounds were reported lost last year in the UK through similar methods. Internet job board Monster.com, acknowledged a growing problem for online career sites and emailed millions of job seekers, warning that fake listings were being used to gather and steal personal information. The credit reporting agency Experian’s database was accessed illegally in 2002, resulting in the theft of personal information on 15,000 customers of Ford Motor Credit over a 10-month span. There is a huge amount of information available on the Internet about this. Various companies offer services that provide criminal, civil, and professional histories, and a list of assets and bank account numbers. You can also find Social Security numbers, addresses from the last ten years’, and current phone numbers. Many companies provide this service for a small fee, including companies like Lexis-Nexis, docusearch.com, and West Publishing Company. Identity theft is a serious problem that is growing each year, as the criminals manage to stay one step ahead of the technologies employed by legitimate businesses. Meta search engines - making a good idea better One of the more useful aspects of Web-life has been the availability of tools called search engines, which offer lists of items that fall under a particular heading. For example, someone wishing to find the website of Callaway golf could type into their browser the URL www.callaway.com, but they would find that they are taken to a site selling books. An easy way to save time is to use one of the popular search engines such as webcrawler, lycos, or alta vista. Each of these engines searches its database of websites for the terms the user is searching for and returns the findings to the user. Our happy user types in the word “Callaway” and quite quickly finds that the URL they want is www.callawaygolf.com. While the user may feel that this is very useful, there are a few problems. No single search engine can catalog the entire Web; there are simply too many files as it is and more files being added regularly. At best, each search engine can provide a service, but to get better coverage, the user may have to use a variety of search engines. Some engines have some sites, and other engines will have some of the same sites and some different sites. To demonstrate this, if there are computers with an Internet connection available, I distribute cards with the names and URLs of different search engines to each student. You can get a list by typing in the words “search engine” into your favourite search site. I then write a word or set of words, e.g., “Braveheart”, on the board and tell the students to carefully type this into the search vehicle they were given. I then ask how many “hits” were brought up. I start with 10, 20, 50, 100, 500, 1000, 2500, 5000, and so on, until everyone has responded. We then discuss why the search engines have so much variance. How then is the user to achieve good coverage of the Web? One possible answer is the meta search engine. This is a search engine that searches, rather than specific Web documents or files, the other search engines. It is a search engine of search engines. Several of these engines are Copernic (www.copernic.com), DogPile (www.dogpile.com), Vivisimo (www.vivisimo.com), infogrid (www.infogrid.com), Kartoo 5

(www.kartoo.com), metaCrawler (www.metacrawler.com), WebCrawler (www.metacrawler.com), and Mamma (www.mamma.com). Copernic began by offering a single meta-engine free on the Web. They have since expanded to where they now offer three versions of the Copernic search engine (Basic, which is still free; Plus and Pro, which are for sale) with varying functionality. For example, the basic model provides access to over ninety search engines, allows documents to be previewed, and offers translations of the document into seven languages. The Plus model offers over 1,000 search engines with no advertising banners. The Pro model adds automatic refining, automatic validation, scheduled search updates, and e-mail notification of new documents that match the search criteria. The company has expanded into other lines of business. The Copernic Summarizer is a tool for extending the materials into reports. The Copernic company has repeatedly been pursued by organizations who wish to purchase it but to date has refused all offers. The builders feel that the systems are their creation and are like their children. It does prove that if a person has one good idea and follows through on that idea, success often waits. The hard part is carrying through on the decision to follow that idea. Dogpile started in 1996 and merged with Infospace four years later. It employs metasearch technology to search the Internet's top search engines, including Google, Yahoo, AltaVista, Ask Jeeves, and a number of others. It also offers a yellow pages and white pages service. Kartoo, a French company, offers not only a metasearch engine, but knowledge management, competitive intelligence software, cartographic searches of databases, document management systems, and several other innovative software technologies.

Questions for Review 1. Define e-commerce and pure vs. partial ones. Electronic commerce (EC or e-commerce) describes the process of buying, selling, transferring, serving, or exchanging products, services, or information via computer networks, including the Internet. In pure EC all dimensions are digital where the product, its delivery, payment, and transfer agent are all done online like buying software online. Partial EC is when part of the transaction is physical like buying a book on Amazon and having the book physically delivered.

2. List the major types of EC (by transaction). B2B, where both the buyer and seller are business organizations B2C, where the sellers are organizations and the buyers are consumers 6

C2C, where both parties are consumers C2B, where consumers make their need for a product known and suppliers compete to provide the product G2C, where the Government provides services to its citizens B2E, where an organization uses EC internally to improve its operations c-commerce, where business partners collaborate electronically m-commerce, where EC is done in a wireless environment 3. Distinguish between business-to-consumer, business-to-business, and intra-business EC. Business-to-consumer commerce involves transactions between a consumer and a corporation; business-to-business commerce involves transactions among two or more businesses. Intra-business EC refers to a business using EC internally to improve its operations. A special case of this is B2E (business to employees). 4. Define social commerce and distinguish it from e-commerce. Social commerce is concerned with the creation of places where people can collaborate online, solicit advice from trusted individuals, and avail themselves of goods and services. EC deals basically with buying and selling without the social interaction. 5. Define a business model and list five EC business models. A business model is the method by which a company generates revenue to sustain itself. Five EC Business models are: Bartering online Deep discounters Name-your-own-price Online auctions Product customization 6. Relate EC to blogging and wikis. ECs are about buying and selling online. Wikis and blogs are part of EC where, in addition to buying and selling, they provide a social network for people to share ideas and thoughts about products and services. 7. Describe the scope of EC and list its major participants. 7

EC applications are supported by an infrastructure, which includes hardware, software, and networks, ranging from browsers to multimedia, and also by the following five support areas, people, public policy, marketing and advertizing, support services and business partnerships. 8. Describe electronic markets. An electronic market is a virtual marketplace in which sellers and buyers meet and conduct different types of transactions. The functions of e-market are the same as those of a physical marketplace; however, computerized systems make markets much more efficient by providing more updated information to buyers and sellers. 9. Define forward and reverse auctions. Forward auctions are used to allow selling companies to post items they want to sell and buying companies to compete for the best prices acceptable by the selling companies for those items, with the winning bidders obligated to buy the items. Reverse auctions are fixedduration bidding events hosted by a single buyer, in which multiple suppliers compete to fulfil the needs of the buyer. 10. How are forward auctions used as a selling channel? Usually, items are placed at a special site for auction, and buyers will bid continuously for the items. The highest bidder wins the items. Sellers and buyers can be individuals or businesses. The popular auction site eBay.com is conducting mostly forward auctions. 11. Describe the process of using reverse auctions for purchasing. In reverse auctions, there is one buyer, usually an organization that wants to buy a product or a service. Suppliers are invited to submit bids. Online bidding is much faster than conventional bidding, and it usually attracts many more bidders. The reverse auction is the most common auction model for large purchases. Everything else being equal, the lowestprice bidder wins the auction. Governments and large corporations frequently mandate this approach, which may provide considerable savings. 12. Define electronic bartering. An electronic form of barter is where organizations and people exchange services and goods via an electronic bulletin board or website without the use of money. This is the logical extension of one of the oldest forms of trade. 13. Describe electronic storefronts and malls. Electronic storefronts are the entry point into one of the hundreds of thousands of specialized (selling only one or a very few related items) or general (selling many items) stores on the Internet. An electronic mall, also known as a cybermall, is an electronic site that is a shared entry point for a number of commercial businesses or electronic storefronts. Some cybermalls allow for shopping carts to be wielded across the commercial businesses with a single checkout point and often supply tools for the creation of the individual storefronts. 8

14. What are some general features (critical success factors) that make the delivery of online services (e.g., cyber-banking, securities trading, job hunting, travel services) successful for both sellers and buyers? Selling books, toys, computers, and most other products on the Internet may reduce vendors’ selling costs by 20 to 40 percent. Delivery of services, such as buying an airline ticket or buying stocks or insurance online, can be done 100 percent electronically, with considerable cost reduction potential. Therefore, online delivery of services is growing very rapidly, with millions of new customers being added annually. 15. Describe how customer service is provided online and list its four phases. Customer service can be provided online in several ways. A few examples include FAQs and online submission of technical questions/concerns. Customer service should be approached as a business life cycle process, with the following four phases: Phase 1: Requirements. Assist the customer to determine needs by providing photographs of a product, video presentations, textual descriptions, articles or reviews, sound bites on a CD, and downloadable demonstration files. Also use intelligent agents to make requirements suggestions. Phase 2: Acquisition. Help the customer to acquire a product or service (online order entry, negotiations, closing of sale, and delivery). Phase 3: Ownership. Support the customer on an ongoing basis (interactive online user groups, online technical support, FAQs [frequently asked questions] and answers, resource libraries, newsletters, and online renewal of subscriptions). Phase 4: Retirement. Help the client to dispose of a service or product (online resale, classified ads). 16. List the major issues relating to e-tailing. Despite e-tailing’s ongoing growth, many e-tailers continue to face some major issues. -

Resolving channel conflict.

Resolving conflicts within click-and-mortar organizations.

Organizing order fulfilment and logistics.

Determining viability and risk of online e-tailers.

Identifying appropriate revenue models.

17. Briefly differentiate between the sell-side marketplace and the buy-side marketplace. 9

In the sell-side marketplace model, organizations attempt to sell their products or services to other organizations electronically from their own private e-marketplace and/or from a thirdparty site. The buy-side marketplace is a model in which organizations attempt to buy needed products or services from other organizations electronically. 18. Explain how forward and reverse auctions are used in B2B commerce. Forward auctions are used to allow selling companies to post items they want to sell and buying companies to compete for the best prices acceptable by the selling companies for those items, with the winning bidders obligated to buy the items. Reverse auctions are fixedduration bidding events hosted by a single buyer, in which multiple suppliers compete to fulfill the needs of the buyer. These types of auctions can be used in a number of ways as businesses buy and sell from each other. 19. List and compare the various methods of e-procurement. Reverse auctions, group purchasing, and desktop purchasing are three forms. Reverse auctions, the buyer places a RFQ on its website or a bidding marketplace, after which sellers will electronically submit bids, with the winner notified of the accepted offer via e-mail. Group purchases are used to allow the aggregation of a number of small buyers’ orders to total a larger volume, thus ensuring lower purchase costs. Desktop purchasing is a system by which suppliers’ catalogs are served up together within one master catalog, with purchases being ordered via the end user’s desktop computers. The system allows a purchasing agent to coordinate the entire organization’s order easily and to ensure maximum price savings, which would not be accomplished if each department ordered separately. 20. What is the role of exchanges in B2B? Public and private exchanges often exist alongside each other as complementary factors, such as with e-enabled trade relationships between manufacturers and retailers. They are emarketplaces usually managed by third parties where there are many buyers and sellers. They include systematic sourcing, which fosters long-term relationships between the suppliers of direct the materials and the users; spot sourcing or items supplied “as-needed”; systemic sourcing type exchanges for indirect materials; and functional exchanges of temporary services traded “as needed.” The collaboration and fulfilment capabilities of each will serve to enhance the business relationships between buyers and sellers. 21. Describe intra-business EC and list its major types.

Intra-business describes electronic business transactions over an organization’s intranet like the ordering of supplies and the dissemination of information. It also refers to business between different divisions of an organization, including the transfer or sale of materials and products, knowledge, or services. This term also extends to include the electronic exchange of information, transactions, and collaborations between an organization and its dealers, licensees, or franchisees. Intra-business focuses on business processes and procedures that add value to the enterprise and its customers. 22. What EC is done in B2E? Employees can manage their benefit packages and take training classes electronically. In addition, employees can use the corporate intranet to purchase discounted corporate products and services, insurance, travel packages, and tickets to events. They can also electronically order supplies and material needed for their work. 23. Describe the activities done in e-commerce. The major activities done in e-commerce are EC intrabusiness (commerce done within organizations), collaborative commerce (within and among organizations), e-government, and consumer-to-consumer EC. 24. Define e-government and its various transaction types. E-government is the use of Internet technology and ecommerce to deliver information and public services to citizens, business partners and suppliers of government entities, and people who work in the public sector. There are three categories- G2C, G2B and G2G In G2C (Government to Consumer), government agencies use the Internet to provide services to citizens such as Social Security and pension payments, directly to recipients’ bank accounts or to smart cards. In G2B (Government to Business), governments use the Internet to sell to or buy from businesses to ensure the best price for government procurement of goods and services. G2G includes intragovernment EC (transactions between different governments) as well as services among different governmental agencies. 25. What are typical G2B activities? Electronic tendering systems using reverse auctions are becoming mandatory, to ensure the best price for government procurement of goods and services. G2G includes intragovernment EC (transactions between different governments) as well as services among different governmental agencies. 26. Define C2C EC and list some types of C2C activities

Consumer-to-consumer (C2C) e-commerce refers to e-commerce in which both the buyer and the seller are individuals. C2C is conducted in several ways on the Internet, where the best-known C2C activities are auctions. Other consumer to consumer transactions also include e-bartering, online classified ads, and personal services exchanges. Reverse auctions, like ewanted.com, are also represented. 27. What are the various electronic payment mechanisms? Which of these are most often used for B2B payments? Electronic funds transfer- Popular for paying bills online where money is transferred electronically from payer’s account to the recipient’s. Electronic checks- Digitally signed e-check is encrypted and moved from the buying customer to the merchant. Electronic credit cards- Paying with regular credit cards (encrypted numbers) Purchasing e-cards- Corporate credit cards, with limits, work like regular credit cards, but must be paid quicker e-Cash-stored-value- Prepaid card can be used for transportation, making copies in the library, parking, telephone calls, etc. e-Cash- smart cards- Cards that contain considerable information can be manipulated as needed and used for several purposes, including transfer of money. e-Cash- (person-to-person) - Special online account from which funds can be sent to others. Electronic bill presentment- Bills are presented for payer’s approval. Pay at ATMs- ATM allows you to pay monthly bills (e.g., to utility companies) by transferring money from your account to the biller. Micropayments- Payments are too small to be paid with credit cards. Can be paid with stored-value money cards, or with special payment methods, including payments from cell phones. B2B special methods- Enterprise invoice presentment and payment, wire transfer, and electronic letter of credit are popular methods. 28. List the security requirements for EC. Authentication- The buyer, the seller, and the paying institutions must be assured of the identity of the parties with whom they are dealing. Integrity- It is necessary to ensure that data and information transmitted in EC, such as orders, replies to queries, and payment authorizations, are not accidentally or maliciously altered or destroyed during transmission. Nonrepudiation- Merchants need protection against the customer’s unjustified denial of placing an order. On the other hand, customers need protection against merchants’ unjustified denial of payments made. (Such denials, of both types, are called repudiation.)

Privacy- Many customers want their identity to be secured. They want to make sure others do not know what they buy. Some prefer complete anonymity, as is possible with cash payments. Safety- Customers want to be sure that it is safe to provide a credit card number on the Internet. They also want protection against fraud by sellers or by criminals posing as sellers. 29. Describe the issues in EC order fulfillment Order fulfilment, the act of putting a physical product in a box and preparing it for shipping, is just a small part of an effective fulfilment cycle. An e-tailer typically fills small, customized, and even single item orders, and delivers them anywhere in the world. Most are unprepared to deal with real-time or near-time inventory status, shipping and logistics, customer service, and returns. 30. List the nine steps of the order fulfillment process a) Assurance of customer payment b) Check of in-stock availability. c) Shipment arrangement- If the product is available, it can be shipped to the customer d) Insurance- Sometimes the contents of a shipment need to be insured e) Replenishment- Customized orders will always trigger a need for some manufacturing or assembly operation f) In-house production- In-house production needs to be planned g) Contractor use- A manufacturer may opt to buy products from contractors h) Contacts with customers- Sales representatives need to keep in contact with customers i) Returns- In some cases, customers want to exchange or return items 31. What is the meaning of Internet market research? The goal of market research is to find information and knowledge that describe the relationships among consumers, products, marketing methods, and marketers. Internet market research is simply conducting these functions over the Internet. 32. Identify the drivers of Internet advertisement. The most common form of Internet advertising is banner ads, which are electronic billboards, often containing video clips or sound bites, in addition to text and graphics. Pop-ups and pop-unders are ads that launch automatically when you enter or exit a site, appearing either in front of or behind the active window. E-mail advertising is the use of lists of e-mail addresses, placed in a database, to send advertisements. Many companies are now producing electronic catalogs, some of which are highly customized to the recipient’s tastes.

Classified ads, postings in chat rooms or newsgroups, and listings sent to or posted to community sites or collected (registered) e-mail addresses are used as well. 33. What are some of the online advertisement strategies? Affiliate marketing is the revenue model by which an organization refers consumers to the selling company’s Web site. Search Engine Advertisement. Most search engines allow companies to submit their Internet addresses for free so that people can search them electronically. With the ads-as-a-commodity approach, people are paid for time spent viewing an ad. Viral marketing or advertising refers to word-of-mouth marketing in which customers promote a product or service by telling others about it 34. List some ethical issues in EC. Privacy and information protection is one of the biggest problems. What happens to information collected if the e-business goes under? Is it sold as assets? What if it is acquired or merges with another organization? Where are the ethics in selling your mailing list? The use of web tracking tools like cookies and page trackers has to be considered. A cookie is a file placed on a user's hard drive, usually without his or her knowledge or permission, to track his or her use of the Internet. Is it ethical to ignore the possible loss of jobs through the introduction of e-commerce and disintermediation? 35. List the major legal issues of EC. Besides Internet fraud and Internet identity theft, other major legal issues include failure of sellers to collect sales taxes, cybersquatting and the accompanying domain name problems, and copyright and patent infringements. 36. Describe buyer protection in EC. Protection of the buyer’s identity and personal information is of absolute importance, not only during transmission of the information over the Internet, but after the receipt. The key to prevention is for businesses to establish responsible information-handling. Although the use of SSL and other protocols will protect information while it is in transmission, the businesses still need to establish regulations for the storage or destruction of the information after receipt. 37. Describe seller protection in EC. The seller must be protected against consumers who refuse to pay or who pay with bad checks and from buyers’ claims that the merchandise did not arrive. They also have the right to protect against the use of their name by others as well as to protect the use of their unique words and phrases, slogans, and web address (trademark protection). Security features such as authentication, nonrepudiation, and escrow services provide some needed protections. 14

Another seller protection applies particularly to electronic media: Sellers have legal recourse against customers who download without permission copyrighted software and/or knowledge and use it or sell it to others.

Questions for Discussion 1. Discuss the major limitations of e-commerce. Which of them are likely to disappear? Why? •

Lack of universally accepted standards for quality, security, and reliability.

•

Insufficient telecommunications bandwidth.

•

Still-evolving software development tools.

•

Difficulties in integrating the Internet and EC applications and software with some

•

Existing (especially legacy) applications and databases.

•

Need for special Web servers in addition to the network servers.

•

Some unresolved legal issues (see Section 6.7).

•

Lack of national and international government regulations and industry standards.

•

Lack of mature methodologies for measuring benefits of and justifying EC.

•

Many sellers and buyers waiting for EC to stabilize before they take part.

•

Customer resistance to changing from a real to a virtual store. Many people do not yet sufficiently trust paperless, faceless transactions.

•

Perception that EC is expensive and unsecured.

•

An insufficient number (critical mass) of sellers and buyers exists for many EC products and services.

•

Expensive and/or inconvenient Internet accessibility for many would-be users.

As we predict from its growth rate, access will improve as technology improves and costs decrease. Many legal issues are getting resolved, and at the same time, standards and regulations are evolving. Customer resistance will decline, support services will emerge, perceptions will become more favorable, and critical mass will be achieved. However, rapid change in the technologies and the creative uses of them will continue in the foreseeable future. Methods for measuring benefits and justifying use of EC will improve but always be ambiguous. In any case, it will take a long while to sort out ways to maintain human relationships through electronic intermediaries. 2. Discuss the reasons for having multiple EC business models in one company. A business plan for organizations that sell to other businesses employing a sell-side plan electronically would naturally vary from those that sell to consumers. Consumers selling to consumers would follow a different plan. Different companies have different marketing strategies and different client bases and it would make sense to pursue different business models to match their strategy. 15

3. Distinguish between business-to-business forward auctions and buyers' bids for RFQs. In B2B forward auctions, organizations place items up for auction on their own or a third party’s website, and businesses continuously bid on the products, while, with buyers’ bids for RFQs, the buyers place a request for quotation on either their website or a third-party clearinghouse website and await responses from the sellers. 4. Discuss the benefits to sellers and buyers of a B2B exchange. The benefit to sellers is that they can easily locate new markets for the sale of their products, which is significant if their products are purchased on an “as needed” basis by buyers. Sellers enjoy the ease with which they can locate products that they use, particularly those they use rarely, and can take advantage of the auction pricing. They can also develop longterm relationships for the acquisition of the goods through the exchanges. The organizations also benefit from the ability to easily sell and buy temporary labor, office space, and services. 5. What are the major benefits of e-government? E-government improves the efficiency and effectiveness of government functioning, while enabling them to be more transparent to citizens and businesses by giving them access to the information generated by the governmental bodies. E-government also allows citizens to access forms, read laws and reports, pay taxes, and enter feedback to governmental actions easily, making the government more accessible to the citizenry. In the State of Colorado, they have recently started an online notification system. This includes an online registration for interested parties, which results in an e-mail notification of any proposed laws, regulations, and decisions being sent out before they are passed or go into effect. This allows the citizens a chance to comment and the government agencies or Congress a chance to amend their proposals. 6. Discuss the various ways to pay online in B2C. Which one(s) would you prefer and why? Payments for B2C transactions can vary from credit and debit cards to electronic cash. You also have the options of ETF, electronic checking, electronic purchasing cards, smart cards, stored-value cards, billing to a phone number, and the traditional method of mailing a check or money order and delaying delivery until it has cleared. Students’ explanation of their preference will vary according to their experiences.

7. Why is order fulfilment in B2C considered difficult? Most online companies are prepared to deal with the logistics problems that occur from doing business globally. They fail to realize that shipping small quantities is not as easy as freighting large amounts of products; delivery out of a country is far more expensive then internal shipping, and involves dealing with customs declarations. They also do not contemplate the speed in which most buyers expect to receive their goods. Many organizations have no efficient customer relations system established, which further 16

complicates the matter. Finally, many organizations still do not have their front end system coordinated with their back end systems. 8. Discuss the reasons for EC failures. E-commerce failures have traditionally centered on poor business models. Many of the dotcoms failed, just like their brick-and-mortar equivalents, because of ill-conceived ideas. Business plans must include measurable goals to which the principals strictly adhere. In the real world, “location, location, location” is important. The same holds true for online markets. You must have traffic or the goods will not sell. Proper funding is a necessity. You must be able to carry the business for twelve to twentyfour months until it is not just selling products but is also covering all of the expenses, including salaries. Good technologies, not necessary state-of-the-art, but solid, functioning technologies, are required. The logistics of delivering goods worldwide can be a major challenge for an ebusiness that had never considered sales outside of their own country. Server failure, with no disaster recovery and mission-critical backup plan, will be fatal. The system has to work 365/24/7. Customer service becomes an absolute must, and this can be difficult over the internet, where there are no face-to-face transactions. Enterprises have to be scalable, so that they can be prepared if they are one of the lucky ones that suddenly have three and four times their projected business or one of the unlucky ones with 25% of the projections. 9. Discuss the role of recommendation agents in EC. Recommendation agents are those agents that, based on mass market trends, attempt to develop and predict what an individual’s range of interests might be. This allows for further tailoring of the advertising and in theory will improve. 10. What are Amazon.com’s critical success factors? Is its decision not to limit its sales to books, music, and movies, but to offer a much broader selection of items, a good marketing strategy? With the broader selection, do you think the company will dilute its brand or extend the value proposition to its customers? The critical success factors for Amazon.com include a broad selection of products, low prices, easy searching and ordering, useful product information and personalization, secure payment systems, and an efficient order fulfillment process. Amazon, over the years, has changed their business model and has gone into the retaining of a wider range of products. Today you can find almost any product that sells well on the Internet. Broadening their product base has worked well for the company allowing them to post their first profit in 2002 after seven years of being in business. The boarder selection does not seem to have diluted the brand. It seems to have rather enhanced it. Students will need to conduct some more research on the products offered by amazon.com and compare to other companies with similar business models to form their opinion on whether the brand has been diluted. 17

Exercises 1. Assume you’re interested in buying a car. You can find information about cars at autos.msn.com. Go to autoweb.com or autobytel.com for information about financing and insurance. Decide what car you want to buy. Configure your car by going to the car manufacturer’s website. Finally, try to find the car from autobytel.com. What information is most supportive of your decision-making process? Write a report about your experience. This is a good exercise on information dissemination. 2. Visit amazon.com and identify at least three specific elements of its personalization and customization features. Browse specific books on one particular subject, leave the site, and then go back and revisit the site.What do you see? Are these features likely to encourage you to purchase more books in the future from Amazon.com? Check the 1-Click feature and other shopping aids provided. List the features and discuss how they may lead to increased sales. This exercise gives students a chance to conduct research on their own and to form their opinions on the features of the website before and after studying the details of etaining 3. In August 2006, Google and MySpace signed a deal in which MySpace users can conduct a search on Google without leaving the MySpace site. Find information about the deal (try GoogleNews) and summarize the benefits to both companies. 4. Compare the various electronic payment methods. Specifically, collect information from the vendor cited in the chapter, and find more with google.com. Be sure you pay attention to security level, speed, cost, and convenience. This exercise gives the students a better basis for understanding the differences between the various electronic payment systems. I suggest that you require them to find an example of each one and to explain the requirements for use.

Internet Exercises These are very useful hands-on exercises that let the student explore a variety of B2C and B2B websites. By comparing several of these, an individual can see the application of different business models. The student should pay attention to the methods each of these sites employ for dissemination of information, sales, collection and distribution of funds, and delivery of products and to how they handle customer service regarding returns and/or complaints. The instructor should ensure that all websites are in fact available for the students to use.

Group Assignments and Projects 1. Have each team study a major bank with extensive EC strategy. For example, Wells Fargo Bank is well on its way to being a cyberbank. Hundreds of brick-and-mortar branch offices are being closed. In Spring 2003 the bank served more than a 1.2 million cyber accounts (see wellsfargo.com). Other banks to look at are Citicorp, Netbank, and HSBC (Hong Kong). Each team should attempt to convince the class that its e-bank is the best. 18

2. Assign each team to one industry. Each team will find five real-world applications of the major business-to-business models listed in the chapter. (Try success stories of vendors and EC-related magazines.) Examine the problems they solve or the opportunities they exploit. 3. Have teams investigate how B2B payments are made in global trade. Consider instruments such as electronic letters of credit and e-checks. Visit tradecard.com and examine their services to SMEs. Also, investigate what Visa and MasterCard are offering. Finally, check Citicorp and some German and Japanese banks. The instructor should ensure that all websites are in fact available for the students to use. It is also recommended that the instructor download Web materials to use in case the sites are not available.

Minicase Stormhoek Vineyards Excels with Web 2.0 This minicase talks about Stormhoek Vineyards, and their use of web 2.0 technologies to more than triple their revenues over a two year period. The case talks about how the company used blogs, wikis, podcasts, video, and photo links, mashups and also Facebook to reach its customers and wine enthusiasts. Students will need to read the case, and with lessons learned from the chapter, be able to discuss the questions adequately.

Summary This chapter has elaborated on the concepts of EC and its various applications. The issues cited, such as the benefits and limitations of implementing EC, help the students identify strategies, situations, and concerns that should be raised in the business world. Based on various discussions presented, students should have a good understanding of the infrastructure of EC. Since this field is still evolving, I recommend that the instructor encourage students to follow recent publications and current issues that are relevant. What’s Next This chapter has focused on one of the major commercial applications of the Internet. We have discussed various aspects of EC and how it benefits industry, consumers, and society, on which it has had an enormous impact. The next chapter deals with where the Web is expanding – mobile, wireless, and pervasive technologies – as opposed to where it is at today.

Chapter 7 Mobile Commerce Goals of the Chapter This chapter presents an overview of the concepts of mobile computing and m-commerce. It includes a lengthy discussion of the drivers, technologies, barriers, and wireless standards. The chapter then looks at the current applications of m-commerce within an organization, as well as the relevant consumer and personal applications. It focuses on applications that exist in industries such as finance, advertizing, marketing and supply chain applications. The chapter also reviews location-based commerce, also known as l-commerce. An Overview Section 7.1 – Overview of Mobile Computing and Commerce – This section covers the definition of mobile computing and mobile commerce, including the basic terminology. It looks at the specific attributes of m-commerce and its rise in popularity. This section also takes a look at wireless local area networks and the Wi-Fi revolution and its applications. Section 7.2 – Mobile Applications in Financial Services – This section covers wireless applications in the financial arena like mobile banking, electronic payment systems, wireless wallets, and wireless bill payment. Section 7.3 – Mobile Shopping, Advertising, and Content-Providing – This section describes the abilities and possibilities for mobile shopping and the potential for wireless marketing and advertising. The section also discusses uses of mobile and voice portals. Section 7.4 – Mobile Enterprise and Inter-Business Applications – This section covers the applications that support mobile workers through wearable devices and providing detailed examples of their applications. It examines the potential for employee support, as well as customer service and support. This section also discusses intra-business applications with detailed examples. Section 7.5 – Mobile Consumer Services and Applications – This section looks at the wireless applications available for consumers and individuals. Examples discussed are gaming, telemedicine and hotel services. Other mobile services are covered in this section including mobile social networking, mobile governments (m-governments) and future mobile devices that will depend on mobile networks. Section 7.6 – Location-Based Services & Commerce – This section examines location-based commerce and its supporting technologies. It also visits GPS and GIS systems, as well as the ideas of tele-matics and telemetry applications.

Section 7.7 – Pervasive Computing, Content Awareness and RFID – This section considers the idea of pervasive computing, where the entire world is connected through wireless connections. It also delves into contextual computing and contextual awareness. Applications of pervasive computing like smart homes, smart appliances, and smart cars are examined. Smart things, like barcodes, and large-scale pervasive systems, like smart schools and smart offices are explore. IT@Work IT at Work 7.1 – Wearable Devices for Bell Canada Workers– This case examines the enablement of Bell Canada workers through a wearable computer situated in the mobile worker’s vest, which allows them to call up work orders and repair manuals, as well as communicate with the office. IT at Work 7.2 – The Highway 91 Project – This case examines the use of microchips and antennae to allow drivers access to a specially constructed toll road in the greater Los Angeles area, which saves commuters 40 to 90 minutes a day. IT at Work 7.3 - Nextbus: a Superb Customer Service – This case shows how San Francisco has solved the problem of uncertain bus schedules by tracking public transportation in real time and by allowing clients access to this information via cell phones and PDAs. A similar system is used in Finland with equally great success. IT at Work 7.4 – Context-Aware Environment at Carnegie Mellon University – This system creates a list of personal preferences for each student in the study, which are then used to filter information received through their PDA. This list of preferences is accessed by a number of personal agents, which create suggestions that should assist the student with a number of tasks ranging from what to eat to the local weather. The example questions if the loss of privacy is outweighed by the usefulness of the information. IT at Work 7.5 – Illustrative Examples of RFID in use – This component describes various applications of radio-frequency identification devices. The examples range from the inventory management applications of Circuit City, use in medical equipment, tracking of moving vehicles and its use by the US Federal Government. War Stories Is your wireless network safe? Our campus is located on the edge of downtown Denver. As an experiment, I frequently take my students on a field trip through several adjoining blocks. Equipped with wireless capabilities on my notebook computer, I can usually find seven or eight wireless networks that I can access from the street outside. I usually will have full access to their systems, once I make the connection. I have experienced a similar situation at my home, which is located half a block from the outbuildings of a major hospital network.

Review Questions 1. Describe the mobile computing field. Mobile computing is a computing paradigm designed for those who travel. Employing mobile computing devices, people are now able to stay connected to networked systems from almost everywhere in the world. Mobile computing devices were created to solve some major problems. The first solution was to make computers small enough so that they can be easily carried around. First, the laptop computer was invented, and later on smaller computers, such as the PDAs and other handhelds appeared. The second solution to the need for mobile computing was to replace wires with wireless communication media. The third solution was a combination of the first two, namely, to use mobile devices in a wireless environment. This combination enables a real-time connection between a mobile device and other computing environments, such as the Internet or an intranet. 2. List five major attributes of mobile computing. • • • • •

Devices are mobile It has a broad reach Ubiquity- Refers to the attribute of being available at any location at any given time Instant connectivity Personalization- Preparation of customized information for individual consumers

3. List five drivers of mobile computing and commerce. The drivers of mobile computing include the widespread availability of the devices, the fact that you no longer need a PC to access the Internet, familiarity with handheld devices (cell phones have become a way of life), vendor advertisements (friends and family, unlimited usage within a network), decreasing price with increased functionality, and improved bandwidth and coverage of areas. 4. Define mobile commerce and list its revenue models. Mobile commerce (m-commerce) is basically any e-commerce or e-business done in a wireless environment, especially via the Internet. The revenue models of m-commerce are access fees, subscription fees, pay-per-use, advertising, transaction fees, hosting, payment clearing, and point-of-traffic. 5. Describe the Wi-Fi revolution and applications. In a typical configuration, a transmitter with an antenna, called a wireless access point (WAP) connects to a wired LAN from a fixed location or to satellite dishes that provide an Internet connection. WLANs provide fast and easy Internet or intranet broadband access

from public hotspots such as airports, hotels, Internet cafes, and conference centers. WLANs are also being used in universities, offices, and homes in place of the traditional wired LANs. 6. Describe wireless banking Wireless banking is generally defined as carrying out banking transactions and other related activities via mobile devices. The services offered include bill payments and money transfers, access administration and check book requests, balance inquiries and statements of account, interest and exchange rates and the sale/purchase of stocks. 7. How are micropayments done wirelessly? Electronic payments for small-purchase amounts (generally $3 or less) are called micropayments. These payments are usually done via cell phones to pay vending machines and train fares and they are becoming very popular in Japan. 8. Describe a mobile e-wallet. An e-wallet is a piece of software that stores an online shopper’s credit card numbers and other personal information so that the shopper does not have to reenter that information for every online purchase. 9. Describe mobile shopping. Mobile shopping involves the use of cell phones to shop for anything online. Shopping from wireless devices enables customers to perform quick searches, compare prices, use a shopping cart, order, pay, and view the status of their order using cell phones or wireless PDAs. 10. How is targeted advertising done wirelessly? Knowing the current location of mobile users and their preferences or surfing habits, marketers can send user-specific advertising messages to wireless devices. 11. Describe a mobile portal. A mobile portal is a customer channel, optimized for mobility that aggregates and provides content and services for mobile users. These portals offer services similar to those of desktop portals like news, sports, e-mail, entertainment and travel information. 12. Define and describe a voice portal. A voice portal is a Web site that can be accessed by voice. Voice portals are not accessed through a browser. 13. Describe mobile applications inside organizations. Many companies offer innovative mobile and wireless applications in the enterprise. These applications provide support for a wide range of people within the organization. Some of 4

them are support for salespeople while waiting on customers, support for field employees doing repairs or maintenance on corporate premises or for clients, supporting traveling executives, supporting employees while they do work inside the enterprise and supporting employees driving trucks, while they are on the road. The two types of devices used are portable devices that are connected to wireline networks and wireless devices that enable real-time connection to corporate data or the Internet. 14. Describe wireless sales-force applications. Sales representatives need to check on stock items’ availability, special pricing, order status, and so on, all during their visits with customers. Devices such as Palm OS and BlackBerry products offer capabilities that allow salespeople to access a remote server to check stock availability and shipping information. 15. What are wearable devices? Provide examples. Employees who work on buildings, electrical poles, or other difficult- to-climb places may be equipped with a special form of mobile wireless computing devices called wearable devices. People wear these devices on their arms, clothes, or helmets. Some of these devices include a computer screen or camera is mounted on a safety hat, wrist mounted keyboards and watchlike devices. 16. Describe mobile CRM. Mobile CRM is used to describe applications that allow salespeople to access pertinent customer information while on the move. An example is a field service representative on a service call might need to know current availability of various parts in order to fix a piece of machinery. 17. Describe intrabusiness applications. Mobile intrabusiness technology makes possible large-scale automation of data capture, improved billing timeliness and accuracy, less overhead than with the manual alternative, and increased customer satisfaction through service responsiveness. For example, vending machines can be kept replenished and in reliable operation by wirelessly polling inventory and service status continually in real time to avert costly machine downtime. Other examples include such applications as wireless networking used to pick items out of storage in warehouses via PCs mounted on forklifts, delivery-status updates entered on PCs inside distribution trucks, and collection of data such as competitors’ inventories in stores and customer orders using a handheld device, from which data were transferred to company headquarters each evening. 18. Describe supply chain applications. Supply chain applications enable organizations to respond faster to supply chain disruptions by proactively adjusting plans or by shifting resources related to critical supply chain events as they occur. 5

19. List types of mobile entertainment. Mobile games, sports, gambling, adult entertainment and music. 20. Describe mobile games. Mobile games basically consist of mobile gaming devices like Nintendo DS and the PSP by playstation. With the widespread use of cell phones, the potential audience for mobile games is substantially larger than the market for other platforms. 21. How does wireless work in hotels? A number of hotels now offer their guests in-room, wireless or wireline high-speed Internet connections. Some of these same hotels offer Wi-Fi Internet access in public areas like the lobby and meeting rooms. 22. How is wireless used in public transportation? Users of this form of technology can use their cell phones to pay train fares and taxi fares. This technology is also known as micropayments. 23. Define location-based services. Location-based commerce refers to the delivery of advertisements, products, or services to customers whose locations are known at a given time. From a consumer’s viewpoint, lcommerce offers safety (you can connect to an emergency service with a mobile device and have the service pinpoint your exact location), convenience (you can locate what is near you without having to consult a directory, pay phone, or map), and productivity (you can optimize your travel and time by determining points of interest within close proximity). From a business supplier’s point of view, l-commerce offers an opportunity to sell more. 24. How does location-based EC work? Provide an example. This technology consists of groups of servers that combine the position information with geographic- and location-specific content to provide an l-commerce service. For example, location-based technology could present a list of addresses of nearby restaurants based on the position of the caller, local street maps, and a directory of businesses. 25. Define GPS. What is it used for? A global positioning system (GPS) is a wireless system that uses satellites to enable users to determine where the GPS device is located anywhere on the earth. GPS has been used extensively for navigation by commercial airlines and ships and for locating trucks and buses. 26. Describe GIS and its advantages The location provided by GPS is expressed in terms of latitude and longitude. To make that

information useful to businesses and consumers, it is necessary in many cases to relate those measures to a certain place or address. This is done by inserting the latitude and longitude onto a digital map, which is known as a geographical information system (GIS). The GIS data visualization technology integrates GPS data onto digitized map displays. 27. Describe the location-based applications and particularly advertising. Location-based applications mainly relate to customer service, advertising/marketing, and operations. The location of a wireless device can be used to send advertising to the person carrying that cell phone based on their precise geographical location. 28. Describe how e-911 works Upon appropriate request by a local Public Safety Answering Point, a 911 caller can be located by the cellular antenna that received the call. This will also require wireless carriers to provide information that will enable the PSAP to locate a caller within 50 to 150 meters. 29. Define telematics. How does it relate to mobile and wireless computing? Telematics refers to the integration of computers and wireless communications in order to improve information flow. It uses the principles of telemetry, the science that measures physical remoteness by means of wireless transmission from a remote source (such as a vehicle) to a receiving station. 30. Relate l-commerce to its cost assessment and justification. For many potential users, the benefits of l-commerce do not justify the cost of the hardware or the inconvenience and time required to utilize the service. 31. Define pervasive computing and describe its major characteristics. A world in which virtually every object has processing power with wireless or a wired connection to a global network is the world of pervasive computing. Pervasive computing is invisible “everywhere computing” that is embedded in the objects around us—the floor, the lights, our cars, the washing machine, our cell phones, our clothes, and so on. 32. What is contextual computing and awareness? Context awareness refers to capturing a broad range of contextual attributes to better understand what the consumer needs, and what products or services he or she might possibly be interested in. Context awareness is part of contextual computing, which refers to the enhancement of a user’s interactions by understanding the user, the context, and the applications and information being used, typically across a wide set of user goals. 33. Describe smart homes and cars. In a smart home, your home computer, television, lighting and heating controls, home security system, and many appliances within the home can “talk” to each other via the

Internet or a home intranet. Every car today has at least one computer on board to operate the engine, regulate fuel consumption, and control exhaust emissions. 34. Define RFID and describe its potential benefits Radio frequency identification (RFID) is a technology that uses radio waves to identify items. The system consists of an RFID tag (also known as a transponder) and an RFID reader that contains a radio transmitter and receiver. Benefits include inventory tracking in logistics, tracking moving vehicles, tracking people and animals, tracking golf balls, protecting secure areas and for tracking medical equipment in hospitals. 35. What are the concerns regarding RFID? A major concern for RFID technology is privacy of customers who have goods tagged with RFID. Other concerns include the opportunity for identity theft, fraud, harassment, and blackmail. Metals and fluids may possibly interfere with the radio signals, tag quality may be uneven, the cost of attaching the tags can be too high, and the cost of the tags is too high. 36. What is a digital city? The concept of digital cities is to build an area in which people in regional communities can interact and share knowledge, experiences, and mutual interests. Digital cities integrate urban information and create public spaces for people living in or visiting the cities. 37. Describe wireless sensor networks. Wireless sensor networks (WSNs) are networks of interconnected, battery-powered, wireless sensors called motes that are placed into specific physical environments. Each mote collects data and contains processing, storage, and radio frequency sensors and antennas. Discussion Questions 1. Discuss how mobile computing can solve some of the problems of the digital divide (the gap within a country or between countries with respect to people’s ability to access the Internet). (See International Communications Union 1999 and Chapter 16). M-commerce refers to the use of wireless devices (Cell phones, PDAs, etc.) to conduct business. Because wireless devices are usually cheaper than computers and are mobile, users could feasibly connect to the Internet from anywhere at very low cost. Currently the book estimates that users of these wireless technologies will top one billion by the end of 2004. If all of these people were easily able to connect to the Internet, the digital divide would be lessened dramatically. 2. Compare mobile portals to voice portals A mobile portal is a customer channel, optimized for mobility that aggregates and provides content and services for mobile users. The services provided by mobile portals include news,

sports, e-mail, entertainment, and travel information; restaurants and event information; leisure-related services; community services; and stock trading A voice portal is a Web site that can be accessed by voice. Voice portals are not really Web sites in the normal sense because they are not accessed through a browser. In addition to retrieving information, some sites provide true interaction. Voice portals are used extensively by airlines, for example, enabling you to make reservations, find flight status, and more. Many other organizations use voice portals to replace or supplement help desks. 3. Discuss how m-commerce can expand the reach of e-business M-commerce expands the reach of e-business greatly because it is completely mobile and allows the customer to conveniently act on an impulse to buy a product from almost anywhere. This convenience and lack of borders creates a nearly global storefront for ebusinesses. 4. Discuss the impact of wireless computing on emergency medical services in cases of accidents. Wireless computing has had a profound impact on EMS. Thanks to the effectiveness of wireless communications and the increasing amounts of data that are able to be sent, a first respondent to an emergency situation can now easily communicate with the hospital while they are en route and prepare the ER staff for what the incoming patient will need. They can also upload data on what medicines have been given so far and on the condition of the patient, as well as transmit any information (such as known allergies etc.) that the patient may have been able to provide. 5. How are GIS and GPS related? GIS takes the longitude and latitude reading from a GPS system and transforms it into a usable street address for use by businesses. 6. How can you use a GPS to help you find a stolen car, a parking place, or the closest gas station? A global positioning system (GPS) is a wireless system that uses satellites to enable users to determine where the GPS device is located (its position) anywhere on the earth. By use of this system, a GPS tracking device can be placed on the car and tracked from any location. 7. Some people see location-based tools as an invasion of privacy. Discuss the pros and cons of location-based tools. Pros: A good thing about location based tools is that they help marketers bring products to consumers based on their geographical location. A casino can pre-register their clients as soon as they get to the airport and turn on their cell phones. This expedites the customer service process when they get to the hotel. There’s also e911 calls where the caller can be

tracked to within a few feet. Other beneficial uses include tracking pets and sending weather information to people. Cons: The main issue with l-commerce is the issue of privacy where most users will not want their locations known at every given time. Some of the location-finding devices are not as accurate as people expect them to be. For many potential users, the benefits of l-commerce do not justify the cost of the hardware or the inconvenience and time required to utilize the service. GSM bandwidth is currently limited; it is improving as 3G technology spreads. 8. Discuss how wireless devices can help people with disabilities. Wireless devices can be used by medical specialists to monitor breathing, heart rate, and blood pressure. The handicapped can use special wireless devices to activate handicapped entrances to buildings and call elevators and to activate emergency alarms. GIS systems can be used to help plot more tractable passages between locations, and wireless devices can be used to find handicapped-accessible entrances to buildings. 9. Discuss the benefits of telemetry-based systems. Using mobile telemetry, technicians can diagnose maintenance problems in machinery (NASA) and assist lost or injured auto passengers (OnStar), and doctors can monitor patients. 10. Discuss the ways in which Wi-Fi is being used to support mobile computing and mcommerce. Describe the ways in which Wi-Fi is affecting the use of cellular phones for mcommerce. The major benefits of Wi-Fi are its low costs and its ability for high-speed Internet access, allowing laptop users easy access. Wi-Fi technologies have made a big push to equip hotels with connectivity as an added benefit to the business traveler and to put connections in chain restaurants, coffee shops, airports, and many other public forums. With this increased access for laptops, with complete application functionality, as well as with the ability to view the Internet graphically, Wi-Fi is negatively affecting cell phone use in regards to m-commerce. Text-based cell phone access, often limited, is still expensive for the user. 11. Which of the applications of pervasive computing—smart cars, homes, appliances, and things—do you think are likely to gain the greatest market acceptance in the next few years? Why? Smart cars and homes seem to be capturing a lot of attention when it comes to pervasive computing. As various companies try to compete with one another and gain a market edge, it seems, smart cars will make greater use of that technology in the next few years. This question is however subject to student perception and research. Students should be encouraged to bring forth their personal thoughts on this.

12. Which of the current mobile computing and m-commerce limitations do you think will be minimized within 5 years? Which ones will not? The major limitations of mobile computing are small screens on mobile devices, limited bandwidth, high cost, and lack of keyboards, transmission interferences, unproven security, and possible health hazards. The primary legal/ethical limitations of m-commerce relate to privacy issues. Bandwidth limitations, transmission interferences and security issues directly relate to the technology present today. As technology advances these limitations might begin to diminish. However other limitations like privacy issues health hazards may not necessarily have solutions to them. However you put it, people would always demand their privacy and as this technology advances, this limitation may rather he increased. This question however can be left to students to research and discuss as some of the diminishing rate of some of these limitations are open for discussion. 13. Describe some m-commerce B2B applications along the supply chain. Mobile computing may have strategic implications regarding supply chains by enabling them to be smoothed, shorten time, reducing delays, and improving supplier and customer relationship. Wireless telemetry, which combines wireless communications, vehicle monitoring systems, and vehicle location devices, is one of the examples of integrated messaging system. Mobile devices can also facilitate collaboration among members of the supply chain. Employees can be contacted on a mobile device. Companies can reduce clerical mistakes and improve supply chain operations by allowing salespeople to check production schedules and inventory levels, and to access product configuration and availability as well as capacity available for production directly from a client site. 14. Discuss how RFID can increase the control of checkout systems in stores? Radio frequency identification (RFID) is a technology that uses radio waves to identify items. An RFID tag remains inactive until radio frequency energy from the radio transmitter hits its antenna, giving the chip enough power to emit a string of information that is read by the radio receiver. With this technology, a shopper can shop for groceries and at the checkout lane, the transmitter activates the RFID tag and the customer doesn’t have to unload the cart. Rather, they only have to pay or have their account automatically debited, thus reducing all time spent at the checkout counter. Exercises, Projects, & Group Assignments The group assignments considered in this chapter involve reviewing literature, conducting research for new information, conducting surveys, collecting and analyzing the information and

preparing necessary reports. These assignments are not extremely difficult to complete. However, they do require a group effort. Internet Exercises Students can answer the extensive number of Internet exercises individually by finding website URLs through search engines such as Infoseek, Webcrawler, Lycos, or Copernic, and then by navigating through the sites, exploring them to obtain necessary information. It is recommended that the instructor verify the existence of the websites before assigning the exercises to students. As technology advances, new issues will arise and new questions will need to be addresses Minicase Hertz Goes Wireless This case illustrates how Hertz has pioneered mobile commerce applications in order to make rentals quick, to allow for instant returns and to equip autos with a GPS system that also allows for downloads of maps, shopping guides, etc., and that gives them the ability to locate their autos at any time through the GPS system. Summary This chapter presented a detailed examination of wireless and mobile computing. The chapter covered m-commerce, l-commerce, and all varieties of mobile applications. It looked forward to future uses and discussed the problems being faced currently within the industry What’s Next? The next chapter discusses social networks in the Web 2.0 environment. It seeks to understand the concept, structure, types and issues of virtual communities and worlds. The chapter also looks forward into the concept of Web 3.0.

Chapter 8 Social Networks in the Web 2.0 Environment Goals of the Chapter The main goal of this chapter is to understand the Web 2.0 revolution and its characteristics, social and business networks and industry and market disruptors. The chapter also explains the concept, structure, types and issues of virtual communities and worlds. Social networking has become a very intricate part of our society today and this chapter explores this phenomenon seeking to understand the use in everyday life and business. We take a look into the future and explore the world of Web 3.0 and its use in social networking and business.

An Overview Section 8.1 – The Web 2.0 Revolution, Social Media and Industry Disruptors – This section seeks to understand the workings of Web 2.0, which is an advanced Internet technology and application. It looks at the characteristics of Web 2.0 and its use in business. The section also looks at major industry disruptors of Web 2.0, companies that have changed the way business is done. Section 8.2 – Virtual Communities and Virtual Worlds – This section takes a look at online virtual communities and their characteristics and impact on the way people and businesses interact with each other. The section also explores the use of virtual worlds as a mode of communication. Section 8.3 – Online Social Networking: Basics and Examples – In this section, we take a close look at online social networking, the services they offer and the tools used in them. We also take a look at some sample social networking sites and the unique services they offer. Some of these include digg.com, Friendster.com and classmates.com. Section 8.4 – Major Social Network Services: From Facebook to Flickr – This section further explores the major social networking sites that exist online. These include Facebook, bebo.com, craigslist, orkut.com and flickr.com. All these social networking sites have different attributes and their unique features are explored. Section 8.5 – Business (Enterprise) Social Networks – Some social networking sites concentrate on business. This section takes a look at business oriented social networks like Linkedin.com, which concentrates on linking business professionals and seeks to concentrate mainly on connecting people with jobs, people and business opportunities. This section also takes a look at enterprise social networks which exist within organizations for employees to interact with each other. Section 8.6 – Commercial Aspects of Web 2.0 Applications and Social Networks - In this section, we take a look at the commercial aspects of Web 2.0 applications and Social Networks. These commercial applications include advertizing and shopping. We also look at the risks posed to

businesses by the use of social networking sites for advertising. The section also takes a look at the revenue generating strategies in social networks. Section 8.7 – The Future: Web 3.0 – This section looks at the future of Internet applications which is Web 3.0. The section looks at the characteristics of Web 3.0 and its structure, paying special attention to mobile social networks.

Practical Applications Opening Case - Wikipedia and its Problems of Content Quality and Privacy Protection Wikipedia is a free online pop culture, user created, collaborative encyclopedia that Web 2.0 communities have created. It is said to be 42 times bigger than the Encyclopedia Britannica which contains only 120,000 articles. The problem Wikipedia had was with anonymous users posting false articles on the website. Another problem was the invasion of privacy where people and companies written about didn’t want some information put in the public domain. The first step in solving the problem was the creation of an advisory board. The second step was to empower the site administrators to block access to certain users who repeatedly vandalized the website. They also improved the process of handling complaints. Other fixes included the editing of mediocre articles, the creation of original articles from the ground up and making the users policy more interactive. A Closer Look 8.1– Weddings Are Going W2.0 High Tech – This case looks at where technologically advanced weddings are going in this Web 2.0 age. Couples create their own wedding sites to keep their guests informed about the wedding plans. Many couples use the Internet for bridal registries. Guests can buy the most preferred gifts online from major department stores. Wedding Webcasts are becoming popular where entire weddings are webcast to those who could not attend. Couples can also create their own playlists and use them for both wedding ceremony and reception music. Couples can also design and buy their wedding rings online, making competition among vendors to serve 2.4 million weddings in the U.S. fiercer. IT at Work 8.1 – Second Life – Second Life is a 3-dimensional virtual world which was opened to the public in 2003. In 2003, the virtual world consisted of 64 acres and by 2007 had grown to 65,000 acres and is inhabited by millions of residents from around the planet. Users create their own avatars and travel around the Second Life world meeting new people, communicating and having fun, buying virtual land and other virtual properties. Everything in second life is user created and users retain the rights to whatever they create. Residents can sell virtual properties and can also sell real world products and services. Organizations also use Second Life for different purposes like product presentations, classes organized by universities, meetings, training and recruitment by corporate bodies. Retailers have also taken advantage of Second Life to sell their real world products. In all, Second Life is just an extension of real life where people interact online instead of face to face. IT at Work 8.2 – Revenue Sources at YouTube – This case discusses the various revenue channels of YouTube. First, as more and more video clips come online, attracting a vast number of viewers per day, advertisers look at ways of reaching more people with their content. YouTube seems to be a good way for companies to reach a wide range of people. Secondly,

advertisers create their own content to attract a huge audience. An example is the use of YouTube to promote Nike shoes, using Ronaldinho (a soccer superstar). Thirdly, users generate their own videos using specific products, thus drawing attention to these products. Finally, there is the age old use of word-of-mouth advertising having users on YouTube create their own advertising clips.

Questions for Review 1. Define Web 2.0. Web 2.0 is the popular term for advanced Internet technology and applications including blogs, wikis, RSS, and social networks. 2. List the major characteristics of Web 2.0. •

The ability to tap into the collective intelligence of users. The more the users contribute, the more popular and valuable a Web 2.0 site becomes.

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Web 2.0 data can be remixed or “mashed up,” often through Web-service interfaces, much the way a dance-club DJ mixes music.

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Web 2.0 uses user-generated and controlled content and data

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The presence of lightweight programming techniques and tools that lets nearly anyone act as a developer

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The virtual elimination of software-upgrade cycles makes everything a perpetual beta or work in progress and allows rapid prototyping using the Web as a platform for developing applications.

3. List the Web 2.0 technologies. Social media, video, mobile, advertising and enterprise. 4. Define social media. Social media refers to the online platforms and tools that people use to share opinions and experiences including photos, videos, music, insights, and perceptions with each other. 5. Define industry and market disruptors. Provide an example. Industry and market disruptors are companies that have introduced Web 2.0-based innovations that could disrupt and reorder markets or even entire industries. An example is where more and more wedding services are taking place online, thus hurting the traditional wedding business like invitation printing, webcasting and ordering of supplies. 6. Define virtual (Internet) communities and describe their characteristics.

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A virtual (Internet) community is one in which a group of people with common interests interact with one another by using a computer network, mainly the Internet.

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Characteristics:

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Internet communities may have thousands or even millions of members

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Most online communities are not geographically confined; they are spread all over the world.

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Many thousands of communities exist on the Internet.

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Virtual communities can be classified in several other ways. Classifications include traders, players, just friends, enthusiasts, or friends in need.

7. List the major categories of virtual communities. •

Transaction and other business- Facilitates buying and selling.

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Purpose or interest - No trading, just exchange of information on a topic of mutual interest

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Relations or practices - Members are organized around certain life experiences

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Fantasy - Members share imaginary environments

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Social networks - Members communicate, collaborate, create, share, form smaller groups, entertain, and more

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Virtual worlds - Members use avatars to represent them in a simulated 3D environment where they can play, conduct business, socialize, and fantasize

8. Define a virtual world. A virtual world is a user-defined 3D world in which people can interact, play, and do business with the help of avatars. 9. Describe Second Life. Second Life is a 3-dimensional virtual world which allows users to create their own avatars and travel around meeting new people, communicating and having fun, buying virtual land and other virtual properties. Everything in Second Life is user created and users retain the rights to whatever they create. Residents can sell virtual properties and can also sell real world products and services. Organizations also use Second Life for different purposes like product presentations, classes organized by universities, meetings, training and recruitment by corporate bodies. 10. How is business done in a virtual world?

Business is conducted like it is in real life. People are employed, property is sold and bought and even real world products and services are marketed and sold. 11. Define social network. A social network is a place where people create their own space, or home page, on which they write blogs, post pictures, videos or music, share ideas, and link to other Web locations they find interesting. 12. Define social network analysis and services. Social network analysis is the mapping and measuring of relationships and flows between people, groups, organizations, computers, or other information or knowledge processing entities. 13. Describe Digg. Digg (digg.com) is a community-based popularity website with an emphasis on technology and science articles. 14. Apart from the privacy control, what other factors inhibit adults to join Facebook? •

The website has a major concentration on high school and college students

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It does not offer content that adults are interested in e.g., news, business, jobs etc…

15. Much of Facebook’s early success was due to the close affiliation of its members’ networks. How does Facebook expand into new markets without losing what originally made the site popular and alienating their existing users? To attract other people from around the world to be interested, Facebook used volunteers to translate the entire site into several languages from around the world. 16. What strategies should Bebo pursue in order to compete head-on with other social networking sites? This question should be left to the perception of the student and their lessons learned from business classes 17. Picture yourself as a Bebo strategist. How would you go about further expanding the site? This question should be left to the perception of the student and their lessons learned from business classes. 18. If Craigslist were to pursue more commercial activity and revenue streams such as tracking user information and selling targeted ad space, what effect would it have upon usership? Would any increased revenue offset any potential disadvantages? This question should be left to the perception of the student and their lessons learned

from business classes 19. Is it possible for Web sites to “go corporate” while retaining their grassroots credibility? It is possible for websites go corporate and retain the grassroots credibility. If their business model is to maintain a grassroots presence, they need to stick to that. This question should however be left for students to discuss among themselves. There is no true or false answer to this. 20. Can Craigslist be responsible for the content of the ads posted on its site? If yes, what should the extent of that responsibility include? Craigslist can use several filters and checks to limit the kinds of material posted on its website. Some of these postings could have Craigslist bear some liability and attract lawsuits as has happened in several cases. This question should however be left for students to discuss among themselves. There is no true or false answer to this. 21. What steps could Craigslist take to better inform users as to the integrity of ads posted? Users can be informed of policies that limit the posting of certain ads on the website. Ads posted that don’t meet these policies could be taken down as is done by some sites like eBay. 22. What makes Orkut different from other social networks? Orkut allows users to create their own online communities unlike other social networking sites where users are part of one large community. 23. How should Orkut respond to demands of local governments that culturally disapprove of some ideas and practices of social networking sites? There are several ways Orkut can respond to this. They can either ignore the concerns of these local governments or block users from these geographical areas from accessing the website. Either of these choices will be open for discussion. 24. Who ultimately deserves the credit for the success of Flickr as a social networking site: the founding developers, initial users, corporate backers, or others? All these listed entities have played a huge role in the success of the site but it looks like the original users choosing to stay with the site created its success from the beginning. This is however a discussion topic which should be put to students. 25. How might Flickr garner the favor of its original members rather than their criticism regarding the Yahoo deal? They could either provide their users with more applications as they have done or grant

the original users the option of either synchronizing their yahoo accounts or not. This question is also open for debate. 26. Most SNSs now offer the services of Flickr. Will this cause the demise of Flickr? Users usually tend to move to sites that provide them the most applications that they are interested in. As long as Flickr keeps improving its application base and provide more utility for their applications, they should be in good shape for a long time. 27. Define a business network. A business network is defined as a group of people that have some kind of commercial or business relationship 28. Describe LinkedIn and its capabilities. The main purpose of LinkedIn is to allow registered users to maintain a list of contact details of people they know and trust in business called connections. Users can invite anyone, whether he or she is a LinkedIn user or not, to become a connection. A contact network is built consisting of users’ direct connections, LinkedIn can then be used to find jobs, people, and business opportunities recommended by anyone in your contact network. Employers can list jobs and search for potential candidates and job seekers can review the profiles of hiring managers and discover which of their existing contacts can introduce them to a specific hiring manager. 29. Define entrepreneurial network. Entrepreneurial networks are social organizations offering different types of resources to start or improve entrepreneurial projects. 30. Describe enterprise-based social networks. Enterprise social networks are created when enterprises interface with social networking sites. This means that companies are conducting entrepreneurial social networking activities in one or more ways. 31. List six ways organizations can interface with Web 2.0 tools and social networks •

Utilize existing public social networks, such as Facebook

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Create an in-house private social network and then use it for communication and collaboration among employees and retirees, or with outsiders

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Conduct several business activities in a social network where the primary objective is business-oriented

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Create services for social networks such as developing software, providing security devices, consulting services, and more 7

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Use Web 2.0 tools, mostly blogs, wikis, workspaces, and team rooms

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Create and/or participate in a social marketplace

32. Define a social marketplace The term social marketplace is derived from the combination of social networking and marketplaces, such that a social marketplace acts like an online community harnessing the power of one’s social networks for introducing, buying, and selling of products, services, and resources, including people’s own creations. 33. Why is there so much interest in EC via social communities? There are several reasons: •

Consumers can be a source of feedback on existing product features etc.

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Brand awareness

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Word-of-mouth is free advertising that increases the visibility of niche retailers and products.

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Increased Web site traffic, a common effect of viral marketing; inevitably brings with it more ad dollars

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Increased sales can come from harnessing techniques based on personal preferences such as collaborative filtering

34. How can a social network facilitate viral marketing? A higher percentage of people who use social networking sites are young and especially good at viral marketing. What they like can spread very quickly, sometimes to millions of people at a minimal cost to companies. 35. How can social networks support shopping? •

Brand owners create profile pages can create their own profile pages and be part of the network and in the case of Twitter, they can have followers.

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Based on the likes and dislikes of a user, targeted marketing can be used in some cases.

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Musicians can sell directly from their profile pages in the case of MySpace

36. How is customer feedback solicited in social networks? Web 2.0 brings in feedback via blogs, wikis, online forums, chat rooms, and social networking sites.

37. List some risks in enterprise social networking. •

A company needs to be willing to have negative reviews and feedback and this could eventually harm the company if there are a lot of negative reviews.

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A minority of individuals contribute most of the content material in some blogs, wikis, and similar tools and that would not be an accurate representation of the general public’s view of the company or product.

38. What types of revenue can be generated in social networks? •

Direct ways include advertising, subscriptions, and commissions.

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An indirect way would be strategic acquisition

39. What is Web 3.0, and how will it differ from Web 2.0? Web 3.0 will deliver a new generation of business applications that will see business and social computing converge on the same fundamentals as on-demand architecture is converging with consumer applications. Some of its characteristics will include: •

Faster, far-flung connectivity; richer ways of interacting

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New web services that work entirely within a browser window

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More powerful search engines

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More clout for everyday people and more user-friendly application creation capabilities

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New possibilities of artificial intelligence applications

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10 MB of bandwidth (instead of 1 MB in Web 2.0 on the average)

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More uses of 3D and virtual worlds

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Larger utilization of wireless

40. Describe the future of mobile social networks. An explosive growth of mobile social networks is predicted by ABI Research, tripling the 50 million members in 2006 to 174 million in 2011. The explosion of wireless Web 2.0 services and companies enables many social communities to be based on the mobile phone and other portable wireless devices. This extends the reach of social interaction to millions of people who don’t have regular or easy access to computers. 41. List the major potential inhibitors of e-commerce and Web 3.0. Some of the perceived inhibitors of e-commerce and Web 3.0 include: 9

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Security concerns - Both shoppers and users of e-banking and other services worry about online security

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Lack of Net neutrality - If the big telecom companies are allowed to charge companies for a guarantee of faster access, critics fear that small innovative Web companies could be crowded

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Copyright complaints - The legal problems of YouTube, Wikipedia, and others may result in a loss of vital outlets of public opinion, creativity, and discourse.

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Choppy connectivity - Upstream bandwidths are still constricted, making uploading of video files a time-consuming task

Questions for Discussion 1. Discuss the differences between Web 2.0 and the traditional Web. If Web 1.0 was organized around pages, software, technology, and corporations, Web 2.0 is organized around ordinary people and services. Web 2.0 is regarded as a movement that encompasses a range of technologies such as blogs, wikis, and podcasts. One of the most significant differences between Web 2.0 and the traditional Web is greater collaboration among Internet users and other users, content providers, and enterprises. One of the biggest advantages is better collaboration with customers, partners, and suppliers, as well as among internal users. 2. Discuss the major characteristics of Web 2.0.What are some of their advantages? Characteristics of Web 2.0 include the following: •

The ability to tap into the collective intelligence of users. The more users contribute, the more popular and valuable a Web 2.0 site becomes

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Making data available in new or never-intended ways

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Web 2.0 uses user-generated and controlled content and data.

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The presence of lightweight programming techniques and tools that lets nearly anyone act as a developer

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The virtual elimination of software-upgrade cycles makes everything a perpetual beta or work in progress

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Networks as platforms delivering and allowing users to use applications entirely through a browser.

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Architecture of participation and digital democracy encourages users to add value to the application as they use it

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New business models are rapidly and continuously being created

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A major emphasis is on social networks

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A rich interactive, user-friendly interface based on Ajax or similar frameworks is often used

One of the biggest advantages is better collaboration with customers, partners, and suppliers, as well as among internal users. 3. Discuss the relationship between virtual communities and doing business on the Internet. Virtual communities usually consist of people living a virtual life online by the use of avatars, and doing everything like in real life, only in this case, it’s all done in a virtual world. Real world business can also be done in some cases in a virtual world. A good example is Second Life. Doing business is usually about the exchange of products or services via the Internet and not necessarily having a living profile in a virtual world. An example is eBay and Craigslist. 4. Discuss why Cyworld may take over members from other social networks. Cyworld has its concept like MySpace of Facebook but in this case, users have the ability to create on and offline personal relationships and design their own virtual living spaces and invite other people in. They seem to have a combination of functionality from other social networking sites like Second Life and Facebook. This could sway people into using the site more than the more popularly known ones. 5. Discuss why a social marketplace is considered to be a Web 2.0 instrument. A social marketplace acts like an online community harnessing the power of one’s social networks for introducing, buying, and selling of products, services, and resources, including people’s own creations. A social marketplace should enable members’ own creations as much as they blog, link, and post. Even though it is a place where people trade goods and services, they also share opinions, likes and dislikes about their personal preferences and choices. This a social marketplace, though a place of business can also be classified as an instrument of Web 2.0 6. Discuss the benefits of social networks to viral marketing. A higher percentage of people who use social networking sites are young and especially good at viral marketing. What they like can spread very quickly, sometimes to millions of people at a minimal cost to companies. Social networks provide bloggers and other social networking site users the chance to express their views on products. 7. Discuss the commercial opportunities of virtual worlds. As more and more people enter Second Life and other virtual worlds, companies can use that opportunity to advertize their products and services through these means the same way they use banner ads and other advertizing methods on regular websites. Users of Second Life also can contact other users to market their own creations either on the virtual site or off it. 8. Distinguish between a virtual community and a virtual world.

A virtual community is a group of people with common interests who interact with one another by using a computer network, mainly the Internet and they parallel typical physical communities, such as neighborhoods, clubs, or associations. A virtual world is a user-defined 3D world in which people can interact, play and do business with the help of avatars. The defining difference between these two is that virtual communities belong within virtual worlds. Second Life for example could be classified as a virtual world but within that, there could be hundreds of virtual communities. 9. What are the benefits of conversational marketing? Generate faster and cheaper results than traditional focus groups and they also foster closer relationships with customers. 10. Discuss the nature of industry disruptors. Industry disruptors are companies that have succeeded in using Web 2.0 technologies to disrupt the traditional brick and mortar businesses that have thrived over a long time. Wedding services is a big industry. However, more online competition is coming because people use technology to displace traditional vendors, such as live bands, DJs, and invitation printers.

Exercises and Group Assignments The assignments considered in this chapter require a substantial effort to review literature, research for new information, conduct surveys, collect and analyze the information, and prepare necessary reports.

Internet Exercises These exercises are based on the availability of the websites on the Internet at the time of practice. I leave it to my fellow instructors to check and validate the websites before assigning the exercises to the students Minicase Web 2.0 Applications at Eastern Mountain Sports This case discusses Eastern Mountain Sports, a medium-sized specialty retailer with physical stores, a mail order catalog, and online and how they use a set of Web 2.0 tools in order to increase collaboration, information sharing, and communication among stores and their employees, suppliers, and customers. The company used wikis to encourage collaborative interaction throughout the company. Dashboard users were encouraged to post a hypothesis or requests for help, and invite commentary and suggestions. Blogs were created around specific data or a key metric and were used to post information and invite comments. Suppliers were also added and could monitor the return rate of their product on the dashboard and invite store managers to provide explanations and suggestions using wikis or blogs.

The major impact of the Web 2.0 collaboration tools was that instead of having conversations occur in the hallway, conversations take place on blogs and wikis where all interested parties can participate.

Summary The main focus of this chapter was to look at the various characteristics of Web 2.0 technologies and their effects on social networks. The chapter also looked at virtual communities and virtual worlds. The chapter also looks the future of web technologies Web 3.0 and its functionalities.

Chapter 9 Transaction Processing, Functional Applications and Integration Goals of the Chapter This chapter describes the facts and issues related to transaction processing systems, innovative systems, and functional systems in an organization. It discusses how IT supports customer relationship management, as well as how the various support systems are integrated in an organization. Functional areas and business processes are related to the value chain and the close linkage between functional areas and IT are explored. The benefits and issues of integrating functional information systems are covered. An Overview Section 9.1 - Functional Information Systems and Transaction Processing Systems – This section defines functional information systems that are designed to handle traditional functional areas, as well as the major characteristics of the systems. The section also covers the definition, objectives, activities, and methods of transaction processing systems (TPS). Client/server and Web-based TPS are discussed, including object oriented transaction processing, and Web-based transaction processing. Some typical tasks are explained, and transaction processing software is introduced. Section 9.2 – Managing Production/Operations and Logistics – Systems to handle production and operations management (POM), logistics, inventory management, MRP, and project management activities are explored, including the decisions that must be made by each functional area. Section 9.3 – Managing Marketing and Sales Systems – This section explores channel systems, allowing for marketing and distribution improvements, and the tracking and analysis of sales trends and profitability. The section also discusses distribution channels and in-store innovations. Section 9.4 – Managing the Accounting and Finance Systems – These systems handle the money that flows into, through, and out from the organization. This section also looks at financial and economic planning, budgeting, and managing financial transactions. Control and auditing are also explored. Section 9.5 – Managing Human Resources Systems - Systems developed to handle performance evaluation, recruiting, training, payroll and benefits are examined. Personnel planning and labormanagement relations are visited. Section 9.6 - Integrating Functional Information Systems – Reasons for integration of functional information systems are proposed and front- and back-office integration are discussed. Managerial and ethical issues are presented. 1

Practical Applications Wireless Inventory Management System at Dartmouth-Hitchcock Medical Center – This case shows how wireless handheld devices could improve the efficiency of their purchasing and inventory system, correcting problems in their supply chain. This implementation led to a 50 percent reduction in inventory, significantly reducing costs and saving time for essential employees like nurses. IT@Work IT at Work 9.1- Modernizing the TPS Cuts Delivery Time and Saves Money – This case presents a series of examples in which companies benefit from integrating their transaction processing with the Internet and client/server architecture. IT at Work 9.2 - Automatic Vehicle Location and Dispatch System in Singapore – This case cites an example of using integrated solutions to expedite operations through the use of GPS, completely reengineering the process of taxi ordering. IT at Work 9.3 – TIAA-CREF computerized reporting failed – This anecdote details a failure of a reporting system at a large financial planning organization, and the subsequent effects it had upon clients abilities to access their accounts. IT at Work 9.4 - Build Your Jaguar Online – This case introduces systems used by Jaguar to allow customers to create made-to-order cars with various options, colors, and accessories. Customer service is enhanced through virtual reality, and customers can use Auto By Tel to purchase the vehicle or to visit a dealership. IT at Work 9.5 - Internet Market Research Expedites Time-to-Market at Procter & Gamble – This case examines the online market research mined to bring a product to market in two-thirds of the time usually needed. This research also gave them new and creative means to market the same product. IT at Work 9.6 – Software helps Cirque du Soleil – This anecdote discusses the use of software to manage the complicated logistics of an organization of 20,000 performers, 3,500 management employees, and 250 tractor trailers in executing performances in several locales. War Stories eBay, Trust, and Feedback – Customer Relationship Management That Works Both Ways One of the most amazing success stories since the advent of the World Wide Web has been the development of user communities – groups of people coming together to conduct business, exchange ideas, become friends, and so on. Just as with face-to-face meetings, initial impressions can be very lasting. There have been a number of documented cases of individuals being harmed by people they have met on the Internet. Hence, it is of great importance to establish a basis for 2

trust between individuals entering into agreements or friendships through electronic relationships. eBay (www.ebay.com) has quickly become a huge success in Electronic Commerce. eBay is a site that allows buyers and sellers of various types of goods to come together to conduct business. One of the major hurdles has been to verify that both parties in a business transaction are who they say they are, are willing to operate in a spirit of cooperation and fairness, and will deliver what they promise to deliver. eBay began as a place where collectible items could be traded (remember the Beanie Babies?) and has grown rapidly to become a place where virtually anything can be bought or sold. Some items are well suited to this type of electronic marketplace – sporting goods, stamps and coins, baseball cards, and so on. However, the items bought and sold are just that – items. It is also possible to purchase rare automobiles and the occasional dinosaur skeleton, as well as naming rights to a couple’s child or a monastery. The important parts of any business system are the people and the mechanisms that allow buyers and sellers to conduct business and become communities of traders. One of the first considerations when conducting business is whether the seller can be trusted to produce the goods offered and whether the buyer has the means to buy said items. The same happens with regular commerce transactions when a seller allows the buyer to view the items before the sale is consummated and when the buyer allows the seller to check credit. However, regular commerce transactions bring the parties into direct interaction with each other. The buyer can see the type of store the seller has, and can, at a glance, be quite sure that the buyer is legitimate. They can also see and feel the objects. Likewise, a seller can verify that the currency (cash or credit) is legitimate. One of the first noteworthy occurrences in the advent of e-commerce happened when some credit card companies waived the deductible on credit card purchases made online. This “deductible” is the amount the credit card holder is liable to pay (usually $50) if the card (or card information) is stolen or misused. By waiving this fee, the credit card companies were indicating to consumers that the credit card companies believed e-commerce to be as secure or more secure that traditional commerce. One way to help ensure trust in e-commerce transactions is to offer “escrow services.” These services are of great use when the value of the transaction is high. The seller of the item sends the item to a third party (the escrow company). The buyer sends their payment to the same escrow company. From here, a number of things can occur. In some cases the escrow company examines the items for sale, determines the currency is sufficient, and, if both are acceptable, forwards the item to the buyer and the payment to the seller. The escrow company is paid either by the seller, the buyer, or by both parties. In other situations, the buyer and seller send their payment and item to the escrow company. The escrow company forwards the item to the buyer, who has a short period of time to examine the item for acceptability. If the buyer does not object by the end of the time period, payment is sent to the seller. In another version of this system, the escrow company accepts payment from the buyer, the seller then ships the product, and the buyer 3

has a set number of days to reject the product before the seller will be paid. The buyer is responsible for the return of the product. How then do eBay buyers and sellers determine if their partners are trustworthy? eBay allows its customers to use escrow services or electronic payments, but neither of these options are its most important feature. The innovative part of eBay’s customer relationship management is that eBay has placed the onus on the buyer and seller to show their trustworthiness using something called Feedback Forum. For each of the millions of transactions conducted on eBay, the buyer and seller leave feedback for each other with eBay. If one party (for example the buyer) was happy with the transaction, they usually post “positive feedback”, which has a value of +1, for the seller. Should the buyer be unhappy, they might post “negative feedback” which has a value of -1. It is also possible to post a neutral feedback which has a value of zero. The presence of these responses for an individual appears next to the individual’s account name as in “agolfnut (211)” for all transactions entered into by that individual. This indicates that eBay customer “agolfnut” has a feedback rating of 211, or in other words their positive feedback exceeds their negative feedback by 211 responses. It is always possible for a potential buyer or seller to examine the feedback of the other party, and it is also possible for an individual to comment on the feedback in their file. It should be noted that the placement of feedback responses is not required and is purely voluntary. While eBay will insure transactions conducted via its website, the feedback tool makes individuals careful about providing poor service to another eBay member. Examination of many feedback items on eBay provides many of the same success factors as traditional business: good communication, fast transaction processing, speedy payment, and items being accurately described and quickly delivered. Lately, however, a number of eBay users have begun including statements in their advertisements such as “Will not sell to customers with no feedback or negative feedback” and “customer ‘deadbeat45z’ need not bid on this item – you will be disqualified”. Clearly, users of eBay are placing increasing emphasis upon a good feedback rating, much as businesses place great emphasis and importance on a customer’s credit rating. The feedback score on eBay is in fact a measurement of the customer’s relationship rating. Airlines and Lost Baggage – An Example of Poor CRM Many travelers have suffered, over the years, the great inconvenience of having their baggage delayed by an airline. Often the baggage is found within 24 hours and delivered to the customer by courier. Some (this writer included) have been unfortunate enough to have their baggage delayed for both legs (traveling and returning) of a trip, and I have some sort of record in having baggage delayed for both legs of six consecutive trips. Leaving an airport with luggage began to seem unusual; it was always delivered the next day. It is universally agreed that delayed baggage is a nuisance. The story which follows is a description of what happens when the nuisance gets worse and a bag is lost. It is also an example of what occurs when customer relationship management is ignored.

Let us assume that a bag of golf clubs is delayed while in transit from New York to San Francisco. Upon arriving in San Francisco, after watching the baggage carousel go round and round and then come to an abrupt stop, the weary traveler inquires about their bag. The passenger is told that the bag is likely delayed, and it will be delivered on another flight. Mr. Weary Traveler is provided with a delayed baggage number, a toll-free number to call, and a form to complete so the airline will know where to deliver the bag. The form will usually indicate that most bags are found within 24 hours and that the traveler can, after some number of days, file a lost baggage claim. Weary Traveler goes to his hotel and hopes to see his clubs in a day or so. Each morning Weary Traveler, who is feeling a bit more rested and is over the jet lag, calls the toll-free number. He is told that the bag is still expected and that the airline is doing everything in its power to reunite him with his bag. The agent to whom Traveler speaks is always very pleasant, and given that the call is directed to a call center, Weary must repeat all his information each day to a new agent. After five days, Traveler submits a claim to the airline’s lost baggage department. Weary Traveler is now informed that processing the claim will take 30-45 days. Additionally, the only telephone number Traveler has is the toll-free number that he has been calling every day, but since the Claims Department is now handling the case, the friendly people at the Call Center have no further information as they are not part of the Claims Department. When asked if the people at the Call Center can put Weary (and Unhappy) Traveler in contact with the Claims department, he is transferred to a voicemail system. The system asks for a name, claim number, and so on, and promises to get back to Traveler as soon as possible. The return call never comes. Incredibly unhappy, Traveler continues to call the toll-free number where the agents are becoming less friendly. Traveler is told that in order to have the Claims department call him, he must send a fax (at regular long-distance rates) to the Claims Department. Faxes are sent, but no calls are forthcoming. The telephone numbers for the Claims Department are not given to passengers and, as it turns out, they are not given to the regular airline personnel. In all this time, Mr. Traveler is without his golf clubs. He suspects that the clubs will not be found, but no one will take his calls or answer his questions. Traveler resorts to the Better Business Bureau and has no better results. After 30 days, he receives a letter from the Claims Department stating that processing the claim will take another 30-45 days. Finally, Traveler contacts a lawyer, at a great expense. Mr. Traveler vows never to use this airline again. He is finally insulted again when a check arrives for less than 20 percent of the value of the materials lost, subject to the federally imposed limits on lost baggage claims. No contact information is provided, and the back of the check is stamped “By cashing this check, I release Whiz-Bang Airlines from any further action resulting from the loss of the property covered under claim 345Z32.” What would you do in the same situation? What could you do? This is a true story. Questions for Review 1. Define a functional information system? 5

A functional information system is a system that supports a functional area in an organization. Functional areas like accounting, finance, general management, human resources, etc. are associated with support activities that include the firm's infrastructure, human resource management, technology development, and procurement.. 2. List the major characteristics of functional information systems. The four major characteristics of functional information systems are: •

A functional information system is comprised of several smaller information systems that support specific activities performed by each functional area.

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The specific IS applications in any functional area can be integrated to form a coherent, department-based functional system, or they can be completely independent. Many of the applications can and should be integrated across departmental lines to match a business process.

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Functional information systems interface with each other to form an organizational or enterprise-wide information system. The greater the degree of integration across functional lines, the greater the potential information systems have for supporting the company cost-effectively and for helping to identify significant strategic initiatives. Some of these systems interface with the environment, like governmental agencies, suppliers, customers, and even competitors.

•

Functional information systems can be viewed as supporting three traditional ways of looking at an organization's activities: the operational, managerial, and strategic levels of an organization.

3. Define a TPS and list its major characteristics. A transaction processing system (TPS) monitors, collects, stores, processes, and disseminates information for all routine core business transactions. These data are input to functional information systems applications, as well as to data warehouse, customer relationship management (CRM), and other systems. Characteristics: •

Large amounts of data are collected, stored, processed, and used in other types of information systems.

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The sources of data are mostly internal, and the output is intended mainly for an internal audience.

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It processes information on a regular and repetitive basis.

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A large amount of storage capacity is required.

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High processing speed is required due to the high volume.

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Historical orientation of information is prevalent.

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Input and output data conform to structured formats.

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High levels of detail are featured, especially in input data but often in output as well.

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Low computation complexity is usually evident.

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High levels of accuracy, data integrity, and security are required.

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A high level of reliability is required; the flow of TPS data is mission critical.

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Inquiry processing is a must.

4. Describe the components and process of a TPS. Transaction processing systems monitor, collect, store, process, and disseminate information. The process starts with the collection of data by people or sensors, and then the data are entered into the computer via any input device. The data entry process is usually automated by many organizations as much as possible. The system processes data in one of two basic ways: Batch processing- The firm collects data from transactions as they occur, and stores them. The system then prepares and processes the collected data periodically Online processing- Data are processed as soon as a transaction occurs, possibly even in real time. 5. How is a TPS done on the Web? In online transaction processing (OLTP), transactions are processed as soon as they occur. For example, when you pay for an item in a POS in a store, the system records the effects of the sale by instantly reducing the inventory on hand by a unit, increasing the store’s cash position by the amount you paid, and increasing sales figures for the item by one unit. 6. List five typical TPS activities TPS activities include ledger, accounts payable and receivable, receiving and shipping, fixed asset management and payroll. 7. Describe the importance of Web analytics and show some of its applications. Web analytics is the analysis of data to understand visitor behavior on a Web site. It helps to improve performance management. It employs a variety of tools and can revolutionize ebusiness by giving business managers good data on how to strategically place products online. 8. What is the function of POM in an organization? How can it be enhanced with IT? The production and operations management (POM) function in an organization is responsible for the processes that transform inputs into useful outputs. POM is enhanced with IT in several ways: In-house logistics and materials management, planning production/operations, and computer-integrated manufacturing 9. What are logistics and materials management tasks? Logistics and materials management tasks include ordering, purchasing, inbound logistics (receiving) and outbound logistics (shipping) activities. 7

10. List some POM planning activities and the IT support for those activities. Mass customization and build-to-order production- The just-in-time concept is frequently used which is an inventory strategy that attempts to minimize inventories and to continuously improve processes and systems Project Management- The management of projects is enhanced by computerized project management tools such as the program evaluation and review technique (PERT) and the critical path method (CPM) 11. What is CIM? Computer integrated manufacturing (CIM) is a concept or philosophy that promotes the integration of various computerized factory systems with the three simple goals of simplification, integration and automation. 12. Define channel systems. Channel systems are all the systems that are involved in the process of getting a product or service to customers and meeting all their needs. They can link and transform marketing, sales, supply, and other activities and systems. Added market power comes from the integration of channel systems with the corporate functional areas. 13. What is product/customer profitability? This is an analysis of the profit contribution of different products or customers to the organization’s total profitability. This helps management determine which products and customers lead to the most profit over time and thereby aids in analyzing promotional and sales efforts. 14. Explain how the Web enables mass customization. The Web can be used to expedite the ordering and fulfillment of customized products. It allows customers to see thousands of possible combinations or designs of the product they want to buy and they can easily make the choices they need usually with the help of a virtual product. 15. How does IT support marketing and sales. IT supports marketing and sales in several ways: Improving shopping checkout and in retail stores by the reengineering of the shopping and checkout process. An information kiosk enables customers to view catalogs in stores, conduct product searches, and even compare prices with those of competitors. Some stores have installed check writers and allow people to pay by check. The Pricing of Products and Services - Prices may need to be changed frequently and these pricing decisions are supported by a number of computerized systems. Many companies are using business analytical processing to support pricing and other marketing decisions. Salesperson Productivity- Salespeople differ from each other; some excel in selling certain products while others excel in selling to a certain type of customer or in a certain 8

geographical zone. This information, which is usually collected in the sales and marketing TPS, can be analyzed using a comparative performance system in which sales data by salesperson, product, region, and even the time of day are evaluated. 16. What marketing strategies can be enhanced online? Web marketing enables innovative advertising, market research, and sales opportunities. 17. How is financial planning and budgeting facilitated by IT? Financial and economic analysis can be facilitated by intelligent systems such as data mining. For example, many software packages are available for conducting economic and financial forecasting, which are frequently available over the Internet for free or a fee. 18. Relate budgeting to planning and to IT support. Knowledge about the availability and cost of money is a key ingredient for successful financial planning. Especially important is the projection of cash flow, which tells organizations what funds they need and when, and how they will acquire them. Several software packages are available to support budget preparation and control (e.g., Prophix Express from PROPHIX Software, and budgeting modules from Oracle and Capterra.com) and to facilitate communication among all participants in the budget preparation. 19. Define XBRL. Why is it so important? XBRL is a programming language and an international standard for electronic transmission of business and financial information. It can be used to file financial reports electronically with the SEC and FDIC. Such submission allows government analysts to validate information submitted in hours instead of two to three weeks. It is very important for the following reasons: •

Generate cleaner data, including written explanations and supporting notes.

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Produce more accurate data with fewer errors that require follow-up by regulators

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Transmit data faster to regulators and meet deadlines.

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Increase the number of cases and amount of information that staffers can handle

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Make information available faster to regulators and the public.

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Address issues and concerns in their filings rather than after the fact.

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Reduce report cycle time.

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Lead to more efficient capital market.

20. How can IT better enable investment management? Investment management is a very broad area. Investment decisions are based on economic and financial forecasts and on various multiple and conflicting objectives. Another factor that contributes to the complexity of investment management is that investments made by many 9

organizations are subject to complex regulations and tax laws. Also, decision makers can be in different locations, and they need to cooperate and collaborate. All these have to be coordinated with good IT systems to allow for smooth operations. 21. List the major controls supported by IT. The major controls supported by IT include risk analysis, budgetary control, auditing, financial ratio analysis, profitability analysis and cost control, and expense management automation. 22. How does IT enable spend and expense management? IT systems let companies quickly and consistently collect expense information, enforce company policies and contracts, and reduce unplanned purchases of airline and hotel services. It forces travelers to be organized before a trip starts. Employees benefit from quick reimbursement and the companies also benefit in cost savings from several sources. 23. List IT-supported recruitment activities. Recruitment and advertisement of jobs, in addition to online interviewing, are just the beginning of the available recruitment activities. Salary surveys, job selling through consortiums, and outsourcing information are other examples. 24. How can training go online? Today, many organizations have developed online training simulations through ICAI and multimedia applications that are made available via the organization’s intranet or the Internet. Through the addition of video clips, VR, and multimedia, interactive training has become a standard. 25. Explain human resources information systems. Human resource information systems (HRIS) support an organization's human resource management function. For recruitment, HRIS can maintain position inventories and support employee selection decisions. HRIS are used to enhance many day-to-day human resources activities including performance evaluations, employee training and development, analyses of turnover, tardiness, and absenteeism, personnel planning, and for top management, succession planning. Expert systems are often components of HRIS. In addition, GDSS are used with computerized DSS models to support labor management negotiations. 26. Describe IT support for employee selection, promotion, and development. To expedite the testing and evaluation process and ensure consistency in selection, companies use information technologies such as Web-based intelligent systems. Universities for example allow their professors to be evaluated online by their students allowing for fast and anonymous evaluations for performance reviews. Some of the most innovative developments are in the areas of intelligent computer-aided instruction and application of multimedia support for instructional activities. Training can be improved using Web-based video clips and mobile devices. 27. Why is application integration necessary? Applications must be able to cross functional lines in order to reach different databases. In 10

order to be truly successful, this integration becomes a critical success factor. 28. List some approaches to integration. •

Using existing ERP software.

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Buy commercial, off-the-shelf functional applications, or to lease them from ASPs

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Development tools are also available to build custom-made applications in a specific functional area.

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A frequent cross-departmental integration is the one that involves front-office with back-office operations.

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Companies can open pages on social networks that may involve several departments.

Questions for Discussion 1. Why is it logical to organize IT applications by functional areas? It is logical to organize IT applications by functional areas because many companies are often organized in a traditional functional hierarchy: control and efficiency. I would make a more specific connection.) One group can possess both the authority and responsibility for a given function and is motivated to operate as efficiently as possible. By basing IT applications in a functional area, they can be designed and implemented to serve a particular function. However, in many practical cases, functionally oriented applications do not serve an organization as well as business process oriented systems. In those situations, both the business processes and systems are often reengineered or incrementally modified to provide the best results. The applications serve all parties in the process, not just one function. 2. Describe the role of a TPS in a service organization. While the role of TPS in service organizations is the same, in many ways, as in manufacturing or merchandising organizations (e.g., payroll, human resource management, accounting, etc.), it does differ since there are no inventory, manufacturing, or distribution systems in service organizations. Instead, the emphasis is on customer service, which is the main product, and marketing. 3. Why are transaction processing systems a major target for restructuring? Transaction processing systems are major targets for reengineering because they are critical for keeping an organization running properly and efficiently. They are often some of the first (and oldest) applications implemented by an organization. Therefore, they tend to become obsolete quickly. Thus, reengineering is likely to produce dramatic and cost-justifiable results. 4. Which functional areas are related to payroll, and how does the relevant information flow? All functional areas are related to payroll in the sense that all employees get paid through the system. However, the payroll function of the accounting department is responsible for operating and maintaining the system. This is true even when the mechanics of the payroll 11

function are outsourced; internal personnel are still required to administer the system. Payroll information is generated in all areas of an organization. This information includes hours worked, pay raises granted, special allowances given, payroll and tax deductions made, etc. The information flows to the payroll function, which updates and operates the payroll system. Output from the function includes paychecks or direct deposits, related paperwork like pay stubs, reports to management and outside agencies, and accounting information. 5. Discuss the benefits of Web-based TPS. Web-based TPSs allow you to provide timely data and reports to management and necessary personnel, for example, salespersons. Inventory levels and pricing can be checked in real time, enhancing customer management and improving production and delivery scheduling. This, in turn, will save the organization time and money. 6. The Japanese implemented JIT for many years without computers. Discuss some elements of JIT, and comment on the potential benefits of computerization. These elements include: •

Low inventories, which are supported with accurate, timely inventory systems

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Small lot sizes, which have proven to be economically feasible when supported by CAM and other computer systems

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Fixed production rates, often associated with automation

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Extensive preventative maintenance and quick repairs, often scheduled and tracked with computer systems

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Few but reliable vendors, who are often selected and managed by purchasing management systems and EDI

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Quick changes (setups), associated with CAM

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Multi-functionally skilled workers, who can be managed with human resource systems

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Cooperative spirit and encouragement for a problem-solving environment

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Continual innovation and improvements

All are characteristics of business process reengineering supported by IT. The pull system for moving goods found in JIT situations can be managed with IT applications. Standardized outputs, moderately utilized capacity, and participative management are often associated with automation and reengineered processes. 7. Explain how Web applications can make the customer king/queen. As business continues to become more competitive and as customers become more demanding and aware of alternatives, efficient sales order processing takes on new 12

importance as a mission critical application. Successful organizations promote their ability to quickly and accurately serve the customer, since the days of manual order processing are gone for most companies. Without the appropriate information systems in place to support order processing, even a small business would be at a competitive disadvantage. 8. Why are information systems critical to sales-order processing? Sales order processing is where: •

Detailed information is obtained from the customer.

•

This detailed information feeds the operations which produce the product or deliver the service.

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The same information feeds the planning processes for the company's future.

•

The same information also supports the company's service function, hopefully assuring customer satisfaction and future business.

Information systems are necessary to assure that customer information is accurate, current, and complete, and to make it available for all these other business processes. 9. Describe how IT can enhance mass customization. Mass customization requires a highly flexible production technology and direct-to-thecustomer distribution. Dell and Gateway computers are good examples of companies that have successfully employed IT to these ends. 10. Describe how XBRL can help financial institutions. WWW.XBRL.ORG states “Companies can use XBRL to save costs and streamline their processes for collecting and reporting financial information. Consumers of financial data, including investors, analysts, financial institutions and regulators, can receive, find, compare and analyze data much more rapidly and efficiently if it is in XBRL format. XBRL can handle data in different languages and accounting standards. It can flexibly be adapted to meet different requirements and uses. Data can be transformed into XBRL by suitable mapping tools or it can be generated in XBRL by appropriate software.” (cited: October, 2006) 11. Discuss how IT facilitates the budgeting process. The budget is the financial expression of an organization's plans. It allows management to allocate resources in the way that best supports achieving the organization's missions and goals. Budgeting is creating a set of accounting reports for future operations rather than past operations. For this reason, IT facilitates budgeting in all of the ways that it facilitates accounting, except that it usually does not use transaction data in the process. However, budgeting draws upon historical transaction data, and through analysis, a projection of 13

numbers for a future period is made. Therefore, IT facilitates budgeting by providing the data and analysis necessary to make realistic projections. Forecasting is the process of modifying projections based upon knowledge of the real world and then exercising judgment about it. These forecasts become the basis for budgets. IT is indispensable in converting projections into forecasts and forecasts into budgets. Very often, budgeters must perform several “what if” exercises with forecasts before they can be confident about the numbers used in the budget. IT is indispensable for these exercises as well. Businesses usually work with annual budgets that are extremely detailed. Beyond the budget year, the “budget” is referred to as a plan and is not nearly so detailed. However, many businesses are going to two-year detailed budgets, partly because they are more useful and because the IT tools for managing such budgets are more readily available today. Once a budget is approved, IT can be used to track performance against it. Managers must account for differences on a regular basis and take appropriate actions. “Actual vs. budgeted” information, particularly if tracked over several years, can be used effectively to improve the accuracy of the budget process as well. This is nearly impossible to do without the help of IT. 12. Why is risk management important, and how can it be enhanced by IT? There is always risk present in all aspects of business. Organizations must be prepared to meet and appropriately manage the most serious risks in order to succeed. In some cases, insurance is available when there are problems; in others, management must be more sophisticated to handle a crisis. When risks are recurring, such as late deliveries, they can be managed with the help of IT. For example, transaction data that would reveal late deliveries must be collected, and this data must be analyzed against many variables: frequency, vendor, time of year, geographic location, etc. The analysis will show where the most serious risks occur, and management can act to prevent these risks in the future. Risk analysis is a complex topic covering every aspect of business. The purpose of risk analysis is to develop a set of protection and prevention programs that are cost effective. A serious risk with a low frequency of occurrence requires a different risk management strategy from a small risk that occurs with greater frequency. IT can provide the information required to develop a comprehensive, cost-effective risk management program. 13. How can the Internet support investment decisions? Investment decisions are based upon information and instinct. The Internet carries much of the information an investor needs to know about a company (or any other potential investment), often as up to date as the last hour. There is also broader information on the industry, competitors, customers, suppliers, and the socio-politico-economic environment. In fact, there is more information relevant to an investment decision than any competent investor could hope to review in a reasonable length of time. The Internet provides a market opportunity, and there are other Internet sites whose business it is to

review and analysis this information. Further, the information on the Internet is available quickly with minimal effort. Much of it is free; although some of it may cost money. Regardless, a prudent investor can find most of the information he/she needs via the Internet at a fraction of the cost and time required by any other method. 14. Describe the benefits of integrated accounting software such as MAS 90. Compare it to MAS 200. MAS 90 gives the organization a fully integrated package that includes accounting, payroll, CRM, and business intelligence tools, as well as bill production, job costing, and inventory management for small to mid-sized businesses. MAS 200 extends these benefits to a client/server architecture that employs Microsoft SQL server. 15. Discuss the role IT plays in support of auditing. Auditing is the sampling and analysis of transactions to verify that they really occurred, that they are valid, that their integrity has been protected and preserved, that appropriate controls are in place for each type of transaction, that all related transactions also meet these criteria, and that the methods used for recording and analyzing them have been carried out in accordance with generally accepted accounting principles, procedures, and standards. Auditing verifies that there is a paper trail for all transactions and that when the paper trail disappears into a computer, the computer software follows the same principles, procedures, and standards until the trail emerges from the computer. IT has developed sophisticated software to carry out the complex auditing operations that effectively determine anomalies. Auditing would not be possible without today's IT tools for the millions of transactions carried out each day in large multinational corporations. Even for small businesses, the audit is more effective and less costly in terms of time and money when IT tools are used. 16. Investigate the role of the Web in human resources management. It is possible that recent interest in teams and empowered employees is responsible for the implementation of new HRIS. Before individual non-management employees became the resource they represent today, HRIS was a fairly low priority item for development within an organization’s system. The applicability of employees' skills to processes and projects that crossed functional areas was not considered; each functional area was responsible for its own employees, and information maintained in an organization's centralized HRIS was elementary. Today's companies must implement and maintain sophisticated HRIS to support complex organizational forms and processes. 17. Geographical information systems are playing an important role in supporting marketing and sales. Provide some examples not discussed in the text. (See Chapter 7, 12) GIS is fast becoming a major player in advertizing and marketing. Consider a person driving along a highway and based on their geographical location, they get an email giving them the location of all Mobil gas stations within a 5 mile radius and giving them discounts if they shop at these places. This is a typical example of how GIS is being used or will be used in the future to facilitate better marketing and sales for corporations. 15

The answer to this question will vary based on the interests of the students and can prove excellent fodder for discussions. 18. Discuss the need for application integration and the difficulty of doing it. The various applications used throughout a company need to be fully integrated in order to achieve the greatest success in ERP. However, the challenge of making disparate system applications correctly interact with each other is legion, especially if you are dealing with legacy system applications. The organization will be forced to produce integration software or purchase (and perhaps adapt) middleware. 19. Discuss the approaches and the reasons for integrating front office with back office. Integrating front-end and back-end operations are a must for ERP. By full integration, an organization can maintain a Web-based CRM application and allow for interactive sales and marketing by providing salespersons with real-time reports of product inventory and pricing. It can allow for e-commerce through a website connected to back-office operations and use the entire system to sustain a competitive advantage through intelligence gathering. 20. Discuss why some of the services provided by iemployee.com are considered support to ondemand workforce management solutions. Iemployee.com provides services such as online benefits, online HR administration tools, online paystubs, online W2s and time clocks. These can be considered on-demand services because, employees can go online and easily have access to all these services 24-7 and request them in any form they want and not have to wait to go to an HR person on a weekday. Exercises These exercises and projects require research and extensive activity on the part of students, most of which contain online activity.

Minicase Dollar General Uses Integrated Software Dollar General uses applications to mine data from a number of incongruous applications, gathering POS information, financial data, and discounts nightly from each of its outlets. Moving from a mainframe EDI system to a Web-based infrastructure based on Unix saved them time and money. It also allowed for the future addition of other modules and the synchronization of their supply-chain needs with their vendors. Summary This chapter described the facts and issues related to transaction processing systems, innovative systems, and functional systems in an organization. It also discussed how IT supports customer relationship management, as well as how the various systems are integrated in an organization. Functional areas and business processes were related to the value chain, and the close linkage between functional areas and IT were explored. The benefits and issues of integrating functional information systems were covered. What’s next? Enterprise Resource Planning is examined in the next chapter as a way to simplify and coordinate the organization and its supply and value chains. The historical development of software tools to manage the planning of resources is traced until the present day where SCM, ERP, and e-commerce work together to achieve a competitive advantage for organizations, by faster, more efficient order fulfillment and through the resolution of related problems.

Chapter 10 Enterprise Systems, Supply Chains, ERP, CRM and KM Goals of the Chapter This chapter presents an overview of the concepts of supply chains and their business value, with emphasis on management (SCM). Problems of SCM are addressed using industry illustrations. Enterprise Resource Planning is examined as a way to simplify and coordinate the organization and its supply and value chains. The historical development of software tools to manage the planning of resources is traced to the present day where SCM, ERP, and e-commerce work together to achieve a competitive advantage for organizations, by faster, more efficient order fulfillment and through the resolution of related problems. An Overview Section 10.1 - Essentials of Enterprise Systems and Supply Chains – This section covers the definition of supply chains and the benefits to be obtained through supply chain management. Components of the supply chain are defined, while supply chain software and the concept of esupply chain are also examined. Section 10.2 - Supply Chain Management and its Business Value – The management of collaboration in a supply chain and the various formats they take are discussed in this section. The section also looks at the relationship between e-business systems and the supply chain. Various other topics about supply chains are discussed in this section including inventory, eprocurement, wireless solutions for SCM and the business value of SCM. Section 10.3 –Enterprise Resource Planning (ERP) Systems – This section covers ERP systems, their advantages and capabilities and their implementation. We take a look at several examples of successful ERP implementations and how they affected the companies that implemented them. There is also the discussion of ERP implementation issues and potential limitations of its use. Section 10.4 – Customer Relationship Management – This section talks about the different classifications of CRM applications and the transition of CRM to the World Wide Web (e-CRM) and also the mobile world. We look at the successes and failures of CRM and finally the business value of implementing a CRM system. Section 10.5 – Knowledge Management and IT – This section looks at the definition of knowledge management, its characteristics and the knowledge management life cycle. The section also discusses KM system implementation and its integration with other business information systems.

Practical Applications ChevronTexaco Modernized its Supply Chain with IT – This case looks at the supply chain of the petroleum industry in terms of the largest U.S. producer, and how it successfully moved from supply-driven to demand-driven with the help of ERP and SCM software, increasing profits by $300 million in the first year alone and an additional $100 million every year after that. This is an excellent example of the importance of SCM in today’s market place. Profits have continued to increase due to downstream and upstream resource management. IT@Work IT at Work 10.1 - Warner-Lambert Collaborates with Retailers - Warner-Lambert used a supply chain management software suite to improve demand forecasts, and analyzing the manufacturing, distribution and sales data against expected demand. With this application, WL can determine the right quantity of raw materials to buy from suppliers. IT at Work 10.2 – Peacocks Retails Uses Wireless to Smooth its Supply Chain – This case discusses the consolidation of warehousing operations and the logistical and supply change benefits and challenges. It pays particular attention to how wireless technology affects these issues. IT at Work 10.3 - Colgate-Palmolive Uses ERP to Smooth Its Supply Chain – This case examines how Colgate sustained its competitive advantage by streamlining its supply chain when faced with new product acceleration. With the use of an ERP, the company had faster access to data and reduced costs along the supply chain. IT at Work 10.4 - 1-800-FLOWERS.COM Uses Data Mining to Foster Customer Relationship Management – This case discusses the successes due to the use of data mining techniques to gain a competitive edge in a very competitive online flowers and gifts industry that has most players offering the same features. The company was able to identify each customer and customize its customer service to meet each customer’s specific needs. IT at Work 10.5 – How Companies Use e-CRM – This case discusses the various ways in which companies have made use of their CRM applications and also the different ways in which they implemented them. IT at Work 10.6 – Knowledge Management at Infosys Technologies – Infosys Technologies, a global software services company and a worldwide leader in outsourcing had a problem of keeping its large employee base of 23,000 up-to-date and ahead of competitors and clients, and ensuring that the lessons learned in one part of the organization were available to other parts. The company successfully used knowledge management in the form of hard copy materials, e-mail, bulletin boards, and various knowledge repositories to keep all employees well informed of current trends.

War Stories Sobeys Inc. and SAP: Sobeys Inc. is a large player in the supermarket industry in Canada. It operates hundreds of supermarkets under a variety of names in small towns and large cities throughout the country. They also had one of the largest SAP implementations in Eastern Canada. All that changed in early 2001. A company news release to investors (http://www.sobeys.com/english/news_releases/newsfiles/english/78_1-24-2001.htm) Dated January 24, 2001 stated: SOBEYS MOVES AHEAD WITHOUT SAP Sobeys Inc. announced today its decision to discontinue further development and implementation of the SAP enterprise-wide software and systems initiative. SAP will be phased out of operation in Sobeys Atlantic Division and 30 corporate Sobeys stores in Ontario. The operations of Sobeys Quebec, Sobeys West, Serca Food Service and the remaining 379 stores in Ontario had not been converted to SAP. The Company has identified alternate software options which will fully meet all the business requirements. The present intentions are to continue to use only the financial statement and human resources modules of SAP software. Bill McEwan, President and Chief Executive Officer of Sobeys Inc., said, “We have come to the conclusion that what appeared to be growing pains with the implementation of these enterprisewide systems are in fact systemic problems of a more serious nature. We have determined that there is insufficient core functionality in the SAP software component of our enterprise-wide systems to effectively deal with the extremely high number of transactions in our retail operating environment.” In connection with this decision an after-tax special charge of $49.9 million, or $0.82 per share ($89.1 million or $1.47per share pre-tax) will be incurred in the current quarter to reflect the abandonment of assets related to the Company’s SAP enterprise-wide software and related systems initiative. Mr. McEwan added, “The systemic complexities of the SAP software, combined with a serious 5-day database and systems disruption in early December led to a comprehensive evaluation of the enterprise-wide software and systems initiative that resulted in today’s decision. The 5-day business disruption forced “work-around” accounting procedures and resulted in unprecedented out-of-stocks in our Atlantic and Ontario corporate stores. All of our employees are to be commended for their extraordinary efforts to maintain service to our customers and refill the distribution pipeline in the weeks following. We are compelled to indicate in conjunction with our SAP announcement that our reconciliation of “work-around” processes to date currently indicates third quarter operating earnings of approximately 22¢ per share, well below our previously expected results. As this was a significant one time disruption, we remain confident that our fourth quarter earnings will materialize as expected.” Mr. McEwan added, “The Sobeys organization is at an important juncture as we advance to our next stage of development and our firm decision to move forward with alternate, more flexible

and adaptable supporting technologies reflects the confidence we have for the great potential for this Company.” Mr. McEwan concluded, “Since joining Sobeys Inc. on November 25 it has become very clear to me that we are very well positioned for growth, we have the commitment of the entire leadership team, and I believe the most dedicated and capable employees and franchisees in the industry. We are entering our next stage of development with continued optimism and renewed confidence.” This press release contains certain forward-looking statements about the future performance of the company. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. We assume no obligation to update the information contained herein. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Coordination of systems: The second war story in Chapter 2 talks about the online sales at Christmas and is another good example of the need to coordinate the front and back ends of your systems. Other stores had problems that holiday season, including ToysRUs, KBKids, Wal-mart, and many others. QUESTIONS FOR REVIEW 1. Define enterprise system. Enterprise systems (also called enterprisewide systems) are systems or processes that involve the entire enterprise or major portions of it. 2. List the major enterprise systems. • • • • • • • • •

Enterprise resource planning (ERP), which usually supports the internal supply chain. Extended ERP, which supports business partners as well. Customer relationship management (CRM), which provides customer care. Knowledge management (KM) systems – Its objective is to support knowledge creation, storage, maintenance, and distribution throughout the enterprise. Partner relationship management (PRM), which is designed to provide care to business partners Business process management (BPM), which involves the understanding and realignment of processes in the organization, including reengineering and managing the flow of activities and tasks. Supply chain management systems, such as materials requirement planning Product life cycle management (PLM), which involves conceptualization, design, building, and support of products and services Decision support systems (DSSs) - Its purpose is to support decision making throughout the enterprise.

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Intelligent systems, which include a knowledge component, such as an expert system or neural network Business intelligence (BI), which is computer-based decision analysis usually done online by managers and staff

3. Define a supply chain. A supply chain is defined as a set of relationships among suppliers, manufacturers, distributors, and retailers that facilitate the transformation of raw materials into final products. 4. Describe SCM. Supply chain management (SCM) is the efficient management of the supply chain endto-end processes that start with the design of the product or service and end when it is sold, consumed, or used by the end consumer. Some activities include inventory management, materials acquisition, and transformation of raw materials into finished goods, shipping, and transportation. 5. Define collaborative supply chain. A collaborative supply chain is the sharing of information along the supply chain to solve supply chain problems, and especially to improve demand forecasts. 6. Describe how vendor-managed inventory works. Vendor-managed inventory (VMI) indicates that the vendor, usually a distributor, manages the inventories for the manufacturer or buyer. This reduces warehousing costs for suppliers. 7. How can e-business improve the supply chain? The increase in e-commerce has resulted in new opportunities to improve the performance of the supply chain. The primary advantages include: • Better cost performance from improved productivity and lower costs • Enhanced customer service from improved quality of service • Improved process capabilities from online business quality consistency • Higher productivity and dependability from increased control of material flows along the supply chain • Shortened cycle times due to fewer delays and higher speed • Greater flexibility in planning and re-planning • Shortened supply chain • Smoother related production processes 8. Describe how e-procurement improves the supply chain. E-procurement is the use of Internet technologies to purchase or provide goods and services. E-procurement reduces purchase prices through greater transparency of market pricing and lower search costs. It also allows organizations that purchase similar products to form a cooperative in the supply chain to get significantly lower pricing

through volume discounts. Organizations can also use e-procurement systems to standardize purchasing processes within the organization, thereby improving internal purchasing processes as well as employee satisfaction 9. How is collaboration for the supply chain managed? Successful coordination of SCM and inventory management enables goods to move smoothly and on time from suppliers to manufacturers to distributors to customers while keeping inventories low and costs down. Both suppliers and buyers must participate together in the design or redesign of the supply chain to achieve their shared goals. As part of the collaboration effort, business partners must trust each other and each other’s information systems. A common way to solve supply chain problems, and especially to improve demand forecasts, is sharing information along the supply chain. Such information sharing is frequently referred to as the collaborative supply chain. 10. Define CPFR and describe how it works. Collaborative planning, forecasting, and replenishment (CPFR) is a business practice in which suppliers and retailers collaborate in planning and demand forecasting in order to ensure that members of the supply chain will have the right amount of raw materials and finished goods when they need them. Collaborative planning is designed to synchronize production and distribution plans and product flows, optimize resource utilization over an expanded capacity base, increase customer responsiveness, and reduce inventories. 11. Define virtual factory; compare and contrast virtual and regular factories. A virtual factory is a collaborative enterprise application that provides a computerized model of a factory. In the virtual factory, proposed designs can be tested, relationships with suppliers can be simulated, and the manufacturing processes can be modeled. If potential problems are spotted, simulated solutions can be worked out in the virtual model before being implemented in real life. Uniting the entire supply chain and creating visibility between suppliers and buyers can help the companies forecast and plan demand more effectively. Virtual factories also enable all companies involved to work together collaboratively using common tools, and they provide greater flexibility and responsiveness by getting information and goods flowing much more quickly. Regular factories are limited by their differences in geographical location and lack of information flow. 12. What is the business value of SCM? The goals of SCM are to reduce uncertainty and risks along the supply chain, and to improve collaboration, thereby decreasing inventory levels and cycle time, and improving business processes and customer service which helps to increase profitability and competitiveness.

13. Define ERP and describe its objectives. Enterprise resource planning (ERP) is an integrated solution to the problem of how to control all major business processes with single software architecture in real time. It is a process of planning and managing all resources and their use in the entire organization. The major components of an ERP system should match the functional areas of an organization. ERP systems integrate the various processes of the organization, so now all departments can see what has been done. For example, in “the old days”, when an order was received, someone would check if all required materials were ready and available and someone else would have to schedule the jobs. Other people handled job costing, billing, delivery, and so on. In an ERP system (theoretically), once an order or a query has been received, the other activities are automatically triggered by the ERP system. At the heart of most ERP systems is a database that all the processes (the other components) access. 14. List and briefly describe the options for acquiring ERP. •

To self-develop an integrated system, either by linking together existing functional packages or by programming a new, custom-built system.

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To use commercially available integrated ERP software.

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To lease ERP systems from application service providers.

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Building a customized ERP with ready-made components leased or purchased from several vendors, using the best modules of the different vendors.

15. Describe the logic of integrating ERP and SCM software. To illustrate how ERP and SCM may work together, consider the task of order processing. There is a fundamental difference between SCM and ERP in order processing: The ERP approach is, “How can I best take or fulfill your order?” In contrast, the question that SCM software asks is, “Should I take your order?” The answer might be “no” if taking the order would lose money for the company or interfere with production. Thus, SCM software focuses on planning, optimization, and decision making in segments of the supply chain. Thus, the analytical SCM information systems have emerged as a complement to ERP systems, to provide intelligent decision support or business intelligence capabilities. 16. List the capabilities of ERP systems. •

Combining less than truckloads (LTLs) shipments in order to fill trucks, reduce pickup/delivery times, and eliminate unneeded storage facilities

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Dynamically sourcing products from different manufacturing and distribution facilities based on inventory and capacity

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Showing a single face to global customers across business lines

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Consolidating country-based sales, marketing, and distribution operations in geographic areas that have lower barriers to trade

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Coordinating procurement and logistics of key commodities across business units and geographies

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Creating supplier portals that consolidate the needs of each business unit and provide a way of deepening the relationship and partnership with the suppliers

17. Describe retailer–supplier integrated supply chains. Retailer–supplier integrated supply chain is an example of an external supply chain where product-development systems allow suppliers to connect into a client’s intranet, pull product specifications, and view illustrations and videos of a manufacturing process. 18. Define CRM. CRM is an approach that recognizes customers are the core of the business and the company’s success depends on effectively managing relationships with them. In other words: “CRM is a business strategy to select and manage customers to optimize longterm value.” 19. List the major types of CRM. Three major types of CRM activities involved: operational, analytical, and collaborative. Operational CRM is related to typical business functions involving customer services, order management, invoice/billing, and sales/marketing automation and management. Analytical CRM involves activities that capture, store, extract, process, interpret, and report customer data to a corporate user, who then analyzes them as needed. Collaborative CRM deals with all the necessary communication, coordination, and collaboration between vendors and customers. 20. What is e-CRM? The term e-CRM (electronic CRM) was coined in the mid-1990s, when businesses started using Web browsers, the Internet, and other electronic touchpoints (e-mail, POS terminals, call centers, and direct sales) to manage customer relationships. 21. List some customer-facing, customer-touching, and customer-intelligent CRM tools. Customer-facing applications - These include all the areas where customers interact with the company: call centers, including help desks; sales force automation; and field service automation. Customer-touching applications - In this category, customers interact directly with the applications. Notable are self-service, campaign management, and general purpose ecommerce applications. Customer-centric intelligence applications - These are applications that are intended to analyze the results of operational processing and use the results of the analysis to improve CRM applications. Data reporting and warehousing and data mining are the

prime topics here. 22. What is on-demand CRM? On-demand CRM is basically CRM hosted by an ASP or other vendor on the vendor’s premise, and transmitted over the Internet, in contrast to the traditional practice of buying the software and using it on site. 23. Define KM and relate it to knowledge and intellectual capital. What are the major benefits of KM to a company? Knowledge management (KM) is a process that helps organizations identify, select, organize, disseminate, and transfer important information and expertise that are part of the organization’s memory and that typically reside within the organization in an unstructured manner. Knowledge is information that is contextual, relevant, and actionable and knowledge management helps spread it within the organization. Intellectual capital is another term often used for knowledge, and it implies that there is a financial value to knowledge. 24. Distinguish knowledge from data and information. In the information technology context, knowledge is very distinct from data and information. Whereas data are a collection of facts, measurements, and statistics, information is organized or processed data that are timely and accurate. Knowledge is information that is contextual, relevant, and actionable. 25. Draw the KM life cycle and explain the major steps. a. Create knowledge. Knowledge is created as people determine new ways of doing things or develop know-how. Sometimes external knowledge is brought in. b. Capture knowledge. New knowledge must be identified as valuable and be represented in a reasonable way. c. Refine knowledge. New knowledge must be placed in context so that it is actionable. d. Store knowledge. Useful knowledge must then be stored in a reasonable format in a knowledge repository so that others in the organization can access it. e. Manage knowledge. Like a library, the knowledge must be kept current. It must be reviewed to verify that it is relevant and accurate. f. Disseminate knowledge. Knowledge must be made available in a useful format to anyone in the organization who needs it, anywhere and any time. 26. Describe the major components of a KM system. Communication and collaboration technologies allow users to access needed knowledge, and to communicate with each other and experts. Communication and collaboration also allow for knowledge solicitation from experts. Storage and retrieval technologies originally meant using a database management system to store and manage knowledge.

27. Describe an expert location system. Expert location systems (ELSs) are interactive computerized systems that help employees find and connect with colleagues who possess the expertise required for specific problems whether they are across the country or across the room in order to solve specific, critical business problems in seconds. 28. Define a knowledge portal. What is it used for? Enterprise knowledge portals are the doorways into many knowledge management systems. An enterprise knowledge portal presents a single access point for a vast body of explicit information, such as project plans, functional requirements, technical specifications, white papers, training materials, and customer feedback survey data. Enterprise knowledge portals are a means of organizing the many sources of unstructured information in an organization. 29. Relate KM to training. Accumulated knowledge in organizations can be used for training new employees and retraining existing ones. Several companies provide methodologies that contain knowledge bases and KM for training QUESTIONS FOR DISCUSSION 1. Distinguish between ERP and SCM software. In what ways do they complement each other? Why should they be integrated? Enterprise resource management (ERP) software attempts to integrate all corporate processes. Triggers (orders, requests, changes) cause processes to be activated, modified, or canceled as needed without the need for human intervention. Supply chain management (SCM) software is oriented toward decision-making and is designed as a complement to ERP systems. In essence, the SCM software provides intelligent decision support capabilities. 2. Discuss the benefits of e-procurement E-procurement is the use of Internet technologies to purchase or provide goods and services. E-procurement reduces purchase prices through greater transparency of market pricing and lower search costs. E-procurement allows, for example, organizations that purchase similar products to form a cooperative in the supply chain to get significantly lower pricing through volume discounts (group purchasing). Organizations can also use e-procurement systems to standardize purchasing processes within the organization, thereby improving internal purchasing processes as well as employee satisfaction. Procurement auctions give buyers access to raw materials at much reduced costs. In e-

procurement, requesters directly search for and select products in electronic catalogs. 3. Find examples of how organizations improve their supply chains in two of the following activities: manufacturing, hospitals, retailing, education, construction, agribusiness, and shipping. This exercise is excellent for a take-home exercise or paper. Some articles to start with: The U.S. Marine Corps: http://www.cfo.com/article/1,5309,7619%7C35%7CA%7C928%7C6,00.html Herman Miller: http://www.cfo.com/Article?article=1585 HP: http://www.cfo.com/Article?article=7619 Caterpillar: http://www.ascet.com/documents.asp?d_ID=1980 Sun: http://www.cfo.com/Article?article=2391 NASA: http://techlibrary.wallstreetandtech.com/data/detail?id=1010693972_90&type=RES&src =FEATURE_RESTRM&x=1619589819

4. It is said that supply chains are essentially “a series of linked suppliers and customers; every customer is in turn a supplier to the next downstream organization, until the ultimate end-user.” Explain. Use of a diagram is recommended. This is simply a revisitation of a part of system theory. Systems are input-process-output mechanisms. The inputs of one system become the outputs of another system, which become the inputs of a further system. A good example of this is the food chain. When one part of the food chain disappears, other parts suffer. 5. Discuss why it is difficult to justify CRM and how metrics can help Customer relationship management (CRM) is an enterprise wide effort to acquire and retain profitable customers. CRM focuses on building long-term and sustainable customer relationships that add value for both the customer and the company by treating different customers differently, because their needs differ and their value to the company may be different. It is very difficult to justify CRM because different customers demand different levels of service and one cannot easily place value created on a CRM system. Metrics can help in measuring customer behavior and expectations by surveys and other methods. 6. A supply chain is much more powerful in the Internet marketplace. Discuss how Internet technologies can be used to manage the supply chain. The increase in e-commerce has resulted in new opportunities to improve the

performance of the supply chain. The internet has made supply chains more powerful because of the following reasons: • • • • • • • • •

The increase in e-commerce has resulted in new opportunities to improve the performance of the supply chain. The primary advantages include: Better cost performance from improved productivity and lower costs Enhanced customer service from improved quality of service Improved process capabilities from online business quality consistency Higher productivity and dependability from increased control of material flows along the supply chain Shortened cycle times due to fewer delays and higher speed Greater flexibility in planning and re-planning Shortened supply chain Smoother related production processes

Internet technologies help the supply chain by integrating every section of the supply chain making the movement of information throughout the supply chain faster and more reliable. 7. Explain how vendor-managed inventory can save costs in the supply chain. Vendor-managed inventory (VMI) indicates that the vendor, usually a distributor, manages the inventories for the manufacturer or buyer. This reduces warehousing costs for suppliers. The retailer provides the distributor with access to daily sales information from every store for every item. The distributor knows when inventories fall below the reorder threshold for each product at any store. By keeping inventory at the correct volumes, precious warehouse space is saved for more important merchandise that needs to be put on the store shelves. 8. State the business value of enterprise systems and how they can be used to make management of the supply chain more effective. The major objective of an ERP is to integrate all departments and functional information flows across a company onto a single computer system that can serve all of the enterprise’s needs. This overcomes the difficulty of working together with information systems that do not “speak” with each other. Improved order entry allows immediate access to inventory product data, customer credit history, and prior order information. Such availability of information helps to optimize production schedules, raises productivity, and increases customer satisfaction, resulting in a competitive advantage. Furthermore, errors are being reduced, so money is saved. 9. Discuss each of the steps in the ERP selection process. It is important to understand how much of the ERP solution is required in the time frame for rolling out the new technology. The organization needs to know the specific business value for each module in the ERP system.

Determine business priorities, identifying high-priority business requirements within a process and across the organization. They also need to decide what ERP components will be implemented over what time period Organizations need to understand that the objective of ERP selection is the support of the business goals and strategies of the enterprise. This also includes the standardization of business processes across the organization, while at the same time cutting costs in the area of transaction processing. 10. What are the problems in implementing ERP systems? State solutions that make implementations more successful. ERP packages are difficult to install because they are so large in scope. The top reasons why ERP installations fail are (1) unrealistic expectations, (2) inability to map business processes, (3) inaccurate data, and (4) failure to factor in hidden costs. The implementation of an ERP system can take up to 24 months, depending on the number of modules that are implemented. Project management activities are extremely complex with multiple layers of resource concerns. Change management processes are extremely important in ERP systems development and implementation, yet this is often overlooked by many organizations. Post implementation issues that are of concern include the quality of training manuals, hands-on training provided, help-desk and user navigation, and productivity using the new system. Two factors were found to predict implementation success of ERP systems: (1) the consultant–client relationship, with a shared understanding of what needs to get done, and (2) a problem-solving approach to get ERP modules implemented. 11. How is a linear supply chain changed into a hub? What are the advantages? A supply chain integration hub allows for the electronic connection of trading partners with the organization’s e-business systems. It transmits information while simultaneously populating the customer’s systems on demand. In linear supply chains, information is processed in a sequence, which slows down its flow. Hubs are structured in such a way that each partner can access a Web site, usually a portal, which is used for an exchange of information. Furthermore, each partner can deposit new information, make changes, and receive or leave messages. 12. Describe and relate the different characteristics of knowledge. •

Extraordinary leverage and increasing returns. Knowledge is usually not subject to diminishing returns. When it is used, it is not consumed. Its consumers can add to it, thus increasing its value.

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Fragmentation, leakage, and the need to refresh. As knowledge grows, it branches and fragments. Knowledge is dynamic; it is information in action. Thus, an organization must continually refresh its knowledge base to maintain it as a source of competitive advantage.

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Uncertain value. It is difficult to estimate the impact of an investment in knowledge. There are too many intangible aspects.

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Uncertain value of sharing. Similarly, it is difficult to estimate the value of sharing the knowledge, or even who will benefit most.

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Rooted in time. The utility and validity of knowledge may vary with time; hence, the immediacy, age, perishability, and volatility of knowledge are important attributes.

13. Explain why it is important to capture and manage knowledge. Knowledge management (KM) is a process that helps organizations identify, select, organize, disseminate, and transfer important information and expertise that are part of the organization’s memory and that typically reside within the organization in an unstructured manner. Such treatment of knowledge enables effective and efficient problem solving, expedited learning, strategic planning, and decision making. 14. Compare and contrast tacit knowledge and explicit knowledge. Explicit knowledge deals with more objective, rational, and technical knowledge (data, policies, procedures, software, documents, etc.) Tacit knowledge is usually in the domain of subjective, cognitive, and experiential learning; it is highly personal and difficult to formalize. 15. How can employees be motivated to contribute to and use knowledge management systems? Many companies have used several reward systems to motivate employees to contribute to their knowledge management systems. Infosys Technologies for example in IT @ Work 10.6 initiated a reward scheme to increase participation. The scheme gave employees who contributed to KShop knowledge currency units (KCUs) that could be accumulated and exchanged for monetary rewards or prizes. 16. What is the role of a knowledge repository in knowledge management? Within a knowledge management system, a knowledge repository acts as the main database where all knowledge is stored for others within the organization to access. When information is contributed to the system, it resides in the repository for everyone to access. 17. Explain how the Internet and its related technologies (Web browsers, intranets, and so on) enable knowledge management. Internet technologies have enabled knowledge management systems reach a wider audience within an organization. Take for example a multinational corporation with business in every part of the world. Using the Internet, all employees from any corner of the world would be able to access the same information and thus decreasing the hardware needed, increase the integrity of the knowledge shared by having a central database (repository).

18. Describe an enterprise knowledge portal and explain its significance. Enterprise knowledge portals are the doorways into many knowledge management systems. An enterprise knowledge portal presents a single access point for a vast body of explicit information, such as project plans, functional requirements, technical specifications, white papers, training materials, and customer feedback survey data. They are a means of organizing the many sources of unstructured information in an organization. 19. Discuss the need for expert locating systems. Expert (or expertise) location systems (ELSs) are interactive computerized systems that help employees find and connect with colleagues who possess the expertise required for specific problems—whether they are across the country or across the room—in order to solve specific, critical business problems in seconds. These systems reduce the time that employees have to spend researching for themselves on how to solve some critical problems. Without the help of subject matter experts, employees could use the wrong methods to solve some critical problems or even approach these problems wrongly thereby potentially costing the company more money in the long run. Exercises & Group Assignments The group assignments considered in this chapter involve reviewing literature, conducting research for new information, conducting surveys, collecting and analyzing the information, and preparing necessary reports. These assignments are not extremely difficult to complete; they do require a group effort. Internet Exercises Students can answer the extensive number of Internet exercises individually by finding website URLs through search engines such as Infoseek, Webcrawler, Lycos, or Copernic, and then navigating through the sites, exploring them to obtain necessary information. It is recommended that the instructor verify the existence of the websites before assigning the exercises to students. As technology advances, new issues will arise and new questions will need to be addressed. Minicase ERP Helps Productivity at Northern Digital Inc. This case illustrates how Northern Digital incorporated its ERP system (from Intuitive Manufacturing Systems) that would improve inventory management and the expandability and flexibility to support NDI’s growth.The system also allowed NDI to determine their critical business events. Benefits include allowing NDI to proactively deal with problem issues, reduction in errors in Inventory management, reduced transaction costs, and increased employee satisfaction.

Summary This chapter presented a detailed examination of supply chain management and enterprise resource management. Topics covered included supply chain management, supply chain problems and their possible solutions, various computerized systems and their interactions, the effect of electronic commerce on these systems, and order fulfillment systems. The chapter also discussed knowledge management systems and their contribution to the success of organizations. What’s Next? The next chapter discusses inter-organizational activities with special emphasis on order fulfillment and the various information systems that go hand in hand. The chapter also looks at global information systems and partner relationship management and its relationship to collaborative commerce.

Chapter 11 Inter-organizational, Large Scale and Global Information Systems

Goals of the Chapter The goal of the chapter is to provide a background to the complexities and the strategic benefits of information in large scale information system deployments. These can come in the form of inter-organizational alliances and distributed networks as well as information systems deployed on a world-wide scale.

Chapter Overview Section 11.1 – Inter-organizational Activities and Order Fulfillment – This section discusses the nature of information flow between two organizations with an emphasis on order fulfillment and logistics. Section 11.2 – Inter-organizational Information Systems and Large Scale Information Systems – This section discusses the different types of inter-organizational information systems. (Trading, support and global systems and also electronic funds transfer). The section also looks at information systems on a very large scale citing various industry uses. Section 11.3 – Global Information Systems – This section focuses on inter-organizational systems that span national and geographical boundaries and borders. The section discusses some factors associated with these global systems including cultural differences, economic and political differences and legal issues. Section 11.4 – Facilitating IOS and Global Systems: From Demand-Driven Networks to RFID – This section discusses the different forms of networks – demand-driven as well as RFID – as a driver in the need for global information system integration. Section 11.5 – Inter-organizational Information Integration and Connectivity – The management of information in terms of security, costs, structure and transference in the context of multiple organizations. Section 11.6 – Partner Relationship Management and Collaborative Commerce – Developed in a similar fashion to CRM, PRM is the recognition that organizations have to develop longterm relationships with partner-organizations in order to maximize efficiency and effectiveness. IT@Work IT at Work 11.1 - Lego Struggles with Global Issues – This anecdote discusses choices made when the decision to “go global” is made. Attention is paid to the notion of the Internet being the appropriate way ‘go global’. IT at Work 11.2 – How BikeWorld uses Global Information Systems to Fulfill Orders – The boundary spanning capabilities of information systems are brought to the fore in this case. The anecdote discusses the use of smart order fulfillment strategies provided by FedEx and how 1

BikeWorld was able to use that to quadruple sales volume. IT at Work 11.3 – Asite’s B2B exchange and E-Hub for the Construction Industry – This anecdote discusses the implementation of one form of integration solution (a hub) as a means to satisfy the needs of a large construction organization. IT at Work 11.4 – CRM/PRM Initiatives at New Piper Aircraft – This anecdote addresses PRM is the strategy that organizations have to develop long-term relationships with partnerorganizations to maximize efficiency and effectiveness.

Review Questions 1. Define order fulfillment and logistics. Order fulfillment refers to providing customers with what they have ordered and doing so on time, and to providing all related customer services. Logistics is defined by the Council of Logistics Management as “the process of planning, implementing, and controlling the efficient and effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements” 2. List the nine steps of the order fulfillment process. a. Make sure the customer will pay. b. Check for in-stock availability c. Arrange shipments d. Insurance e. Replenishment f. In-house production g. Use suppliers h. Contacts with customers i. Returns 3. Compare logistics with reverse logistics. Logistics is defined by the Council of Logistics Management as “the process of planning, implementing, and controlling the efficient and effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.” In some cases, customers want to exchange or return items. The movement of returns from customers back to vendors is called reverse logistics. 4. List five problems of order fulfillment.

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Delays in transportation/shipments

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Human errors in information sending

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Misunderstanding of orders

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Over or under stocked inventories

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Shipments of wrong quantities or to wrong places.

5. Define IOS and describe its major characteristics. An inter-organizational information system (IOS) involves information flow among two or more organizations. Its major objectives are efficient processing of transactions, such as transmitting orders, bills, and payments, and the support of collaboration and communication. A major characteristic of an IOS is that the customer–supplier relationship frequently is determined in advance with the expectation that it will be ongoing. Inter-organizational systems may be built around privately or publicly accessible networks. 6. List the major types of IOSs. •

B2B trading systems- These systems are designed to facilitate trading between (among) business partners.

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B2B support systems- These are non-trading systems such as shipment hubs, directories, and other services.

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Global systems- Global information systems connect two or more companies in two or more countries.

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Electronic funds transfer (EFT)- In EFT, telecommunications networks transfer money among financial institutions.

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Groupware- Groupware technologies facilitate communication and collaboration between and among organizations

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Shared databases- Trading partners sometimes share databases and other information in order to reduce time in communicating information between parties and to arrange cooperative activities.

7. List the major infrastructure for IOSs. •

Electronic data interchange (EDI) - The electronic movement of business documents between business partners.

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Extranets- Internet-based, secure systems that link business partners via their intranets.

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XML- An emerging B2B standard, promoted as a companion or even a replacement for 3

EDI systems. •

Web Services- The emerging technology for integrating B2B and intra-business applications.

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Enterprise Application Integration- To facilitate IOS it is necessary sometimes to integrate systems internally before they are connected to business partners

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Extended ERP- ERP systems (e.g., from SAP and Oracle) are extended to suppliers, customers, and other business partners

8. Define global information systems. Inter-organizational systems that connect companies (or parts of one company) located in two or more countries are referred to as global information systems. Multinational companies, international companies, and virtual global companies typically need global information for their B2B operations. Companies that have global B2C operations usually use the Internet. 9. List the major benefits of global information systems. •

Effective communication at a reasonable cost

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Standardize procedures and common languages

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Effective collaboration to overcome differences in distance, time, language, and culture

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Access to databases of business partners and ability to work on the same projects while their members are in different locations

10. Describe the major issues related to global information systems. Cultural Differences- Culture consists of the objects, values, and other characteristics of a particular society including many different aspects ranging from tradition to legal and ethical issues, to what information is considered offensive. When companies plan to do business in countries other than their own, they must consider the cultural environment. Localization- Many companies use different names, colors, sizes, and packaging for their overseas products and services. In order to maximize the benefits of global information systems, the localization approach should also be used in the design and operation of the supporting information system Economic and Political Differences- Countries also differ considerably in their economic and political environments. One result of such variations is that the information infrastructures may differ from country to country Legal Issues- Legal systems differ considerably among countries. Examples are copyrights, patents, computer crimes, file sharing, privacy, and data transfer. All of these issues have the potential to affect what is transmitted via global information systems, and so they must be considered Designing Web Sites for a Global Audience- Designing Web sites for a global audience is 4

important. Web sites need to address cultural, legal, language, and other factors. Globalization and Off shoring of Software and Other IT Activities- One of the key issues related to IT and globalization is that of offshore outsourcing. Initially, there was only outsourcing of programming. However, since 2000 many other IT activities have been outsourced, ranging from call centers to software research and development Globalization and Personnel Issues- A major issue in globalization is the orientation and, if needed, training of personnel. Companies may need to send their employees to other countries and also hire local personnel 11. Describe global supply chain issues. Optimizing the supply chain- E-commerce has made it much easier to find suppliers in other countries (e.g., by using e-directories and electronic bidding) as well as to find customers in other countries Global supply chains are usually longer than domestic ones, and they may be complex. Therefore, interruptions and uncertainties are likely. Some of the issues that may create difficulties in global supply chains are legal issues, customs fees and taxes, language and cultural differences, fast changes in currency exchange rates, and political instabilities. 12. Describe the relationship between IT and language translation. A major application of natural language processing is automatic translation of documents from one language to another. Such translation is important for creating Web pages for a multinational audience, understanding large volumes of documents in foreign languages, learning foreign languages, collaboration in teams whose members speak different languages, and conducting global e-business. Language translation is especially important in countries such as China, Japan, and Korea, where relatively few people understand English well enough to use it online. The primary problems with language translation, especially for the Web sites, are cost and speed. It currently takes a human translator about a week to translate a medium size Web site into just one language 13. Define demand-driven supply networks In contrast to the traditional supply chain that was driven by suppliers and producers, demand-driven supply networks (DDSNs) are driven by customer demand. Instead of products being pushed to market, they are pulled to market by customers. DDSN does not remove the ability of a company to push product to market. Rather, it merely indicates that companies in a supply chain will work more closely to shape market demand sharing information and collaborating. In doing so, they will have a greater and more timely view of demand. 14. List the major benefits of DDSN. •

More accurate and detailed demand forecasting (often to SKU-level detail or location/ store-level detail).

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Lower supply chain costs (with reduced inventories, expediting, and write-offs).

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Improved perfect-order performance (an order that is delivered complete, accurate, on time, and in perfect condition).

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Reduced days of inventory (average days of inventory on hand, including raw materials, components, work in process and finished goods).

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Improved cash-to-cash performance (the length of time between when a company spends cash to buy raw materials and the time the cash flows back into the company from its customers).

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It provides a customer-centric approach, as opposed to a factory-centric approach

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All participants in the supply chain are able to take part in shaping demand, minimizing the bullwhip effect.

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Probabilistic optimization is used to better deal with uncertainties

15. Describe DDMs. Demand-driven manufacturing (DDM) provides customers with exactly what they want, when and where they want it. Effective communication between the supply chain and the factory floor is needed to make it happen. 16. How can RFID help supply chain management? One of the newest (and possibly most revolutionary) solutions to supply chain problems is RFID. With the use of this technology, automatic alerts can be sent within each company and between companies. There is no longer a need to count inventories, and visibility of inventories is provided to all business partners. These benefits can go several tiers down the supply chain. Additional applications, such as rapid checkout in a retail store, eliminating the need to scan each item, will be available in the future. 17. Define electronic hubs. A hub is used to facilitate communication and coordination among business partners, frequently along the supply chain 18. List some issues of systems integration. Merging systems can be very tedious especially when both are large and complex. There are also large costs involved in integrating large and complex systems. The ability to integrate an acquired company’s IT systems can determine whether a merger is successful. 19. How can integration be facilitated? The first step in conducting a large-scale integration is to check the business processes, understand them, and make improvements if necessary. The IT infrastructure needs to be 6

planned for, once processes are improved and both activities can be done at the same time. 20. List some integrations tools and their capabilities •

The extranet provides a less expensive and more flexible option than VANs

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XML and similar standards and the related Web Services provide for an open source environment that facilitates integration

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Portals can piece together services from multiple applications where data sharing is supported by SOAs

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Converters that have the capability to change traditional EDI to an XML-based one are useful

21. Define partner relationship management (PRM). Partner relationship management (PRM) is a business strategy and practice that recognizes the need to develop long-term relationships with business partners by providing each partner with the services that are most beneficial to that partner. 22. List some of the benefits of PRM. PRM solutions connect companies with their business partners (suppliers, customers, services) using Web technology to securely distribute and manage information It facilitates partner relationships. Specific functions include partner profiles, partner communications, management of customer leads, targeted information distribution, connecting the extended enterprise, partner planning, centralized forecasting, group planning, email and Web-based alerts, messaging, price lists, and community bulletin boards. 23. Define collaborative commerce. Collaborative commerce (c-commerce) refers to non–selling/buying electronic transactions within, between, and among organizations. 24. List the major types of c-commerce Retailer-Suppliers- Some large retailers collaborate with their major suppliers to conduct production and inventory planning and forecasting of demand. Such forms of collaboration enable the suppliers to improve their production planning as well Product Design- All of the parties that are involved in a specific product design may use software tools that enable them to share data and collaborate in product design Collaboration along a Global Supply Chain- In a global supply chain we usually see several partners in two or more countries, including government agencies

Questions for Discussion 1. Discuss some reasons for the complexity of global trade and the potential assistance of IT. Some of the major issues that affect global information systems are cultural issues, political and economic issues (including currency conversion), legal issues such as cross-border data transfer, different languages, and logistics. Global supply chains are usually longer, requiring complex supporting information systems. Virtual corporations are joint ventures involving several companies that create one entity for a special purpose. Since working groups of the VC are in different locations, IT is needed to facilitate coordination and collaboration. 2. In what way is a B2B exchange related to a global supply chain? To a global information system? E-commerce has made it much easier to find suppliers in other countries (e.g., by using electronic bidding) as well as to find customers in other countries. IT provides not only EDI and other communication infrastructure options, but also online expertise in sometimes difficult and fast-changing regulations. IT also can be instrumental in helping businesses find trading partners (via electronic directories and search engines, as in the case of alibaba.com). In addition, IT can help solve language problems through the use of automatic Web page translation 3. Discuss why RFID may completely revolutionize the management of supply chains. Can it solve the bullwhip problem? If so, how? One of the newest (and possibly most revolutionary) solutions to supply chain problems is RFID. RFID allows things such as automatic alerts to be sent within each company and between companies. There is no longer a need to count inventories, and visibility of inventories is provided to all business partners. These benefits can go several tiers down the supply chain. Additional applications, such as rapid checkout in a retail store, and eliminating the need to scan each item, will be available in the future. RFID could solve the bullwhip problem by alerting purchasing manager of reduction in inventory and when stocks are high. This will prevent the ordering of unnecessary inventory. 4. Discuss the relationships between RFID and DDSN. RFID solutions provide the real-time information that’s necessary to improve operating efficiencies in a number of industrial applications. By automatically detecting product movements throughout the manufacturing process, RFID provides real-time inventory visibility while minimizing the need for human intervention. Demand-driven supply networks (DDSNs) are driven by customer demand. Instead of products being pushed to market, they are pulled to market by customers. RFID can speed up the DDSN process by increasing operating efficiencies. As the RFID system detects the decrease in the stock level of a product, more will be automatically ordered to satisfy demand. 8

5. Discuss the relationships between the global supply chain and the global financial supply chain. Supply chains involve flows of money as well as products. The flow of money in global trade is usually facilitated by IT systems starting with an electronic letter of credit and ending with solutions provided by companies such as TradeCard. The flow of products is also facilitated by IT systems that track the movement of these goods around the world. The global financial supply chain is a part of the global supply chain but deals with the movement of something that needs to be dynamically converted. 6. Discuss the differences between DDSN and driving products to markets. Demand-driven supply networks (DDSNs) are driven by customer demand. Instead of products being pushed to market, they are pulled to market by customers. Companies will have a greater and timelier view of demand. The aim of this collaboration is to better position everyone in the supply chain with the ability to more closely follow market demand and produce what the market wants. By merely driving goods to the market, business managers are hoping that the products they push to the market are purchased. 7. Compare PRM and SRM. Partner relationship management (PRM) is a business strategy and practice that recognizes the need to develop long-term relationships with business partners by providing each partner with the services that are most beneficial to that partner. One of the major categories of PRM is supplier relationship management (SRM), where the partners are the suppliers.

Exercises Group Assignments Assignments considered in this chapter require a considerable effort to review literature, research for new information, conduct surveys, collect and analyze the information, and prepare necessary reports. Since these questions are not extremely difficult to solve, I will not attempt to answer them here.

Minicase How Volkswagen runs its supply chain in Brazil This case demonstrates the implementation of a supply chain system that required a restructuring of how VW did business. Benefits included reduced time to bring a product to market, reduced costs, and increased product quality.

Summary In this chapter we looked at the complexities and the strategic benefits of information in large scale information system deployments. There was also the discussion on global information systems and their impact of modern technologies like RFID to the global supply chain.

What’s Next? The next chapter deals with factors influencing the adoption of business intelligence and business performance management. It also discusses data mining, predictive analysis digital dashboards, scorecards and multidimensional data analysis. It also discusses the benefits and structure of decision support systems.

Chapter 12 Business Intelligence and Decision Support Systems Goals of the Chapter The primary objective of this chapter is to recognize the importance of data, the management issues that relate to it, and its life cycle. Other objectives include relating data management to multimedia and document management, explaining the concept of data warehousing, data mining, analytical processing, and knowledge discovery management.

An Overview Section 12.1 – The Need for Business Intelligence – The section serves as an overview of Business Intelligence and its use in business. It discusses the problems associated with disparate data stores where data are not integrated into a single reporting system. The section discusses the technologies involved in Business Intelligence and the vendors involved. It also talks about predictive analytics, alerts and decision support. Section 12.2 – BI Architecture, Reporting and Performance Management – This section discusses the modes of data extraction and integration into a standardized, usable and trustworthy one. It also discusses the different types of reporting systems available to organizations, data mining, query and analysis. The section provides an insight into Business Performance Management (BPM) as a way for business managers to know if their organizations are achieving their strategic goals Section 12.3 – Data, Text and Web Mining and BI Search – This section discusses data mining technology, tools, and techniques. Information types, data mining applications, text mining, and web mining are explored. There is also a discussion of the failures of data mining. Section 12.4 – Managers and Decision-Making Processes – This section delves into the roles played by business managers and how these roles are supported by business information systems. It talks about the decision support tools that are used for business decision making. Section 12.5 – Decision Support Systems – This section discusses the systems associated with business decision making by managers within organizations. It discusses the characteristics, capabilities, structure and components of decision support systems. It also discusses the special tools for decision support. Section 12.6 – Automated Decision Support – Some decision support systems require some automation to address repetitive managerial problems. This section discusses the characteristics, benefits and applications that are associated with automated decision support systems.

Practical Applications IT@Work IT at Work 12.1 – eHarmony Uses Predictive Analytics for Compatibility Matching – The case discusses the successful use of predictive analytics in the matchmaking industry, matching couples using compatibility variables. IT at Work 12.2 – U.K. Fashion Chain Uses BI and DSS to Predict and Replenish Intelligently – This case discusses how Bank, a U.K. based fashion chain uses BI tools to analyze which trends are taking off and uses the information gained to make sure goods are always in stock. Using historical data, the system forecasts future buying patterns, allowing managers to order the required merchandise for its stores. IT at Work 12.3 - Ben and Jerry’s keeps track of its Pints – This case discusses the use of intelligence software as a resource optimization tool. The ice cream maker is able to track, understand, and manage information on the thousands of consumer responses it receives on its products and promotional activities. Through daily customer feedback analysis, Ben & Jerry’s are able to identify trends and modify its marketing campaigns and its products to suit consumer demand. IT at Work 12.4 – Predictive Analysis Help Save Gas and Protect Green – Real-time traffic flows are analyzed to maximize the efficiency of flow through at highly congested time. The importance of real-time analytics that are adaptive is made relevant in this case. IT at Work 12.5 – Using DSS to Determine Risk – This case shows how DSS played an important role in determining the risk involved in a proposed joint venture with a petrochemical company to develop a chemical plant.

Questions for Review 1. What are three reasons companies invest in BI? Managers could not get the information they needed for decision making, planning, or to assess performance 2. What three conditions made getting a unified view of individual customers impossible? Data silos, non-standardized data, and disparate information systems 3. What is meant by a “trusted view” of the data? Why wouldn’t data be trusted? When data are not integrated into a single reporting system, there is no trusted real-time view of what is going on across the enterprise. With the integration of data, managers get a much more trusted view of their data which comes from one single database. Data needs to be trusted for effective decision making, planning and performance review of their business. 4. What are three data deficiencies that frustrate decision makers because of disparate data? 2

Getting information too late, getting data at the wrong level of detail, either too detailed or too summarized and not being able to coordinate with other departments across the enterprise 5. Explain predictive analytics. What are two business pressures driving adoption of predictive analytics? Predictive analytics is the branch of data mining that focuses on forecasting trends and estimating probabilities of future events. The business pressures driving adoption of predictive analytics include •

Increase customer loyalty and satisfaction

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Improve growth strategies

6. What are operational, tactical, and strategic decisions? Operational decisions ensure that day-to-day operations are running correctly and efficiently. Tactical decisions ensure that existing operations and processes are in alignment with business objectives and strategies. Strategic decisions create a road map for sustained success and business growth. 7. Define data extraction and data integration, and explain why they are needed. Data extraction is the pulling of data of interest from various sources such as OLAP, ERP, CRM, SCM, other applications, legacy and local data stores, and the Web. The extracted data will lack standardization and consistency because different systems use different data terminology or field names. Integrating data involves obtaining data from multiple sources, reformatting it, and loading it into a central repository, such as another database, a data mart, or a data warehouse, for analysis or to another operational system to support a business process. Both of these processes are needed to convert unusable data into one that can be effectively used for reporting, analysis, and so on 8. What is data latency? How does giving users the ability to create their own reports reduce data latency? What is the age of fresh data? The speed with which data is captured is referred to as data latency. When users are given access to creating their own reports, they are able to have direct access to the data and not have to rely on other people to provide that service. It is a measure of data “freshness,” specifically, data that are less than 24 hours old. 9. Explain the capabilities of dashboards and scorecards. Why are they important BI tools? Dashboards and scorecards are interactive user interfaces as well as reporting tools. Dashboards provide easy-to-use access to enterprise data and help companies track business performance and optimize decision making. Dashboard users are typically supervisors and 3

specialists, whereas scorecard users are executives, managers, and staff. Information is presented in graphs, charts, and tables that show actual performance vs. desired metrics for at-a-glance views of the health of the organization. Dashboards and scorecards give managers and executive a quick look into large amounts of data and allow for faster decision making. 10. What is the benefit to end users of having ad hoc query capabilities? Ad hoc queries allow users to request information that is not available in periodic reports, as well as to generate new queries or modify old ones with significant flexibility over content, layout, and calculations. 11. What is a multidimensional view of data? Sketch such a view in 3D and label the multiple dimensions for a service company. There are many software tools for users to create queries and analyze data. These tools give users fast, simple, and controllable access to data to perform ad hoc analysis in multiple dimensions. The multidimensional view allows users to see multiple views of data and if drawn, will look like a 3-dimentional drawing of a cube. 12. Define business performance management (BPM). What is the objective of BPM? Business performance management (BPM) requires that managers have methods to quickly and easily determine how well the organization is achieving its goals and objectives, and whether or not all of the organization is aligned with the strategic direction. The objective of BPM is to optimize the overall performance of an enterprise. 13. What is text mining? Give three examples of text that would be mined for intelligence purposes. Text mining helps organizations find the “hidden” content of documents, including additional useful relationships, relate documents across previously unnoticed divisions and group documents by common themes. 14. How does text mining differ from search? Text mining is not the same thing as a search engine on the Web. In a search, we are trying to find what others have prepared. With text mining, we want to discover new patterns that may not be obvious or known. 15. What is Web mining? Give three examples of Web content that would be mined for intelligence purposes. Web mining is the application of data mining techniques to discover actionable and meaningful patterns, profiles, and trends from Web resources. Web mining is used to understand customer behavior, evaluate a Web site’s effectiveness, and quantify the success of a marketing campaign. 16. Describe one advantage and one disadvantage of data mining tools. 4

Data mining tools are interactive, visual, and understandable, and work directly on the data warehouse of the organization. However, some techniques deployed by data mining tools may be far beyond the understanding of the average business analyst or knowledge worker 17. List three data mining applications for identifying business opportunities. •

Retailing and sales- Predicting sales, determining correct inventory levels and distribution schedules among outlets, and loss prevention.

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Banking- Forecasting levels of bad loans and fraudulent credit card use, credit card spending by new customers, and which kinds of customers will best respond to and qualify for new loan offers.

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Manufacturing and production- Predicting machinery failures; finding key factors that control optimization of manufacturing capacity.

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Healthcare- Correlating demographics of patients with critical illnesses; developing better insights on symptoms and their causes and how to provide proper treatments.

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Broadcasting- Predicting which programs is best to air during prime time, and how to maximize returns by interjecting advertisements.

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Marketing- Classifying customer demographics that can be used to predict which customers will respond to a mailing or Internet banners, or buy a particular product, as well as to predict other consumer behavior.

18. Why does a decision involve two or more alternatives? A decision refers to a choice made between two or more alternatives. Two broad decision categories are problem solving and opportunity exploiting. One option will not amount to a decision because one will not have to make a choice between one and the other. 19. Why is it not possible to fully automate business decisions? Not all business decisions can be automated simply because not all of them are routine. Some of these, especially those that are unstructured, rely on intuition, judgment, and experience which cannot be automated. 20. What is the difference between decisions made by mid-level managers and decisions made by top-level managers? Mid-level managers make fairly routine decisions, and these can be fully automated. The job of top managers is the least routine and therefore the most difficult to automate. 21. Identify and explain the three phases of decision making. The three phases of the decision making process includes: 5

Intelligence Phase- Managers examine a situation, then identify and define the problem. The Design Phase- decision makers construct a model that represents and simplifies the problem or opportunity. This is done by making assumptions and expressing the relationships among all variables. The model is then validated, and decision makers set criteria for the evaluation of alternative potential solutions that are identified The Choice Phase- involves selecting a solution, which is tested “on paper.” 22. Why are models used in decision making? What is an inherent risk of using models in decision making? A decision model is a simplified representation, or abstraction of reality. Simplicity is helpful because a lot of complexity may be irrelevant to a specific problem. One simplification method is making assumptions. The risk when using assumptions is when they are wrong, then the entire foundation for the analysis is flawed. 23. Give an example of a structured, an unstructured, and a semi-structured decision. Which of these types of decisions can be optimized? Why? Structured decisions refer to routine and repetitive problems for which standard solutions exist. Examples are formal business procedures, cost minimization, profit maximization and algorithms Unstructured decisions involve a lot of uncertainty for which there are no definitive or clearcut solutions. With unstructured decisions, for example, each decision maker may use different data, assumptions, and processes to reach a conclusion Semi-structured decisions fall between the polar positions. Most of what are considered to be true decision support systems are focused on semi-structured decisions. Examples of semistructured problems are trading bonds, setting marketing budgets for consumer products, and performing capital acquisition analysis. Structured decisions can be optimized because information systems can help in this process. Decision support systems can help with optimization for semi-structured decisions. 24. Describe an automated decision support (ADS) system Automated decision support (ADS) systems are rule-based systems that automatically provide solutions to repetitive managerial problems. 25. What are business rules? What role do they play in automating the decision-making process? Automating the decision-making process is usually achieved by capturing a manager’s expertise in a set of business rules that are embedded in a rule-driven workflow. These rules determine what action needs to be taken, based on the results of the evaluation. 26. What types of decisions are best suited for ADSs? Why? ADSs are most suitable for repetitive decisions that are made frequently, or responses that 6

are needed rapidly using online information. This allows these repetitive decisions to be made faster. 27. Explain two examples of ADS applications Product or service customization- Purchasers can customize a product or service such as a PC or cell phone plan. The ADS then configures the most appropriate final product (service) and its cost. Dell Computer is using this approach. Yield or price optimization- Airlines use automated decision-making applications to set prices based on seat availability and hour or day of purchase, also known as revenue management or yield management. A method called price optimization is used to maximize profitability in real estate rentals.

Questions for Discussion 1. Discuss the strategic benefits of business analytics. Business analytics provides the models, which are formulas or algorithms, and procedures to BI. Using business analytics software, the user can make queries, request ad hoc reports, or conduct analyses. There are predictive analytic tools designed for hands-on use by managers who want to do their own forecasting and predicting. These tools assist managers in condensing large amounts of data into concise, usable form for faster decision making thereby staying ahead of the competition. 2. Will BI replace the business analyst? BI will in the future get more complicated and their tools will get better at interpreting trends in data. This trend will end up replacing some of the functions performed by business analysts for many companies. These tools will however not be able to replace every function of a human business analyst due to the nature of certain forms of data that will require the use of human perception and judgment. This discussion should dwell on the difference between computer-generated responses and the capacity for individual judgment. Understanding cannot be replaced by calculation speed. 3. Differentiate predictive analysis from data mining. What do they have in common? The major components of BI are data warehouse and/or marts, predictive analytics, data mining, data visualization software, and a business performance management system. Predictive analysis uses different algorithms to forecast results and relationships among variables as well as to identify data patterns. Data mining is one of the tools. The main link between predictive analysis and data mining is that data mining is a tool used in predictive analysis. 4. Describe the concepts underlying Web-mining and Web-analytics. Web mining is the application of data mining techniques to discover actionable and meaningful patterns, profiles, and trends from Web resources. The term Web mining is used 7

to refer to both Web-content mining and Web-usage mining. Web-content mining is the process of mining Web sites for information. Web-usage mining involves analyzing Web access logs and other information connected to user browsing and access patterns on one or more Web localities. analytics is a component of Web mining that sifts through data to identify patterns of behavior that suggest, for example, what offers customers might respond to in the future, or which customers you may be in danger of losing. 5. Relate competitive analysis to BI. Competitive analysis analyzes online algorithms, in which the performance of an online algorithm is compared to the performance of an optimal offline algorithm that can view the sequence of requests in advance. Business intelligence is an umbrella term that includes architectures, tools, databases, and applications that have been implemented over several decades under different names by various researchers and vendors. 6. Why is real time BI becoming critical? Real Time BI means having access to information and data as it happens in real time. Computer systems are getting more sophisticated and are able to capture and transmit data and information to any corner of the world in real time. More and more companies are taking advantage of real time access to business analytics to stay ahead. In the future, companies are going to spend more and more money to advance their systems in that regard and all others will have to follow suit to keep up tithe the competition. 7. Discuss the need for real-time computer support. Computer support to groups is designed to improve the process of making decisions in groups, which can meet face-to-face or online. The support increases the effectiveness of decisions and reduces the wasted time and other negative effects of face-to-face meetings. Computer support in the whole decision making process generally quickens the process of decision making. 8. What could be the biggest advantages of a mathematical model that supports a major investment decision? Mathematical models allow the analysis and comparison of a very large, sometimes nearinfinite number of possible alternative solutions. With today’s advanced technology and communications, managers frequently have a large number of alternatives from which to choose. Investment decisions depend on very complex mathematical models to help decide the profitability of an investment and the potential ROI and investment managers need to be very sure about what they are putting money into before they make those decisions. 9. Your company is considering opening a branch in China. List several typical activities in each phase of the decision (intelligence, design, choice, and implementation). At the intelligence phase, managers will examine a situation, then identify and define the problems that need to be tackled. In the design phase, decision makers construct a model that represents and simplifies the opportunity. This is done by making assumptions and expressing the relationships among all variables. The model is then validated, and decision 8

makers set criteria for the evaluation of alternative potential solutions that are identified. The choice phase involves selecting a solution, which is tested “on paper”. Once this proposed solution seems to be feasible, the last phase is implemented. Successful implementation results in resolving the original problem or opportunity. 10. How is the term model used in this chapter? What are the strengths and weaknesses of modeling? Modeling was used to show a graphical representation of a problem or opportunity that helps decision makers see a picture or a quick snapshot of the task at hand. Models help make quick decisions to stay competitive in the marketplace. Models on the other hand make use of assumptions and these usually may not provide the best source of detailed information in certain cases that require precise detail. 11. American Can Company announced that it was interested in acquiring a company in the health maintenance organization (HMO) field. Two decisions were involved in this act: (1) the decision to acquire an HMO, and (2) the decision of which one to acquire. How can a DSS, ES, or ESS be used in such a situation? A decision support system (DSS) combines models and data to solve semi-structured and some unstructured problems with intensive user involvement. A DSS is an approach that can improve the effectiveness of decision making, decrease the need for training, improve management control, facilitate communication, reduce costs, and allow for more objective decision making. DSSs deal mostly with unstructured problems. DSSs will help the company see a good view of the performance of any of the companies they ant to acquire and thus make a better decision on which one to acquire. 12. Discuss how GDSSs can negate the dysfunctions of face-to-face meetings (Chapter 4). A group decision support system (GDSS) is an interactive computer-based system that facilitates the solution of semi-structured and unstructured problems when made by a group of decision makers by concentrating on the process and procedures during meetings. The objective of a GDSS is to support the decision process. Some dysfunctions of face-to-face meetings include lack of new ideas, time-consuming process, inappropriate influences and some members may be afraid to speak up. A GDSS allows contribution from all members of the meeting and increases participation. 13. Read the CIGNA case (Online Minicase 1) and answer the following questions: a. Describe the motivation for developing the eCare system. Behavioral Health’s business processes for making approval determinations were supported in different locations using several different software applications and certain rules in use sometimes conflicted with each other, and knowledge was lost due to employee turnover. In addition, the rules were in inflexible if-then statements. Accessing and changing the rules was a slow, cumbersome, and expensive process. b. Explain the role of the intelligent systems and their potential benefits in the case.

Intelligent systems in this case were to help automate decision-making situations and in this case make approval determinations. Therapists submit requests for authorization of benefits over the Internet and receive, in many cases, an immediate machine-generated approval. c. What are the major difficulties you can anticipate in the process of developing and using the system? Several aspects of using the system that could prove difficult will include the interpretation of expert knowledge into business rules and also the human acceptance and use of the system, There could be some resistance to the system from technologically challenged users. d. How are these systems different from traditional analytical systems described earlier in the chapter? These systems basically think for themselves and usually remove the human analytical aspect of analysis. 14. Explain why even an intelligent system can fail. Expert systems, one form of intelligent system, can advise someone to do something illegal, unethical, etc because they don’t have human decision-making capabilities built in. Since these systems can rely exclusively on information systems and not humans, they can fail.

Internet Exercises These exercises require current and relevant web material. Instructors are encouraged to review these sites before using them, or to include their own unique internet-based examples. Check online at Wiley.com for up to date web materials. Minicase Lexmark International improves Operations with BI The case discusses Lexmark’s choice in BI solution, and identifies some of the complexities in information flow. Students should be aware of the complications that the acquisition of a standard application presents with its inclusion in a non-standard environment.

Summary This chapter has focused on business intelligence to make various decisions. As the volume of available data is growing, it has become increasingly important to acquire and store it appropriately, and to incorporate a strategy of sharing the data all across the enterprise. This chapter has discussed various methods to accomplish this such as data warehousing, data mining and decision support systems.

What’s Next? The next chapter discusses Information Technology Strategy and Planning and their importance in business. The chapter will also recognize the challenges of IT business alignment and attempt to address them. The chapter will also look at IT strategic role within organizations and their value to businesses. Finally the chapter will take a look at outsourcing as a strategy used by many companies to reduce cost.

Chapter 13 IT Strategy and Planning

Goals of the Chapter The major objectives are to introduce the importance of information systems to the overall strategic goals of the organization. Focus is placed on the ability for IS to work as a coordinating function and also the challenges in IT business alignment and how they can be addressed. However, the emphasis on the strategic alignment of IS to the overall organization is also discussed as a major component to the approach being successful.

An Overview Section 13.1 – Alignment of Business and IT Strategies – The ability for the organization to match its overall strategy with its IT strategy is introduced. It discusses the focus areas of an organization’s alignment strategy and also the challenges in achieving IT business alignment. Section 13.2 – IT Strategy Initiation – This section discusses the critical strategic role of information technology including the value added to the business and how competitive advantage can be achieved through Information Technology. The section also talks about the value added to a business and its communication to the entire organization. Section 13.3 – IT Strategic Planning – This section discusses the process of developing an IT strategic plan within an organization and the tools and methodologies used to implement the plan, as well as the resources needed. Section 13.4 – Outsourcing, Offshore Outsourcing and IT as a Subsidy – Many corporations have adopted the strategy of outsourcing many of their operations areas to other companies who specialize in certain functions. This section discusses the advantages and disadvantages of this strategy.

War Stories An insurance company was confronted with a constant problem of assessing the cost of repairs to vehicles after accidents. The whole industry of car repairs was set up around insurance companies with goal of extracting maximum money and providing as little service as possible. The market for used parts was flourishing and the average cost of repairs was on the rise. In order to change this pattern, the insurance company turned to IT. What everybody discovered was that flat-screen technology created an incredible opportunity by allowing individual assessors to easily carry laptop computers with them to the accident sites. This innovation, combined with proliferation of cellular phone technology, opened up an online opportunity for claim registry and damage assessment. What was needed was a model of what could go wrong with different parts of the car judging 1

from the obvious visual damage. The insurance company turned to the car manufacturers for help. Using crash-test results for every car model available, they developed a multi-screen decision model projecting level of damage. From this model, a decision was automatically derived listing which parts should be replaced and which could be repaired. The actual functioning of the system was quite simple. Claims agents would be dispatched to the site of an accident. Once at the site, the agent would enter into the system the type and year of the vehicle, call in to the database, and a picture of the car would appear on the screen. The search for the type and the year was done by vehicle identification number (VIN). Once the picture of the vehicle was on the screen, using a light-pen the agent would touch the parts with visual damage assessing the level of damage from low to very high. The system will automatically decompose a material parts list for that component (for example, all the parts that make up a door assembly such as the door frame, door skin, window assemblies, and so on). Once this list has been generated, the next call would be to the warehouse or part supplier to generate a price list. Adding to whatever the system was generating, a cost on a per-hour basis for repairs as defined by car service manuals, the insurance company was able to generate, on the spot, a full claim. With the generated claim document, the client would go to any authorized repair shop which would be allowed to bill the insurance company only up to the sum shown on the document. There were some additional benefits to introducing this system: •

Car manufacturers were receiving projected demands on different parts and for varying makes of their vehicles on a quarterly basis, depending upon the statistical data collected through this process.

•

Savings were so attractive that all manufacturing companies voluntarily signed-on to provide the insurance companies with all necessary data to make the system successful.

There was one more unexpected benefit. By connecting agents’ initial inquiry with a central police registry, the companies could first check to determine if the vehicle was stolen, which enabled recovery of stolen vehicles by the police before any repairs were done. For the instructor, intelligent support systems quite often call for marrying more than one technology and more than one actor or participant in order to realize significant benefits. In the process of discussion, show how the need of one company was addressed by sharing data with other companies using technology that was offered by a third entity (mobile phone). Questions for Review 1. What is IT–business alignment? What are the two facets of IT–business alignment? Information technology business alignment refers to the degree to which the information technology (IT) division understands the priorities of the business and expends its resources, pursues projects, and provides information consistent with these priorities. One facet is aligning the IT function’s strategy, structure, technology, and processes with those of the business units so that IT and business units are working toward the same goals. The other facet referred to as IT strategic alignment, involves aligning IT strategy with 2

organizational strategy. The goal of IT strategic alignment is to ensure that IS priorities, decisions, and projects are consistent with the needs of the entire business. 2. Explain what is necessary within the organizational governance structure to facilitate IT– business alignment. The governance structure within an organization should be designed to facilitate IT business alignment. To whom the CIO reports is telling of how IT is perceived within the company. For example, if IT is perceived as a strategic weapon to grow revenues and increase operational effectiveness, then the CIO likely reports to the CEO. 3. Discuss the importance of IT–business alignment to CIOs. Alignment remains an important issue for CIOs in part because failure to align IT to business strategy is believed to result in the failure of many IS initiatives. 4. Why does IT–business alignment continue to be a dominant organizational challenge for CIOs? Alignment is a complex management activity, and its complexity increases with the increasing complexity of organizations as the pace of global competition and technological change increases. Some don’t understand the value of IT or IT-business alignment either. 5. What is the main challenge to achieving IT–business alignment? Successful alignment also requires the development of a partnership between the IT division and business management. In some cases, there is a “glass wall” between the IT division and the rest of the company which prevents the CIO and senior IT staff from close interaction with the CEO and senior executive business leaders. This may result in a failure to recognize the value of IT to the business strategy. The wall can be removed or prevented through effective communication. Further, the wall may be dispelled by creating a partnership between the IT division and business management. 6. CIOs that have a more strategic role are more successful in what core strategic activities? The three strategic activities that require the CIO to exhibit CIO skills are promoting collaboration between IT and the business units, persuading executive leadership of the importance of IT to the organization, and contributing to strategic planning and growth initiatives. 7. Why does IT play a critical strategic role in organizations? IT can add value directly by reducing the costs associated with a given activity or subset of activities. Cost reduction usually occurs when IT enables the same activity or set of activities to be performed more efficiently. IT can add value indirectly by increasing revenues. The increase in revenues occurs when IT enables a firm to be more effective by either producing or servicing more without hiring more employees. 8. Explain what is meant by the “glass wall” between the IT division and the rest of the company. What can be done to remove or prevent this wall? 3

The “glass wall” is a figure of speech representing a lack of communication between two entities within an organization who should otherwise be communicating effectively. This wall prevents the CIO and senior IT staff from close interaction with the CEO and senior executive business leaders. The wall can be removed or prevented through effective communication. Further, the wall may be dispelled by creating a partnership between the IT division and business management. 9. In what two ways can IT add value to a company? IT can add value directly by reducing the costs associated with a given activity or subset of activities. Cost reduction usually occurs when IT enables the same activity or set of activities to be performed more efficiently. IT can add value indirectly by increasing revenues. The increase in revenues occurs when IT enables a firm to be more effective by either producing or servicing more without hiring more employees. 10. What are three characteristics of resources that give firms the potential to create a competitive advantage? Three characteristics of resources give firms the potential to create a competitive advantage: value, rarity, and “appropriability.” Firm resources can be a source of competitive advantage only when they are valuable. A resource has value to the extent that it enables a firm to implement strategies that improve efficiency and effectiveness. But even if valuable, resources that are equitably distributed across organizations are commodities. Resources also must be rare in order to confer competitive advantages. Finally, to provide competitive advantage, a resource must be appropriable. Appropriability refers to the ability of the firm to create earnings through the resource. 11. Describe the relationship among business strategy, IS strategy, and IT strategy. Business strategy sets the overall direction for the business. The information systems (IS) strategy defines what information, information systems, and IT architecture are required to support the business. Based on a prioritization of needs, the information technology (IT) strategy indicates how the infrastructure and services are to be delivered. Each of these are important since they should all be tied together. One without the others minimizes the synergistic benefits that can be obtained. 12. Why is it important for the CIO to be included as a member of the CEO’s senior management team? Inclusion of the CIO on the CEO’s senior management team promotes a partnership between the CIO and the CEO. The CEO recognizes that inclusion of the CIO in strategy meetings encourages teamwork to meet the expectations of stakeholders such as customers, business partners, and stockholders. Thus, critical goal congruence between the CIO and CEO is created. Also, since IT is so valuable, having IT represented on the management team provides good feedback during discussions related to anything involving processes that are affected by technology (all of them). 13. What is the typical timing for undertaking IT strategic planning? Why must IT strategic 4

planning be revisited on a regular basis? CIOs typically undertake IT strategic planning on a yearly, quarterly, or monthly basis. Because organizational goals change over time, it is not sufficient to develop a long-term IT strategy and not reexamine the strategy on a regular basis. For this reason, IT planning is a continual process, not a one-shot process. 14. Describe the committee that usually conducts the IT strategic planning process? Who is included on this committee? What are the major tasks of this committee? On what is this committee’s success dependent? The corporate steering committee is a group of managers and staff representing various organizational units that is set up to establish IT priorities and to ensure that the IS department is meeting the needs of the enterprise. The major tasks of the committee include direction setting, rationing, structuring, staffing, communication and evaluation. The success of steering committees largely depends on the establishment of IT governance, formally established statements that direct the policies regarding IT alignment with organizational goals and allocation of resources. 15. What is the focus of IT strategy? The focus of IT strategy is on how IT creates business value. Typically, annual planning cycles are established to identify potentially beneficial IT services, to perform cost–benefit analyses, and to subject the list of potential projects to resource allocation analysis. 16. Describe the IT strategic planning process. The entire planning process begins with the creation of a strategic business plan. The longrange IT plan, sometimes referred to as the strategic IT plan, is then based on the strategic business plan. The IT strategic plan starts with the IT vision and strategy, which defines the future concept of what IT should do to achieve the goals, objectives, and strategic position of the firm and how this will be achieved. The next level down is a medium-term IT plan, which identifies general project plans in terms of the specific requirements and sourcing of resources as well as the project portfolio. The project portfolio lists major resource projects, including infrastructure, application services, data services, and security services that are consistent with the long-range plan. The third level is a tactical plan, which details budgets and schedules for current year projects and activities. In reality, because of the rapid pace of change in technology and the environment, short-term plans may include major items not anticipated in the other plans. 17. Describe the project portfolio. Describe the applications portfolio. When are these portfolios developed? The project portfolio lists major resource projects, including infrastructure, application services, data services, and security services that are consistent with the long-range plan. 5

The applications portfolio is a list of major, approved IS projects that are also consistent with the long-range plan. Both the project portfolio and the applications portfolio are developed during the mediumterm IT plan, which identifies general project plans in terms of the specific requirements and sourcing of resources. 18. What tools and methodologies are available to assist in the IT strategic planning process? How are these methods used to help organizations? Business Service Management- Business service management is an approach for linking key performance indicators (KPIs) of IT to business goals to determine the impact on the business. KPIs are metrics that measure the actual performance of critical aspects of IT, such as essential projects and applications, servers, the network, and so forth, against predefined business goals, such as growing revenue, lowering costs, and reducing risk. The Business Systems Planning Model- BSP relies heavily on the use of metrics in the analysis of processes and data, with the ultimate goal of developing the information architecture. Balanced Scorecard- The balanced scorecard is a performance measurement approach that links business goals to performance metrics. Goals and measures are derived from the vision and strategy of an organization. 19. What is resource allocation? What are the two types of funding requests? Resource allocation consists of developing the plans for hardware, software, data communications and networks, facilities, personnel, and financial resources needed to execute the master development plan, as defined in the requirements analysis. The first category of funding requests consists of projects and infrastructure that are critical for the organization to stay in business. The second category includes less-critical items, such as new projects, maintenance or upgrades of existing systems, and infrastructure to support these systems and future needs. 20. What is outsourcing? Outsourcing is contracting work to be completed by an outside vendor. 21. What are some of the major reasons for outsourcing? The major reasons for outsourcing include the desire to focus on core competency, cost reduction, improve quality, increase speed to market and faster innovation. 22. What IT functions are outsourced? Applications development is likely to lead all other IT functions outsourced, followed by applications maintenance, telecommunications/LAN and PC maintenance. 23. Distinguish between mega outsourcing and the multi-vendor approach to outsourcing. 6

A mega outsourcing deal involves the outsourcing of an entire operation to one major company involving a large amount of money whereas the multi-vendor approach incorporates the services of several best-of-breed vendors to meet IT demands. 24. What are the benefits of outsourcing? What are the risks of outsourcing? There are many benefits to outsourcing and a few of them are mentioned below. A comprehensive list can be found in Table 13.8 Financial- Avoidance of heavy capital investment and improved cash flow and cost accountability Technical - Access to new information technologies and greater freedom to choose software due to a wider range of hardware. Management- Concentration on developing and running core business activity and delegation of IT development and operational responsibility to suppliers. The risks of outsourcing include: Shirking- Occurs when a vendor deliberately underperforms while claiming full payment Poaching- occurs when a vendor develops a strategic application for a client and then uses it for other clients. Opportunistic re-pricing (“holdup”) occurs when a client enters into a long-term contract with a vendor and the vendor changes financial terms at some point or overcharges for unanticipated enhancements and contract extensions. 25. Discuss the strategies organizations should consider in managing the risks associated with outsourcing contracts. Understand the project. Clients must have a high degree of understanding of the project, including its requirements, the method of its implementation, and the source of expected economic benefits. Divide and conquer. Dividing a large project into smaller and more manageable pieces will greatly reduce outsourcing risk and provides clients with an exit strategy if any part of the project fails. Align incentives. Designing contractual incentives based on activities that can be measured accurately can result in achieving desired performance. Write short-period contracts. Outsourcing contracts may be written for five- to ten-year terms. Because IT and the competitive environment change so rapidly, it is very possible that some of the terms will not be in the customer’s best interests after five years. Control subcontracting. Vendors may subcontract some of the services to other vendors Do selective outsourcing. This is a strategy used by many corporations who prefer not to outsource the majority of their IT, but rather to outsource certain areas 7

26. Distinguish between outsourcing and offshore outsourcing Outsourcing is contracting work to be completed by an outside vendor. Offshore outsourcing is outsourcing with a vendor located in a country other than the one in which the client company is based. 27. What types of work are not readily outsourced offshore? The types of work that are not readily offshore outsourced include the following: •

Work that has not been made into a routine

•

Work that if off-shored would result in the client company losing too much control over critical operations

•

Situations in which off-shoring would place the client company at too great a risk to its data security, data privacy, or intellectual property and proprietary information

•

Business activities that rely on an uncommon combination of specific application domain knowledge and IT knowledge in order to do the work properly

28. Describe a tool useful in measuring the business value of outsourcing relationships. A tool useful in measuring the business value of outsourcing relationships is the balanced scorecard. For outsourcing, the balanced scorecard can be applied to assess value creation in the outsourcing relationship. Objectives, divided into value creating processes and outcomes, can be listed along the vertical dimension and specific measures important to the outsourcing relationship can be presented horizontally.

QUESTIONS FOR DISCUSSION 1. What does failure to properly align IT with the organizational strategy result in? Failure to align IT to business strategy is believed to result in the failure of many IS initiatives. For IT planners to achieve the desired linkage between the business strategy and IT strategy, they should possess a deep understanding of their company’s business planning. Similarly, business managers must possess solid knowledge of their company’s IT planning. 2. How can the governance structure within an organization be designed to facilitate IT– business alignment? The main challenge to achieving IT–business alignment is for the CIO to attain strategic influence. The CIO needs to have direct contact with the CEO. That is, he needs to report directly to the CEO. In some cases, however, there is a “glass wall” between the IT division and the rest of the company. This wall prevents the CIO and senior IT staff from close interaction with the CEO and senior executive business leaders. This may result in a failure to recognize the value of IT to the business strategy. The wall can be removed or prevented through effective communication. Further, the wall may be dispelled by creating a 8

partnership between the IT division and business management. 3. Why does IT–business alignment continue to be an important issue for CIOs? Alignment remains an important issue for CIOs in part because failure to align IT to business strategy is believed to result in the failure of many IS initiatives. Alignment is a complex management activity, and its complexity increases with the increasing complexity of organizations as the pace of global competition and technological change increases. 4. What does successful IT–business alignment require? The three strategic activities that require the CIO to exhibit CIO skills are promoting collaboration between IT and the business units, persuading executive leadership of the importance of IT to the organization, and contributing to strategic planning and growth initiatives. Businesses striving to attain IT–business alignment may hire or develop CIOs who are capable in these important strategic activities. Successful alignment also requires the development of a partnership between the IT division and business management. 5. Discuss how a CIO might interact with executive management as technology becomes increasingly central to a business. Companies must determine the use, value, and impact of IT to identify opportunities and create value that supports the organization’s strategic vision. This requires that the CIO, and other senior IT staff, closely interact with the CEO and the most senior officers in functional areas and business units. As technology becomes increasingly central to business, the CIO becomes a key mover in the ranks of upper management. 6. Three characteristics of resources give firms the potential to create a competitive advantage. Discuss the potential of a firm’s IT resources to add value to a company. A firm’s resources can be a source of competitive advantage only when they are valuable. A resource has value to the extent that it enables a firm to implement strategies that improve efficiency and effectiveness. But even if valuable, resources that are equitably distributed across organizations are commodities. Resources also must be rare in order to confer competitive advantages. Finally, to provide competitive advantage, a resource must be appropriable. 7. What is an opportunity matrix of business improvement with IT and how could a CIO employ this matrix? In order that business and IT executives have a common understanding of the potential business improvements attainable through the use of IT, an opportunity matrix of business improvement is developed and each of these benefits should be evaluated with IT in terms of value to the business. The matrix is s follows: a. Improve process efficiencies b. Increase market share and global reach 9

c. Reach new markets, audiences, and channels d. Improve external partnering capabilities e. Enable internal collaboration f. Launch innovative product and service offerings g. Improve time to market h. Enhance customer service experience i. Improve information access and effectiveness in decision-making processes j. Bring about new business models k. Enable a business to gain, or simply maintain, a competitive advantage 8. Discuss how the partnership between the IT division and business management can extend to fuse with the business. The partnership between the IT division and business management can extend to fuse with the business. Such a fusion could be achieved with an organizational structure where the CIO becomes responsible for managing some core business functions. The CIO could work directly with other top executives to influence strategic directions, suggest changes in internal business processes, and lead a diversity of initiatives that encompass more than just technology projects. 9. Describe the IT strategic planning process. The entire planning process begins with the creation of a strategic business plan. The longrange IT plan, sometimes referred to as the strategic IT plan, is then based on the strategic business plan. The IT strategic plan starts with the IT vision and strategy, which defines the future concept of what IT should do to achieve the goals, objectives, and strategic position of the firm and how this will be achieved. The next level down is a medium-term IT plan, which identifies general project plans in terms of the specific requirements and sourcing of resources as well as the project portfolio. The project portfolio lists major resource projects, including infrastructure, application services, data services, and security services that are consistent with the long-range plan. The third level is a tactical plan, which details budgets and schedules for current year projects and activities. In reality, because of the rapid pace of change in technology and the environment, short-term plans may include major items not anticipated in the other plans. 10. What tools facilitate IT strategic planning? Several tools and methodologies facilitate IT strategic planning, including: Business Service Management- Business service management is an approach for linking key performance indicators (KPIs) of IT to business goals to determine the impact on the 10

business. KPIs are metrics that measure the actual performance of critical aspects of IT, such as essential projects and applications, servers, the network, and so forth, against predefined business goals, such as growing revenue, lowering costs, and reducing risk. The Business Systems Planning (BSP) Model - BSP relies heavily on the use of metrics in the analysis of processes and data, with the ultimate goal of developing the information architecture. The Balanced Scorecard - The balanced scorecard is a performance measurement approach that links business goals to performance metrics. Goals and measures are derived from the vision and strategy of an organization. Critical success factors (CSFs) - Critical success factors are the essential things that must go right in order to ensure the organization’s survival and success. Scenario Planning- Scenario planning is a methodology in which planners first create several scenarios; then a team compiles as many future events as possible that may influence the outcome of each scenario. 11. Discuss resource allocation to execute IT development plans. Resource allocation consists of developing the plans for hardware, software, data communications and networks, facilities, personnel, and financial resources needed to execute the master development plan. Resource allocation is a sensitive process in most organizations because opportunities and requests for spending far exceed the funds available. This usually leads to competition among business units making it difficult to objectively identify the important investment areas. 12. A company may choose to outsource or offshore outsource. Compare and discuss these options. Outsourcing is contracting work to be completed by an outside vendor. Offshore outsourcing is outsourcing with a vendor located in a country other than the one in which the client company is based. Whether a company chooses to simply outsource or offshore outsource, they would either way be engaging in outsourcing. The decision to offshore outsource would depend on a number of factors. Offshore outsourcing can reduce IT expenditures by 15 to 25 percent within the first year, and in the long term, outsourcing can help reduce cost and improve the quality of IT services delivered. On the other hand, the decision not to offshore outsource will also depend on these factors. •

Work that has not been made into a routine

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Work that if off-shored would result in the client company losing too much control over critical operations 11

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Situations in which off-shoring would place the client company at too great a risk to its data security, data privacy, or intellectual property and proprietary information

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Business activities that rely on an uncommon combination of specific application domain knowledge and IT knowledge in order to do the work properly.

13. Describe strategies for outsourcing. Understand the project. Clients must have a high degree of understanding of the project, including its requirements, the method of its implementation, and the source of expected economic benefits. Divide and conquer. Dividing a large project into smaller and more manageable pieces will greatly reduce outsourcing risk and provides clients with an exit strategy if any part of the project fails. Align incentives. Designing contractual incentives based on activities that can be measured accurately can result in achieving desired performance. Write short-period contracts. Outsourcing contracts may be written for five- to ten-year terms. Because IT and the competitive environment change so rapidly, it is very possible that some of the terms will not be in the customer’s best interests after five years. Control subcontracting. Vendors may subcontract some of the services to other vendors Do selective outsourcing. This is a strategy used by many corporations who prefer not to outsource the majority of their IT, but rather to outsource certain areas. 14. Describe how a company might assess the business value delivered by an outsourcing relationship. A tool useful in measuring the business value of outsourcing relationships is the balanced scorecard. For outsourcing, the balanced scorecard can be applied to assess value creation in the outsourcing relationship. Software applications for measurement, such as dashboards for tracking specific measures, can provide metrics. The balanced scorecard can also be used to provide periodic feedback of the value of the outsourcing agreement. In the case where several vendors are involved, measures should be applied to each vendor. A company may choose to institute a project management office to track all outsourcing agreements. A dedicated staff, with financial as well as technical skills, would be assigned to oversee each vendor relationship and establish regular reviews of vendor performance.

Group Activities and Exercises The group assignments considered in this chapter involve a substantial effort in literature review, research for new information, conducting surveys, collecting and analyzing the information and preparing necessary reports. These questions are not extremely difficult to solve, and they require some a group effort.

Internet Exercises These exercises are based on the availability of the websites on the Internet at the time of practice. I will leave it to my fellow instructors to check and validate the websites before assigning the exercises to the students.

Minicase The Second Life Strategy of American Apparel This Minicase explores how American Apparel, a vertically integrated manufacturer, distributor, and retailer of branded apparel, based in Los Angeles used a virtual store in Second Life to market their products. Second Life is an Internet-based 3-D virtual world of elaborate landscapes and cityscapes. The success of this strategy enticed other big name companies like Coca Cola, Adidas and Toyota to adopt a similar strategy.

Summary This chapter discusses the importance of aligning a company’s business strategy with that if its IT initiatives with shared ownership and shared governance of IT among all members of the senior executive team. The chapter discussed planning an IT strategy for an organization and also looked at the ever increasing strategy of outsourcing with an emphasis on IT.

What’s Next? The next chapter talks about IT project management and the adoption of an IT project lifecycle. The chapter will examine some of the challenges associated with implementing IT projects and look at why some IT projects fail at implementation. The chapter will also discuss Business Process Management and its use to enhance organizational effectiveness and finally discuss change management within organizations in systems implementation.

Chapter 14 Managing IT Projects, Process Improvement, and Organizational Change Goals of the Chapter The main goal of this chapter is to introduce the process of managing IT projects within an organization and the framework for adopting these projects. The chapter focuses on describing the five stages of the adoption life cycle. The chapter tries to make readers understand the impact of technology, task, individual, organizational, and environmental characteristics on the adoption of new technologies. Another segment of the chapter looks at understanding the typical causes of IT implementation failures and all other associated challenges. We also look at the concept of business process management (BPM) and how it can be used to enhance effectiveness in an organization and the chapter finally takes a look at the role of change management in systems implementation. We will also focus on the organizational transformation that follows from the introduction of new and innovative technology. An Overview Section 14.1 – Adopting IT Projects- This section addresses the framework for adopting IT projects including the stages that an organization has to go through to adopt an IT project. The section looks at the differences in technology, tasks, individuals, organizations, and the environment into which the system will be introduced. Section 14.2 – Implementing IT Projects- This section discusses the roadmap for implementing IT projects with a close look at the four Ps of system implementation, the plunge approach, the parallel approach, the pilot approach and the phased approach. The section also looks at the factors that impact the success of an implementation. To be able to succeed in an implementation, it is important to manage the process very well and this section covers the implications. Section 14.3 – Business Process Management- This section seeks to discuss the concept of business process management as a collection of related activities that produce something of value to an organization. The section also looks at creating a BPM strategy and its modeling. Processes are a big part of organizations and their measurement tools are also discussed. The section also discusses BPM software and its business value. Section 14.4 – Change Management and Organizational Transformation- In this section, we take a close look at the concept of change management and its role in the organization. The section also discusses the 10 principles of change management.

Practical Applications Con-Way Inc. Implements Innovative Technology and Wins National Recognition – This case discusses Con-Way Inc, a freight transportation and logistics services company headquartered in San Mateo, California with business presence in 17 countries across five continents with a network of 460 operating locations across North America. Con-Way had the problem of recording and transmitting driver payroll data which was in some cases being written by hand. Pergasus Imaging, a vendor, was able to solve the problem with a 99.9% success rate after the incorporation of defined business rules. The company was able to save over $500,000 in courier costs and also achieved more accurate transmission of driver payroll data. Questions for Review 1. Name the five different categories of adopters. People fall into five different adopter categories, innovators, early adopters, early majority, late majority, and laggards. 2. Consider the five different categories of adopters. How would you approach each of the different types to encourage adoption of a new system? Innovators- focus on the cutting-edge technology available Early adopters- focus on the advantages (competiveness) that the technology offers Early majority- focus on the fact that “everyone else is using it” Late majority- focus on the proven capabilities of the technology Laggards- focus on what is being missed by not using the technology 3. List the stages of innovation adoption. •

Knowing of an innovation

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Forming an attitude toward the innovation

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Making a decision to adopt or reject

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Implementation and initial use of the new technology

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Confirming the decision through continued use or disconfirming it through discontinuance

4. What do you think are the most important considerations you would need to assess in adopting a new system in a small organization with little IT experience? Small organizations are often more agile and can move faster to adopt technology. Regardless, however, of the size of the organization, there are other factors that influence the adoption of a new system when planning for one. Planning needs to occur at each stage of the adoption process; all stakeholders must be considered and informed, and the plan adjusted as needed throughout the adoption process. Planning for the changes that will be introduced into 2

an organization by the adoption of a new system includes a number of factors. These are a supportive IT infrastructure, management support, and the presence of a champion. 5. What are the main characteristics of technology that must be considered when adopting technology? Compatibility- The degree to which the new system is perceived to fit with the existing values, past experiences, and needs of potential adopters. Complexity- The degree to which the new system is perceived to be difficult to understand and use. Reliability- The extent to which the new system is robust and dependable. Relative Advantage- The degree to which the new system is perceived as better than the system it replaces. 6. Name the four P’s of implementation and describe the differences between them. The plunge approach, the parallel approach, the pilot approach and the phased approach 7. Give examples of situations when it would be best to use each implementation approach listed in answer to review question 6. The Plunge Approach- The old system is turned off at the end of business on Day 0 and the new system is put into operation at the beginning of Day 1. This may be the best choice if an organization is under time pressure to comply with a new government regulation or a new business policy comes into effect with little prior notice The Parallel Approach- Both new and old systems operate concurrently for a designated period of time. This approach may be required in situations where it is imperative that a system be in place that is working. There may be cases where implementing a new, untested system by itself is too risky so the parallel approach is used to decrease the risk. The Pilot Approach- Used when a system is intended for adoption and implementation in more than one business unit or geographic location. This approach is recommended when user acceptance of a system is important. Subsequent sites are able to learn from the experiences of the beta sites, thus promoting a higher level of user confidence and a lower level of user resistance over time. The phased approach- Each module or version of the system is implemented as it is developed and tested. This approach is helpful in cases where a large system is implemented and develop time is in years. In this case, it may be helpful to develop one part of the system and while the users and learning how to use it, remaining parts of the system are being developed. 8. Physical requirements of a system are an important consideration when implementing a system, but how do the social aspects of a system impact IT implementation success? If a new system doesn’t solve the problems for which it was intended, it will not be accepted and used. If the organization does not have personnel with the IT skill set required, it will be 3

difficult or impossible to successfully implement a new system. This situation often occurs because of a lack of communication or understanding between the system analysts/ designers and the business client or a failure to establish partnerships with external technology providers. 9. What are some important factors to consider in ensuring a new system is successfully implemented by an organization? Top management support is as important in IT implementation as it is in IT adoption. The necessary resources (money, people and time) will be easier to obtain. Second, the system is more likely to be perceived positively by both business and IT personnel who may align themselves with the attitudes of top management for political reasons. Risk associated with IT projects vary greatly depending on three variables: project size, project structure, and complexity of the implementation effort. Training is another issue that must be addressed in the planning phase. Training is an item that should receive the most serious attention during implementation. User acceptance is the extent to which a new system is perceived as being useful and easy to use by the system users. Acceptance of a system will be higher if users are involved in systems design. When they are offered the opportunity to provide input into the design and development, users are more inclined to buy into the system. 10. Define business process management (BPM). Business process management (BPM) is a popular management technique that includes methods and tools to support the design, analysis, implementation, management, and optimization of operational business processes. 11. List and discuss the benefits of developing a business process management (BPM) strategy. •

Gain greater visibility into processes- The process becomes more transparent allowing for better management and error control

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Identify root causes of bottlenecks within processes- All showstoppers within the process are identifies and dealt with accordingly

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Pinpoint hand-offs in processes- The process gets more efficient from one point to the other.

12. List the benefits of utilizing BPM within an organization. In the short term, BPM helps companies improve profitability by decreasing costs and increasing revenues. In the long run, BPM helps create competitive advantage by improving organizational agility. BPM can provide cost benefits for most companies, increase customer satisfaction, enable business differentiation, and reduce errors. 13. Describe the steps to creating a successful BPM strategy. 4

a. Align customer-focused, financial, and operational goals with expectations of shareholders or owners b. Conduct assessment of core strategic and operational processes c. Link strategic and operational processes with organizational objectives d. Develop a process performance plan e. Prioritize processes based on potential impact on strategic objectives 14. Discuss change management and issues that may arise when an organization goes through change. Change management is a structured approach to transition individuals, teams, and organizations from a current state to a desired future state. In the case of IT systems, it includes managing change as part of systems development to avoid user resistance to business and system changes. When changes in a system cause people to relate to others and work in ways that conflict with their basic values (corporate, cultural, and personal), a project’s success can be put at risk, despite the absence of any substantial technical issues. Most change management issues arise because people and the work they do are impacted by the introduction of new or modified IT systems. Disgruntled or disenfranchised people can be constant threats to the success of any project. Faced with potential shifts in power, key stakeholders may consciously or unconsciously resist by delaying, sabotaging, or insisting on the modification of system development. These tactics may include withholding resources (money, people and time) needed for the project, purposely identifying the wrong people to work on the project, raising continual objections to project requirements, changing project requirements and expanding the size and complexity of the project. 15. Explain the three stages of Lewin’s change model. Unfreezing- In this first stage, people have a tendency to seek out a situation in which they feel relatively safe and have a sense of control. They want to remain in a comfortable state. Change- Sometimes referred to as transition, this encompasses the notion that change is a journey rather than a simple step. This stage often requires people to go through several stages of apprehension before they are prepared to move forward. Refreezing- The third and final stage in the change process involves the process of moving to a new place of stability. Refreezing may be a slow process because the change stage seldom ends cleanly, particularly when large numbers of people are being subjected to the change. 16. Research the term “change management” and report on any other process models that you are able to find that are currently being used to effect effective change management. This requires research on the part of students. Change management usually requires the use of similar processes regardless of industry; however, there might be some differences in the 5

way these processes are handled in these various industries. 17. Visit a company of your choice and discuss with a business manager and someone in the IT department a recent change that has been implemented in their organization. Compare their perceptions of the impact of the change on their daily work and the organization as a whole. Answers will vary depending on the company chosen. Questions for Discussion 1. List and briefly discuss the five steps of the information systems adoption process. Acquire knowledge- At this stage, knowledge is acquired about the new application and people get to know what it has to offer and learn everything about it. Persuade- This is where the champion convinces all decision makers and stakeholders about the usefulness of the new application in the hopes of bringing them to accept it as the best solution for their problem Decide- At this stage, the decision makers, using knowledge from stages one and two, make a decision as to whether to adopt or reject the technology. Implement- After the technology had been adopted, it is physically implemented to be put in use for everyday operations. Confirm- The final stage is where the application is confirmed as working the way it was intended and all the benefits begin to manifest. 2. Describe some implementation and management issues. Top management support is as important in IT implementation as it is in IT adoption. The necessary resources (money, people and time) will be easier to obtain. Second, the system is more likely to be perceived positively by both business and IT personnel who may align themselves with the attitudes of top management for political reasons. Risks associated with IT projects vary greatly depending on three variables: project size, project structure, and complexity of the implementation effort. Training is another issue that must be addressed in the planning phase. Training is an item that should receive the most serious attention during implementation. User acceptance is the extent to which a new system is perceived as being useful and easy to use by the system users. Acceptance of a system will be higher if users are involved in systems design. When they are offered the opportunity to provide input into the design and development, users are more inclined to buy into the system. Management of the implementation process is another issue to be concerned with. Management support, project risk, training, and user acceptance need to be managed. Typical consequences of bad project management include cost overruns, failure to meet deadlines, 6

system performance that fails to meet user expectations and missing functionality. 3. Consider what is involved in identifying an IT project. How is such identification done? The first step in identifying a new IT-based system is to identify technologies that may be useful in improving or enabling business processes and assess how well they fit the organizational culture. Some useful tools for identifying IT-based systems are as follows. The hype cycle is a useful tool used widely by organizations to identify and assess emerging technologies and decide when to adopt. The benefit of a particular technology can vary significantly across industries, so planners must determine which opportunities relate closely to their organizational objectives with the use of the priority matrix. The priority matrix is a simple diagramming technique that assesses a technology’s potential impact, from transformational to low, against the number of years it will take before it reaches mainstream adoption. Another respected research firm, Forrester, offers the Forrester Wave™, a series of annual reports that classify technologies into categories leaders, strong performers, contenders, and risky bets. In addition, it allows organizations to customize the criteria to match their needs. Forrester also hosts an IT Forum annually to inform and educate IT professionals about newly emerging technologies and IT methodologies. In addition to these “tools,” research organizations also produce numerous reports that are useful in assessing suitable technologies for IT-based systems. 4. What is the basic idea of justifying a new system? Information systems projects require significant financial justification. The strategy to adopt IT resources today is a major managerial as well as financial decision. The choice of adopting systems is heavily determined by financial considerations, such as the total cost of ownership (TCO) and return on investment (ROI). Multiple sets of assumptions and implementation plans look into every facet of an IT project’s costs and expected benefits. IT project evaluation thus requires valuable advice and input from financial professionals. 5. What strategies can be used to overcome user resistance to IT implementation? Change management is a structured approach to transition individuals, teams, and organizations from a current state to a desired future state. In the case of IT systems, it includes managing change as part of systems development to avoid user resistance to business and system changes. One approach to implementing IT systems and reducing user resistance is the pilot approach where a system is intended for adoption and implementation in more than one business unit or geographic location. The system can be pilot tested at one site first before implementing in other locations. This allows project managers to work out all the bugs in the pilot location before rolling it out throughout the entire organization. 6. What organizational considerations should be addressed when implementing a new or a 7

modified system? If a new system doesn’t solve the problems for which it was intended, it will not be accepted and used. If the organization does not have personnel with the IT skill set required, it will be difficult or impossible to successfully implement a new system. This situation often occurs because of a lack of communication or understanding between the system analysts/ designers and the business client or a failure to establish partnerships with external technology providers. Also, user acceptance of the system is a very important point to consider. This brings to light the concept of change management within the organization where individuals, teams, and organizations are transitioned from a current state to a desired future state of accepting and adopting the new system. 7. Create a list of problems that show that an IT implementation has failed. Cost overruns, failure to meet deadlines, system performance that fails to meet user expectations and missing functionality are characteristics of a failed systems implementation. If costs are not controlled, there may not be funds available for training, and implementation success will be jeopardized. Similarly, if time is not controlled, functionality and system performance may be adversely affected, with only a partial system being delivered into production within the timeframe allotted. 8. Create a list of benefits that show that an IT implementation has been successful. Favorable user acceptance of the new system When the system meets all the requirements for which it was implemented. Proper management of the project to ensure that project costs are kept under budget, deadlines are met, and the system works according to plan 9. Describe how BPM has evolved out of the concept of business process reengineering. The BPM approach has its roots in business process reengineering. Business process reengineering is the radical redesign of an organization’s business. Reengineering takes a current process and simplifies it to increase its efficiency and create new processes. In the 1990s, most organizations failed to achieve fundamental process improvement because they looked at processes in isolation and failed to focus on larger, enterprise-wide objectives. Despite decades of reengineering, organizations still have problems with their business operations. They perform hundreds of non-core tasks that should be outsourced, and they spend vast amounts on proprietary process-management software that’s difficult to update. To address these issues, BPM has evolved as a technique that ties people, processes, and technology to strategic performance improvement goals. 10. Describe the enabling role of IT in BPM. BPM software helps organizations automate workflows and processes such as marketing and supply chain, accounts payable, and placing orders. The shift from “data-centric” information systems in the 1980s to “process-centric” information systems in the 1990s and, more recently, “object-oriented” information systems has led to enterprise-wide information 8

systems that support end-to-end business processes. 11. Discuss three tools used to measure and improve an organization’s processes. Six Sigma is a methodology to manage process variations that cause defects, defined as unacceptable deviation from the mean or target, and to systematically work toward managing variation to prevent those defects. Total quality management (TQM) is a management strategy aimed at embedding awareness of quality in all organizational processes. One major aim of TQM is to reduce variation from every process so that greater consistency of effort is obtained. ISO 9000- Developed as a standard for business quality systems by the International Organization for Standardization. A key element is the identification of nonconforming processes and the development of a plan to prevent them from being repeated. 12. Name four software tools used to document a BPM. Discuss which one is best for integrating different aspects of a BPM. Word Processors- One of the simplest ways to document a process is to use a text-based document processor. Text documents have been used for many years to capture business processes. Their advantage is that virtually every organization has a word processor. Drawing Tools- Managers have used flowcharts and other graphics for years for one simple reason: something that would take many pages in a document can be expressed quickly and simply in a graphic such as a diagram or a chart. “Pure Play”- The need for greater synchronicity and flexibility led to the development of basic “pure play” BPM software tools that combine text and graphics and offer more advanced features such as a repository that allows reuse of resources and simulations. Business Process Management Suites- A business analyst could graphically compose a process model, optimize it through simulation and analysis, and execute it on a built-in process engine BPMS-BI Bundle- Some of the more sophisticated BPMS products are including business analytics to enhance the features of their offerings. 13. Discuss why it is necessary to understand the concept of IT implementation when managing organizational change. Organizational change requires the education and training of all end users of a system to be able to accept and adopt the system. If this is not handled well, a project could fail regardless of whether the physical requirements were successful or not. It is very important for a project manager to understand the concept of IT implementation, and to understand the entire system being implemented in order to instill confidence in the user base which will make it easier for then to adopt the system. 14. What is the difference between change management and organizational transformation? 9

Change management is a structured approach to transition individuals, teams, and organizations from a current state to a desired future state. In the case of IT systems, it includes managing change as part of systems development to avoid user resistance to business and system changes. A major change in the way that an organization does business is typically referred to as organizational transformation Exercises and Projects The exercises outlined in this section require students to apply knowledge gained from the text to real world simulated situations. Some of the projects also require examining business processes or real world organizations and comparing to the material in the text. Group Assignments and Projects The group assignments considered in this chapter involve a substantial effort in literature review, research for new information, conducting surveys, collecting and analyzing the information and preparing necessary reports. These questions are not extremely difficult to solve, and they require some group effort. Internet Exercises These exercises are based on the availability of the websites on the Internet at the time of assignment. I would leave it to my fellow instructors to check and validate the websites before assigning the exercises to the students. Minicase Raising Awareness and Recruiting Early Adopters for Dspace at MIT- The minicase looks at the strategies used by MIT to create awareness around the implementation of Dspace, a digital library system that is designed to capture, store, index, preserve and distribute scholarly material digitally. Summary This chapter explored the different issues associated with adopting and implementing IT projects and the management issues associated with improving business processes. It also focused on the organizational transformation that follows from the introduction of new and innovative technology.

Chapter 15 Impact of IT on Enterprises, Users and the Environment Goals of Chapter The goals of the chapter are to review how information technology affects organizations, technology users and the environment. It is important to recognize that the implementation of technology often has a more wide ranging effect than merely the purpose for which it is chosen. IT can affect hiring patterns, training decisions, and profitability. IT has dramatically altered the competitive landscape, which in turn has created and shifted wealth. The chapter also discusses green business practices and data center designs.

Overview 15.1 New and Accelerating Trends in IT- This section takes a look at the new innovations that are being researched and taking root in the world of IT. It also discusses how mobile technology is revolutionizing the medical profession and aiding with urban planning. The section also addresses the impact of offshore outsourcing and business process outsourcing. 15.2 Current Perspectives on the Enterprise Web 2.0- This section addresses emerging technologies based on enterprise 2.0, and iPhone 3G. It also addresses GPS technology and its impact on privacy. There is also a discussion on free speech via wikis and social networks. 15.3 Operating Greener Businesses and Eco-Friendly Data Centers- This section focuses on Green Computing, the study and practice of eco-friendly computing resources. It discusses the methods of operating a green business both locally and globally. 15.4 Impacts of Too Much Information and Connectivity- This section discusses the impact of too much technology and connectivity on people and organizations.

Practical Examples IT at Work 15.1- Telemedicine helps Indian tribe get better healthcare- This case describes an innovative application of IT in the health industry allowing for a wider distribution of expertise, which in turn benefits a larger number of people’s lives – specifically previously impoverished regions. IT at Work 15.2- Blue Cross Blue Shield of Massachusetts Outsources Storage Operations- This case discusses the method used by Blue Cross and Blue Shield of Massachusetts to manage its ever increasing need for storage of data. To achieve these goals, the company turned to EDS for an outsourced solution. EDS built a storage infrastructure that cost significantly less than the previous solution resulting in a cumulative, projected three-year net benefit of $945,000, driven by improved productivity, savings in IT maintenance and troubleshooting, and reduction in lease payments. IT at Work 15.3- The Dog Ate My iPod- The case discusses how schools and universities are finding new ways to keep up with technology through the use of iPods as a learning tool by using 1

it to store, organize, and access information.

Questions for Review 1. What does Kurzweil’s “Law of Accelerating Returns” predict about IT? This law suggests that the time interval between significant events grows shorter as time passes because technological change is exponential rather than linear. Kurzweil predicted the following: •

We will not experience 100 years of (linear) progress during the 21st century. Rather, because of exponential technological change, during this century there will be roughly 20,000 years of progress based on today’s rate.

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The equivalent of 4,000 years of technological advancement will occur during the first two decades, from 2000 to 2020.

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We will have a workable artificially intelligent (AI) brain that can recognize patterns much the way human brains do by 2020.

2. What are the AI capabilities of Polaris? Polaris had outperformed several of the world’s top Texas Hold ’em poker players at a human versus machine competition in Las Vegas by the use of artificial intelligence. A more intelligent version of Polaris had the ability to learn—that is, to adapt to an opponent’s strategy in midgame—and beat the experts. 3. What is telemedicine? Identify one factor that is promoting telemedicine and one factor that may be limiting its growth. Telemedicine is the use of telecommunication networks to provide medical information and services, such as consulting and remote curative medical procedures or examinations. As often happens, the technology in the telemedicine industry is becoming increasingly sophisticated, and the prices for computers, software, and transmission equipment are falling, thus promoting its growth. Issues related to information security may constrain its growth. Those issues include the cost of encryption, secure transmission, and secure storage as well as the liability risks if personally identifiable medical information gets released or compromised. The technology is also perceived to be extremely expensive, and the lack of payer reimbursement is one of the major barriers to broader adoption of telemedicine. 4. How can wireless sensors improve urban planning efforts? After extensive research in some major US cities, it was determined that people cruising while looking for parking spots is a major contribution to traffic jams in cities. Some of these cities have instituted sensors and wireless networks to notify drivers of empty parking spots. This effort helps decrease the time required to locate an empty parking spot, thus reducing traffic jams. 2

5. What is business process outsourcing (BPO)? BPO is the process of hiring another company to handle business activities. It is distinct from IT outsourcing, which focuses on hiring a third-party company or service provider to do ITrelated activities, such as application management and application development, data center operations, or testing and quality assurance. 6. What is driving the business trend toward SOA? Building and maintaining enterprise systems using SOA promises speed of innovation, flexibility and reuse of existing assets. An SOA is an infrastructure in which software applications are broken into modular components called services. Services are stored in an easily accessible repository and can be accessed by either users or other services. 7. What are two new IT services delivery methods? •

Storage as a Service: Storage capacity is offered on a per-usage basis similar to SaaS.

•

Communications as a Service (CaaS): These are multiyear communication servicers that are comprised of vendor-owned, managed, and co-located communication applications with connectivity and IT services.

8. What is Enterprise 2.0? Does it centralize or decentralize control? Explain. Enterprise 2.0, or E 2.0, is the deployment of blogs, wikis, RSS, and social networking within the enterprise. Control becomes decentralized with enterprise 2.0 due to the way in which information is easily manipulated by several users of the system and not controlled by one person or entity. 9. What are three functions of iPhone 3G that provide business value? Explain what those business values are. •

Can access higher speed data networks from the wireless carriers.

•

It supports Microsoft Exchange ActiveSync, delivering push e-mail, calendar, and contacts.

•

It has a virtual private network (VPN) client with authentication for improved business grade security

10. Distinguish between presence and location. Give an example of each. Presence depicts the availability of a user’s contact online within a social networking site. Location on the other hand shows the user the geographical location of their contact. 11. Where and why do free speech and privacy rights collide? Free speech and privacy rights collide in a world populated by anonymous critics and cyberbullies. The nature of the Internet allows people to post malicious material about other people or companies and usually, the affected people or companies cannot easily identify the culprits. Furthermore, companies face legal actions if they are found to be negligent for not 3

restricting harmful content. 12. What is green computing? Green computing is the study and practice of eco-friendly computing resources. 13. List three ways in which computing can help protect the environment or conserve resources. •

Virtualization- A trend in enterprise data centers in which servers are consolidated (integrated) so that they can be shared.

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Identify and turn off unused computers, which is typically 8–10 percent of computers

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Enable power management features, if available.

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Replace old servers with new energy-efficient servers.

14. What is a green supply chain? Give one example. A green supply chain includes procurement, manufacturing, warehousing, distribution, service, and recycling in an environmentally friendly manner. An example includes the building of a 147,000-square-foot warehouse in Tampa Bay, Florida, according to the environmentally sustainable building standards of the U.S. Green Building Council. 15. Is green computing or are green supply chains simply a fad or feel-good initiatives that will fade away? Explain your answer. Far from a fad or feel-good initiative, green computing is quickly emerging as a strategic business imperative. An electronics manufacturer’s relationship with its suppliers is a major issue for executives, customers, and shareholders. Companies are including green criteria in their requests for proposals (RFPs) and creating clear metrics for measuring them as part of supplier performance management. 16. What is the role of virtualization in green data centers? Virtualization is a trend in enterprise data centers in which servers are consolidated (integrated) so that they can be shared. Most stand-alone servers (in a physical environment) are highly underutilized. Virtualization technology optimizes the capacity and processing power of servers so that fewer servers are needed to provide the necessary processing power. The result is savings in energy, space, and recycling. 17. How does RoHS in the European Union help protect the environment? The RoHS Directive stands for “the restriction of the use of certain hazardous substances in electrical and electronic equipment”. New electrical and electronic equipment put on the market would not contain any of six banned substances—lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB), and polybrominated diphenyl ethers (PBDE)—in quantities exceeding maximum concentration values. 18. What is EPEAT? What are the three certification ratings? 4

The Electronic Product Environmental Assessment Tool (EPEAT) is a searchable database of computer hardware that meets a strict set of environmental criteria. Among other criteria, products registered with EPEAT comply with the U.S. government’s Energy Star 4.0 rating, have reduced levels of cadmium, lead, and mercury; and are easier to upgrade and recycle. 19. How does telecommuting or virtual work conserve the environment? Telecommuting or virtual work also offers many green benefits, including reducing rushhour traffic, improving air quality, improving highway safety, and even improving healthcare. 20. What is information overload? Different forms of technology have the capability to introduce ever-growing amounts of data into our lives which can exceed our capacity to keep up with the data. This phenomenon is known as information overload. 21. What are four causes of information overload, and what can be done to reduce this problem? At the onset of the Information Age, intelligence professionals acquired never-before-seen data collection tools, including high-resolution satellite imagery and versatile sensors capable of penetrating natural and manmade barriers. Secondly, IT enabled the intelligence community to establish high-speed communication links to transfer the data, build vast databases to store the data, and use powerful supercomputers with intelligent software to process the data. To be effective at solving the problem of information overload, information systems must differentiate between the data that can be safely summarized and the data that should be viewed in its original form 22. Why are laws generally ineffective in fighting spam? Why does spamming persist despite technology defenses? Spam can originate in any country, making the anti-spam legislation of any given country largely ineffective in keeping spam out. It still persists because it is not just a big nuisance; it is big, profitable business as well. Also spammers have responded to attempts to eradicate them with creative new schemes to defeat the anti-spam solutions. 23. What is information quality? Name one law that requires companies to ensure their information quality. Information quality is a measure of the utility, objectivity, and integrity of gathered information. Information quality is mandated by several forms of legislations. The Data Quality Act of 2001 and the Sarbanes-Oxley Act of 2002 impose strict information quality requirements on government agencies and companies. 24. How might the Internet lead to isolation? If people are encouraged to work and shop from their living rooms, then some unfortunate psychological effects, such as depression and loneliness, could develop. 5

25. How can too much information or connectivity impact a person’s health? Why? An increase in workload or responsibilities can trigger job stress. Other potential health and safety hazards are repetitive stress injuries such as backaches and muscle tension in the wrists and fingers. 26. What is ergonomics? Ergonomics is the science of adapting machines and work environments to people and provides guidance for designers of computers.

Questions for Discussion 1. IT can lead to the creation of new jobs as it eliminates existing ones. List five jobs that did not exist ten or more years ago. List five jobs that have been practically eliminated within the past ten years. Created: Jobs associated with social networking sites, bloggers, and anything related to newer technologies such as RFID and wireless. Eliminated: Some clerical jobs replaced with automatic data collection systems and ERP systems Customer service jobs replaced with intelligent telephone answering systems Telemarketing jobs have been replaced by smart calling systems that place calls and transfer to a live person when they reach a person. Programming jobs that contain the use of outdated programming languages Business analytics 2. Which ITs make it possible to copy and distribute copyrighted material. What impact would large-scale copyright infringement have on authors and producers of intellectual property or creative works? Copyright infringement is one the biggest problems in the technology industry at present. The latest software and tools have made it possible to copy and transfer music and copyrighted material at no cost. Some of these technologies exist online including “Limewire” and “Napster” that enable sharing of movies and music. This creates adverse effects on creative authors and producers alike causing them to lose large amounts of money from people gaining access to these materials that would have otherwise been sold for money. This kind of practices discourages creative works. 3.

When you are hooked to your iPod or iPhone, are you plugged in or unplugged? Do personal digital devices contribute to social isolation? Users of iPods or iPhones now have the ability to log ion to secure and unsecured wireless 6

networks and they can go online just like sitting behind a computer. Users usually use their mobile devices to visit social networking sites like Facebook and MySpace to keep in touch with their contacts. This phenomenon can lead to social isolation because in the same way as a user can stay at home and still connect to other people via the internet, iPhones and iPods can also isolate a user from society. 4. When was the last time you sat down with your family and friends for a meal without the TV being on, or cell phones or your BlackBerry going off? How often do any of these situations occur? These days, people can hardly do anything without having connectivity to some form of media device. TVs, computers, cell phones, PDAs etc. We have become so dependent on a lot of these gadgets such that every aspect of our lives depend on it. The situation as described in the question hardly happens in this day and age. 5. In the aftermath of the September 11 attacks, government agencies and individuals turned to information technology to improve security. Can current security measures provide adequate security and also protect privacy? Explain. This has been a topic of great debate for several years now. It depends on individual perception of how he/she rate the security. Information technology has improved security and authority are able to do more in less time and efficiently. But the same IT has helped the terrorists and hacker community as well. There is no “one size fits all” solution to these problems. 6. Consider a typical day in your life, and list all of the instances when your activities get recorded (e.g., cell phone records, e-mail logs).What information is being collected about you that infringes on your privacy? All information that we deal with these days is usually recorded one way or the other. This is because most of out activities are done electronically from emails to phone conversations to text messages to blogs etc. Other activities may include applying for loans online which may include personal information like social security numbers, paying of bills etc. Most of these activities we perform with new technologies can infringe on privacy like phone calls, text messages and personal identity information. 7. If you were an employee in a company that offered telecommuting options, would you prefer to work from home or from the office, or some combination of both? Explain your answer. Given the choice, one would prefer to work from both the office and from home. One may like the flexibility of working during peak hours and at the same time work with a team. Being a team player and participating in live interaction from time to time is essential in performing and coordinating. 8. Clerks at 7-Eleven stores enter data regarding customers’ gender, approximate age, and so on into a computer system. However, names are not keyed in. These data are then aggregated and analyzed to improve corporate decision making. Customers are not informed about this, nor are they asked for permission. What problems do you see with this practice? If the information is used solely to improve the quality of service provided to the customers and is not shared with other stores or business partners, I would say that the clerks’ actions 7

are ethical and do not invade the privacy of the customers. In other words, this information benefits the customers and their community because it allows 7-Eleven to provide better customer satisfaction and improved quality of service. 9. Certain groups of people claim that globalization has predominantly positive effects, while others assert the opposite. Which of these two arguments do you find more compelling? Why? One’s perception of IT will influence his/her response to this question. For example, home buyer's financing systems have a positive effect for those who get the loan approved, but a negative effect for those who are denied the loan by the same system. It is also said that IT has raised many new privacy issues. The evolution of the Information Age continues in the 21st century. The use of the Internet, electronic commerce, and the Web has opened up a new horizon. The widespread accessibility and lack of government regulation has made it difficult to control privacy within in these realms. 10. Discuss whether information overload is a problem in your work or education. Based on your experience, what personal and organizational solutions can you recommend to this problem? Information availability is an advantage in the current work and education environments. Ease of information flow through Internet and connectivity can be overwhelming at times but overall makes everyone more efficient. A recommended solution is to dealing with information overload is to improve upon your abilities to skim articles, etc to find the key points. It is impossible to fully read everything available today, so using skimming skills to quickly search through text is imperative. 11. What are the risks associated with offshoring (offshore outsourcing)? What are the risks of business process outsourcing (BPO)? Some of the risks associated with off-shoring include cost-reduction expectations, loss of business knowledge by handing over key parts of your business, vendor failure to deliver after signing of agreement, differences in culture that may create problems (especially with customers and knowledge transfer problems). Risks associated with business process outsourcing are usually the same as off-shoring except in this case, the risks are more related to business processes like cultural differences and compliance issues associated with obeying government regulations.

Group Assignments and Exercises The group assignments considered in this chapter involve a substantial effort in literature review, research for new information, conducting surveys, collecting and analyzing the information and preparing necessary reports. These questions are not extremely difficult to solve, and since they require a group effort, I will not attempt to answer them here.

assigning the exercises to the students.

MiniCase Wireless Mesh Networking Adds Real-time Monitoring to the Plant Floor This case talks about the problems Accent Plastics was having with equipment downtime and their quest to use a form of wireless networking known as Wireless Mesh Networking to effectively reduce downtime on their production machines and also to monitor the status if jobs as they are running.

Summary This chapter dealt with information technology and its effects on people and organizations. It discussed the various ways in which companies use information technology to gain a competitive edge in the marketplace. The chapter also discusses green and eco-friendly computing, a trend that a lot of companies have started embracing.

Chapter 16 Acquiring and Developing Business Applications and Infrastructure Goals of the Chapter The objective of this chapter is to focus on information systems acquisition. The acquisition issue is complex for various reasons: There is a large variety of IT applications, they keep changing over time, and they may involve several business partners. There is no single way to acquire IT applications: They can be developed in-house, outsourced (obtained or leased from an external organization), or a combination of the two. Another strategy that is becoming very popular is to build applications from components. When components are used, the appropriate ones must be found, and even a single application may have many components from several different vendors. This chapter will explore various options and criteria for IT acquisition, the process for vendor selection, implementation issues and also to understand the issue of connecting IT applications to databases, other applications, networks, and business partners. The chapter will also describe business process redesign and its importance to new application development.

An Overview 16.1 - The Framework of IT Application Acquisition – This section describes the five process steps of IT acquisition or development and it the management of the process. 16.2 - Identifying, Justifying and Planning IT Systems Applications (Step 1) – This section describes the method of identifying high payoff IT projects, the justification of an IT project and the planning of the specific project chosen. 16.3 - Acquiring IT Applications: Available Options – This section explores the various options and criteria for acquiring an IT application including buying, leasing, in-house development, end-user development and other options. 16.4 – Selecting an Acquisition Approach and Other Implementation Issues – This section will discuss the criteria for selecting an acquisition approach and also discusses vendor and software selection. 16.5 - Connecting to Databases, Enterprise Systems, and Business Partners: Integration (Step 4) – This section explores the various concepts like connecting to databases, back-end systems, business partners, and web services. 16.6 - Business Process Redesign – This section describes the need for business process redesign and the methodologies for doing it. It discusses the role of IT in BPR and also the successes and failures of BPR.

Practical Applications Flickr’s Application Development 2.0 Model - Flickr (flickr.com), considered the best photo1

management and -sharing application on the Web, is a popular web community purchased by Yahoo! in 2005. Flickr and other Web 2.0 businesses are applying a type of development process, known as application development 2.0. Designers who are used to traditional SDLC methods tend to look at Web 2.0-focused designs as lacking discipline or structure. But in reality, designers have built discipline into the process that allows them to be very responsive to enterprises’ and users’ needs. IT at Work 16.1 Web Services Get Swedish Banking Applications Talking to Each Other – This case discusses the acquisition and infrastructure of a Swedish banking network, and details the various applications of the technology. IT at Work 16.2 – End-User Development Using Wikis – The cases discusses the innovative use of a software application, Wikis, in order to collaborate and share information in a dynamic network. IT at Work 16.3 – Lincoln Financial Excels by Using Web Services – The case discusses the complexities of internetworking a large life insurance provider with its various partner organizations.

Questions for Review 1. List and briefly discuss the five steps of the information systems acquisition process. STEP 1: Identifying, Justifying and Planning Information System Applications Information systems are usually built as enablers of some business process/es. Therefore, their planning must be aligned with that of the organization’s overall business plan and the specific processes involved. STEP 2: IT Architecture Creation - A Systems Analysis Approach The major objective of this step is to create the IT architecture. STEP 3: Selecting an Acquisition Option: Available options IT applications can be developed through several alternative approaches: •

Build the system in-house. (This can be done in several ways.)

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Have a vendor build a custom-made system for you.

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Buy an application and install it by yourself or by a vendor.

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Lease software from application service provider (ASP) or lease via utility computing.

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Enter into a partnership or alliance that will enable the company to use someone else’s application. 2

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Join a third-party e-marketplace, such as an auction site, a bidding (reverse auction) site, or an exchange, that provides needed capabilities to participants.

STEP 4: Testing, Installing, Integrating, and Deploying IT Applications IT applications need to be connected to the corporate intranet and/or extranets, databases, and other applications. STEP 5: Operation and Maintenance. Operation and maintenance can be done in-house and/or outsourced. Software maintenance can be a big problem due to rapid changes in the IT technology field. 2. List the options of system acquisition. •

Identifying, justifying and planning information system applications

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IT architecture creation - a systems analysis approach

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Acquiring IT applications: available options

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Connecting to databases and business partners

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Integration

3. Describe some implementation and management issues. Implementation Issues •

In-house or outsource web site? Many large enterprises are capable of running their own publicly accessible web sites for advertising purposes.

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Consider an ASP. The use of ASPs is recommended for SMEs and should be considered by many large companies as well.

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Do a detailed IT architecture study. If the high-level conceptual planning is wrong, the entire project is at great risk.

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Security and ethics. During the application development process, pay close attention to security. Protecting customers’ privacy is a must, and the issue of what and how to use click stream and other data is essential.

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Evaluate the alternatives to in-house systems development. In-house systems development requires highly skilled employees to undertake a complex process.

Management Issues •

Importance. Some general and functional managers believe that system development

is a technical topic that should be of interest only to technical people. •

Ethical and legal issues. Developing systems across organizations and countries could result in problems in any phase of system development.

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User involvement. The direct/ indirect users of a system are likely to be the most knowledgeable individuals concerning requirements.

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Tool use by developers. Development tools and techniques can ensure that developers consider all necessary factors and standardize development, documentation, and testing.

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Quality assurance vs. schedules. Quality counts in the short term and the long term, but it can lengthen development and increase developmental costs.

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Behavior problems. People use information systems and often become quite used to how existing systems work. They may react to new systems in unexpected ways, making even the best technically designed systems useless.

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Perpetual development. Information systems are designed to meet organizational needs. When these needs change, information systems need to be redeveloped.

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Risk level. Building information systems involves risk. Systems may not be completed, completed too late, or require more resources than planned.

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Business process redesign. Business process redesign can be driven by the need to prepare for IT or by other reasons. It can be done by different methodologies.

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Structural changes. IT helps not only to automate existing processes but also to introduce innovations that change structure (e.g., create case managers and interdisciplinary teams), reduce the number of processes, combine tasks, enable economic customization, and reduce cycle time.

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Ethical and legal issues. Conducting interviews for finding managers’ needs and requirements must be done with full cooperation.

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Integration: It is important to remember that in most cases the technology plays a supportive role, but still it must integrate well into other aspects of the system.

4. What is involved in identifying IT projects? Information systems are usually built as enablers of some business processes. Therefore, their planning must be aligned with that of the organization’s overall business plan and the specific processes involved. 5. How is such identification done? Processes may need to be restructured to fully reap the benefits of the supporting IT. 4

Furthermore, each application must be carefully analyzed, to ensure that it will have the needed functionality to meet the requirements of the business processes and the users, and that its benefits justify its cost. Both of these activities may be complex, but they are necessary especially for systems that require high investment to acquire, operate, and maintain. The output of this step is a decision to go with the specific application, with a timetable, budget, and assigned responsibility. 6. What is the basic idea of justifying an application? Information system applications may be expensive. Therefore, an organization must analyze the need for applications and justify it in terms of cost and benefits. This is because most organizations operate with tight budgets. 7. What is the benefit of a project management approach? Projects can be managed with project management software, such as Microsoft Project. Three criteria that are used to evaluate the effectiveness of IT project management are performance, time, and cost. Standard project management techniques and tools are used by project managers to manage project resources to keep them on time, on budget, and within performance specifications. 8. What is a milestone? A milestone in a project signifies a key event in the completion of the project. Milestones are used to more accurately determine whether or not the project is on schedule. 9. What is one mistake that can turn a project into a runaway project? Runaway projects can be caused by the failure of the project development team to explicitly define the scope of the project and prove its feasibility. 10. List the major acquisition and development strategies. The planning process includes documenting system requirements, studying data and information flows, and studying the users’ community and their specific objectives. Also included is the risk of failure and how to manage that risk. This then leads to the creation of a timetable (schedule) and milestones (which are needed in order to determine how to acquire the application). The planning process covers resources other than time specifically, money (budget), labor, and equipment (if needed). Project planning also examines the issue of connectivity to databases and to partners’ systems, relevant government regulations, what to do if some employees lose their jobs as a result of the implementation of the application, and so on. 11. Compare the buy option against the lease option. The “buy” option should be carefully considered and planned for to ensure that all critical features for current and future needs are included in the selected package. Otherwise such packages may quickly become obsolete. The buy option is especially attractive if the software vendor allows for modifications. Compared with the buy option the “lease” 5

option can result in substantial cost and time savings. Leased packages may not always exactly fit the application requirements (the same is true with the buy option). But many common features that are needed by most organizations are usually included in leased packages. (It usually is more comprehensive than a “buy” package.) 12. List the in-house development approaches. The in-house development approaches include build from scratch and build from components. 13. Describe end-user development and cite its advantages and limitations. Over the years, computers became cheaper, smaller, and more widely dispersed throughout the organization. Now almost everybody who works at a desk or in the field has a computer in addition to, or instead of, the computer center. Along with this proliferation of hardware, many computer-related activities shifted out into the work area. Users now handle most of their own data entry. They create many of their own reports and print them locally, instead of waiting for them to arrive in the interoffice mail after a computer operator has run them at a remote computer data center. They provide unofficial training and support to other workers in their area. Users also design and develop an increasing proportion of their own applications, sometimes even relatively large and complex systems. End-user computing is ever increasing. As beneficial as this trend is to both workers and the organization as a whole, end-user computing has some limitations. End users may not be skilled enough to use technology correctly and effectively, so quality and cost may be jeopardized unless proper controls are installed. Also, many end users do not take time to document their work and may neglect proper security measures 14. List other acquisition options. •

Join an e-marketplace or an e-exchange.

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Join a third-party auction or reverse auction

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Engage in joint ventures

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Join a public exchange or a consortium

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Hybrid approach

15. What are the major factors driving a switch to software-as-a-service? The major factors driving the switch to SaaS are: •

Reducing the risks involved in acquiring new software

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Influencing product and service quality via an ongoing relationship with vendors

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Changing usage commitments as business circumstances change

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Preparing financially justifiable business cases

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Predicting ongoing expenses more accurately, which is important with IT budgets being tightened and scrutinized for better return on investment and value

16. List five criteria for selecting a development option. Although the development approach is usually more time-consuming and may be more costly than buying or leasing, it often leads to a better fit with the specific organizational requirements. Companies that have the resources and time to develop their own IT applications in-house may follow this approach as a strategy to differentiate themselves from the competition, which may be using standard applications that are bought or leased. In-house development, however, is a challenging task, as many applications are novel, have users from outside the organization, and involve multiple organizations. Before selecting a development approach, a company needs to complete an IT design. 17. List the major steps of selection of a vendor and a software package. a.

Determine the evaluation criteria and weigh the importance of each.

Identify potential vendors.

Evaluate vendors and packages and interview current users.

Choose the vendor and package based on criteria, weights, and feedback.

Negotiate a contract and get legal advice.

Establish a service-level agreement (SLA).

18. List three major implementation issues. •

In-house or outsource Web site- For those companies venturing into such Web-based selling, a key issue is whether the site should be built in-house, thus providing more direct control, or outsourced to a more experienced provider.

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Consider an ASP- The use of ASPs is recommended for SMEs and should be considered by many large companies as well.

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Do a detailed IT architecture study- if the high-level conceptual planning is wrong, the entire project is at great risk.

19. List some internal systems that usually need to be connected to new applications. EC applications must be connected to internal information systems, infrastructure (including databases), ERP, and so on. They also must be connected to such items as the

partners’ systems or to public exchanges. Such connections are referred to as integration. 20. Why is it especially important to connect to databases? Many IT applications need to be connected to a database. For example, when you receive a customer’s order, you want to immediately find out if the item is in stock. To do so, you need to connect your ordering system to your inventory system. Several possibilities exist regarding such a connection. The connection technology enables customers with a Web browser to access catalogs in the seller’s database, request specific data, and receive an instant response. Here the application server manages the client’s requests. The application server also acts as the front-end to complex databases. 21. Define Web Services and service-oriented architecture. Web Services are self-contained, self-describing business and consumer applications delivered over the Internet that users can select and combine through almost any device, ranging from personal computers to mobile phones. In a service-oriented style of architecture (SOA), software components such as Web Services can be invoked by other programs that act as clients or consumers of those services. 22. What is mainly connected between business partners? Connecting to business partners is critical to the success of IT, especially for B2B ecommerce. Such connection is done via EDI, EDI/Internet, XML, and extranets. Connection to business partners is done usually along the supply chain. It typically involves connecting a company’s front- and back-office e-commerce applications. 23. Why is integration critical to the success of IT systems acquisition? Building medium-to-large applications requires extensive integration with existing information systems such as corporate databases, intranets, enterprise resource planning (ERP), and other application programs. If this functionality is not present in this age, the application will have limited use and could hinder the operations process. 24. Define business process and BPR. A business process is a collection of activities that take one or more kinds of inputs and create an output. Business process reengineering (BPR) is a methodology in which an organization fundamentally and radically changes its business processes to achieve dramatic improvement. 25. List the drivers of process redesign. •

Fitting commercial software.

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Streamlining the supply chain.

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Participating in private or public e-marketplaces.

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Improving customer service.

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Conducting e-procurement.

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Enabling direct online marketing.

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Reducing cost and improving productivity.

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Restructuring old processes prior to automation.

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Transformation to e-business.

26. Define BPM. Business process management is a new method for restructuring that combines workflow systems and redesign methods. This emerging methodology covers three process categories: people-to-people, systems-to-systems, and systems-to-people interactions, all from a process-centered perspective. 27. Describe the enabling role of IT in BPR. IT has been used for several decades to improve productivity and quality by automating existing processes. However, when it comes to restructuring or redesign, the traditional process of looking at problems first and then seeking technology solutions for them may need to be reversed. A new approach is first to recognize powerful solutions that make redesign and BPR possible, and then to seek the processes that can be helped by such solutions. This approach requires inductive rather than deductive thinking. It also requires innovation, since a company may be looking for problems it does not even know exist. 28. Why do so many BPR projects fail? Some of the reasons cited for failure are high risk, inappropriate change management, failure to plan, internal politics, high cost of IT retooling, lack of participation and leadership, insufficient stakeholder involvement, poor analyses of business processes, inflexible software, lack of motivation, and lack of top management support.

Questions for Discussion 1. Discuss the advantages of using the application 2.0 methodology instead of the SDLC methodology. This development approach of application 2.0 involves quick, incremental updates with close user involvement. For new application developments, a beta (prototype) version is developed and then refined—also in very close collaboration with users. Application development 2.0 is a process that can bring significant benefits to corporate IT 9

departments if developers are willing to shift their approach away from traditional SDLC methods and to systems design. Constant interaction with users provides developers with almost immediate notification of bugs and users’ desires. When developers hear users’ complaints or compliments directly, they are better informed and motivated than when they are detached from users—and rely instead on presentation slides and bar charts that represent users’ desires in a meeting room. 2. Why is it important for all business managers to understand the issues of IT resource acquisition? There is a wide range of sizes and types of IT applications and these applications keep changing over time and they may involve several business partners. Business managers need to understand the inner workings of the acquisition of these systems and the impact that the chosen application will have on the business they run. The following are the issues related to IT resource acquisition: Business managers need to know whether to develop the application in-house or outsource, lease or use other options. They also need to decide whether to consider an Application Service Provider. These and many more issues are at center of any IT resource acquisition and it is of great importance for business managers. 3. Review the opening case. Why was the development approach appropriate? When applications are developed using SDLC methods, they proceed formally through a series of distinct phases, such as requirements analysis, design, coding and debugging, system testing, and implementation. One major problem with SDLC is that users usually do not participate sufficiently throughout the design phases to ensure that the application meets their needs resulting in expensive re-work and delays. Applications are better when developers are not insulated from the people who use their applications. When developers hear users’ complaints or compliments directly, they are better informed and motivated. Since Flickr was a system that was heavy dependent on users from around the world it was appropriate to have their input in the building of the system. 4. Discuss the similarities between building a wiki and using the Application 2.0 methodology. A wiki is a web site that lets anyone quickly add or edit content. It is a web site designed for collaboration and all contents that are presented on the website are contributed by multiple people whereas application 2.0 methodology allows quick, incremental updates with close user involvement. For new application developments, a beta (prototype) version is developed and then refined also in very close collaboration with users. In both cases, user involvement is critical to their development. 5. You have decided to use a third-party application to develop and deploy a Web-based EC system. Create a checklist for determining which third-party EC application products will

best meet your application requirements. •

The functionality and flexibility of package

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Information requirements

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User friendliness of the application

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Hardware and software resources

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Installation difficulties; integration with existing processes and systems

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Maintenance services requirements

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Vendor quality and track record

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Estimated total costs of ownership

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Ability to measure tangible benefits

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Personnel needed for development

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Forecasting and planning for technological evolution (what will come next)

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Scaling (ease, cost, limits)

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Sizing requirements

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Performance requirements

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Reliability requirements

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Security requirements

6. A firm decides to make its EC system more dynamic by tying its application to a backend data warehouse. What are some of the ways in which the firm could accomplish this task? In an EC atmosphere, a customer with a web browser can access catalogs in the seller’s database, request specific data, and receive an instant response. Here the application server manages the client’s requests. The application server also acts as the front end to complex databases. The integration can also be handled with enterprise application integration (EAI).These products integrate large systems. A common integration results from the need to integrate an ordering system with the back office (order fulfillment, inventory, accounting, and payment). Integration requires the study and redesign of existing processes. 7. Discuss the reasons why end-user-developed IT systems can be of poor quality. What can 11

be done to improve the situation? End users may not be skilled enough to use technology correctly and effectively, so quality and cost may be jeopardized unless proper controls are installed. Also, many end users do not take the time to document their work and may neglect proper security measures. There are also data management risks; e.g., loss of data or use of stale, inappropriate, or incorrect data which may give the system poor quality. Appropriate controls can be put in place to maintain the integrity of these end user developed systems which may include auditing everything that is submitted by a user to insure, that all information submitted meet a particular criteria. 8. End-user systems developers usually work for managers whose IT knowledge is limited. Discuss the types of problems to which this situation could lead, and suggest possible ways of dealing with these problems. With limited IT knowledge, some managers may not know the inner workings of IT systems and the various complexities that are associated with them. The problem of miscommunication will creep into several projects where the manager has limited IT knowledge and this may end up causing senior management to have wrong information on the kinds of systems being implemented. Among other problems, managers with limited IT knowledge may make the wrong decision on either the software application or the wrong vendor chosen for an IT solution. 9. Discuss the role of ASPs. Why is their attractiveness increasing? (Hint: Consider utility computing.) An application service provider (ASP) is an agent or vendor who assembles the software needed by enterprises and packages them usually with outsourced development, operations, maintenance, and other services. An ASP will manage application servers in a centrally controlled location, rather than on a customer’s site. Applications are then accessed via the Internet or VANs through a standard web browser interface. Such an arrangement provides a full range of services for the company using the ASP: applications can be scaled, upgrades and maintenance can be centralized, physical security over the applications and servers can be guaranteed, and the necessary critical mass of human resources can be efficiently utilized. 10. Explain why IT is an important enabler of business process redesign. Companies are connected to business partners for many reasons. A common reason is to better work with vendors’ designers. Another example is content visualization from a partner’s Web site; both internal and external connectivity can be improved by using Web Services. IT is an important enabler for this and many more reasons.

Group Assignments and Exercises The group assignments considered in this chapter involve a substantial effort in literature 12

review, research for new information, conducting surveys, collecting and analyzing the information and preparing necessary reports. These questions are not extremely difficult to solve, and since they require a group effort, I will not attempt to answer them here.

MiniCases Web services gave Merrill’s legacy systems new life in the web world The case details how the life of aged legacy systems was extended by the strategic and innovative adoption of new technologies. The application acquisition allowed Merrill Lynch to stay at the leading edge of technology through careful attention to development cycles in the industry.

Summary: This chapter looked at the various options involved in the acquisition of IT systems with emphasis on software and vendor. It also looked at some major implementation issues and aimed at understanding the issue of connecting IT applications to databases, other applications, networks, and business partners.

Chapter 17 Information Technology Economics Goals of the Chapter Information technology capabilities are advancing at a rapid rate, a trend which should continue for at least another ten years. Expanding power and declining costs have brought about new and more extensive applications of information technology, which have made it possible for organizations to improve their efficiency and effectiveness. However, the increasingly diverse uses of these new applications can potentially make it more and more difficult to get a true picture of the benefits relative to the associated costs. The primary goal of this chapter is to identify the major aspects of the economics of information technology. This chapter will also explain the productivity paradox, identify and evaluate intangible information technology benefits, and describe the economic impact of systems development failures.

An Overview Section 17.1 Technology and Economic Trends and the Productivity Paradox – This section addresses the various technological and economic issues related to information technology, and the unique aspects of IT that make its economics different, in many respects, from the economies of other aspects of business. It also explains the concept of the productivity paradox. Section 17.2 - Evaluating IT Investments: Needs, Benefits, Issues and Traditional Methods– This section evaluates the benefits and issues related to IT. Most organizations face the problem of allocating their limited resources effectively in order to maintain or improve performance. Every IT project needs to be justified for cost and benefits in terms of productivity. Evaluating the costs and benefits of IT is an important aspect of the allocation process. Section 17.3 – Advanced Methods for Justifying IT Investment and Using IT Metrics – This section deals with the evaluation of IT with perspectives on intangible benefits, since considerations related to most potential IT investments are not usually well defined. This section also discusses the various forms of IT metrics, measurements, and Key Performance Indicators used to measure the effectiveness of IT systems in organizations. Section 17.4 – Examples of IT Project Justification – This section provides a few examples of how the methods and tools of IT justification can be used to justify different types of IT projects. Section 17.5 - Economic Aspects of IT and Web-based Systems – This section examines cost curves for digital versus non-digital products. Development of a business case is introduced, and the need for and the difficulty in calculating return on investment (ROI) for Web-based systems is delineated. The section also examines IT failures and market transformation through new technologies.

Practical Applications IT at Work 17.1 - American Express Uses Project Management Software to Increase ROI- This case discusses the introduction of the web-based Investment Optimization System (IOS) and how it enabled the company to automate the process of requesting and allocating investment project money. IT at Work 17.2 – A University Accounting System Failed – This case discusses some of the budgetary problems and cost-justification issues surrounding IT development. War Stories A large public utility decided to change the way it performed many of its business functions by either offering senior and middle management early retirement packages or by not offering them bonuses and raises with the hope that they would leave. Many of the senior and upper-middle management people were quick to take the “golden parachute”. The utility had decided that they would replace these people with new hires (who would be employed at much lower salaries as compared to the people who were leaving) or consultants. However, one of the problems with this was that most of the people who chose to leave were those who kept the nuclear power plants serviced, safe, and running. Within a few months it became painfully aware that the early retirement scheme had produced results that were not pleasant. The main problem was quite simple: loss of expertise. Previously, when there was a problem in one of the plants, there were quite a few employees who were trained and capable of making necessary adjustments, repairs, and so on. These same people were the ones who trained the new people (either formally in classroom settings or informally on the job). They had written many of the procedure manuals and had been responsible for the development of the business processes involved in running the systems. As a solution to this problem, the consultants were not adequate for the challenges. The consultants were usually not at the nuclear power plants for extended periods of time, and problems that developed usually happened at the worst possible times (when no one who was expert was nearby). Previously, an expert could be available on site or on the phone in a few minutes. Now it was taking hours to reach someone who could help, but these consultants usually were not well versed on the individual systems installed at the plants. To help stem the problems, the utility approached many of the people who had been let go to see if they would agree to help. Both the people who took retirement and those who left because they were angry agreed to help, but at rates that far exceeded those charged by the consultants. However, many of these people were working for competing utilities or other organizations and hence could not be used or could not give the utility as much time as they required. The overall result was that efficiency dropped greatly, costs went through the roof, and profits fell. A short-term solution turned into a very long-term problem. Offshore outsourcing has been gaining in popularity, since most organizations have seen a reduction in expenses when they have employed this.

However, the perceptions of the public have been unfavorable. Continental jobs have been lost to the overseas call centers. People don’t like to speak with people that are in other countries for support, particularly when the product is manufactured in the United States. In order to overcome some of these problems from taking call centers abroad, savvy organizations have gone beyond requiring the offshore employees to speak flawless unaccented English. As the staff comes on shift, they are given the local weather reports for the city that they are supposed to be located in, as well as weather reports for the rest of the United States. In this way they are able to engage help desk callers in conversations about their “local” conditions, implying that they are actually stateside. Perception is everything.

Questions for Review 1. Describe Moore’s Law. In 1965, Gordon Moore stated that the number of transistors per square inch on integrated circuits had doubled every year since the integrated circuit was invented and that data density has doubled approximately every 18 months, and hypothesized that it will continue to do so for the next two decades. 2. Define productivity. Technically, productivity is the rate of output per unit of input. 3. Define the productivity paradox. Why is it important? The discrepancy between the measures of investment in information technology (input) and the measures of output at the national level is described as the productivity paradox. This paradox relates to a lack of evidence of payoffs from massive IT investments in the 1970s and 1980s. It is important because over the last 50 years, organizations have invested trillions of dollars in information technology. These expenditures have unquestionably transformed organizations since these technologies have become an integral aspect of almost every business and business process. It seems self-evident that these investments have increased productivity, not just in individual organizations, but throughout the economy. However, at the level of a national economy, it has been very hard to demonstrate that the IT investments really have increased outputs or wages, particularly in light of the slowdown in productivity since the 1970’s. This challenges economists to explain the paradox. To fully appreciate this, one must look closely at all the reasons for the economic slowdown that the United States, and most of the rest of the world, has been experiencing over the last three decades. In recent years, a number of possible explanations have been developed. 4. List three major explanations of the productivity paradox. The explanations have included improper measurement of inputs and outputs, lags in time due to learning and adjustment, redistribution and dissipation of profits, and mismanagement 3

of information and technology. Productivity is the measurement of outputs divided by inputs, with the former a multiplicative of the units produced times their average value, adjusted for inflation and changes in quality. Hence, these calculations reflect the inputted data. The amount of time that it takes to achieve full benefits is severely affected by both employee learning and adjustment curves. The authors also explain how IT gains may be offset by losses in other areas of the business, so that profits are not increased overall. They are also offset by the actual costs of information technology. In particular, during the early years when mainframes predominated, expenses were high and the expenses involved in upgrading these systems were also high. With the move toward client/server technology and its lower costs, systems are easily updated, replaced and removed. Finally, mismanagement of information technology, coupled with inefficient use, has caused additional losses in productivity. 5. Describe the reasons for financial justification of IT investments. •

During the dot com bust a lot of companies lost large sums of money in startup companies that eventually went out of business. The positive result of the crash was the “back-to-basics” movement, namely, a return to carefully checking and scrutinizing any request for any technology funding, namely, justifying IT and EC investments.

•

Companies now realize that IT is not necessarily the solution to all problems. Therefore, IT projects must compete for funding and resources with other internal and external projects. Analysis is needed to determine when funding of an IT project is appropriate.

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Some large companies, and many public organizations, mandate a formal evaluation of requests for funding.

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A study finds that the day an IT investment is announced, the stock price of the company increases by 32 percent.

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Companies need to assess the success of IT projects after completion, and later on a periodic basis.

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The success of IT projects may be assessed in order to pay bonuses to those involved with the project.

6. List some nonfinancial reasons for IT justification. •

Companies need to assess the success of IT projects after completion, and later on a periodic basis.

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The same study found that justification forces IT into better alignment with the corporate

business strategy. •

Justification increases the credibility of IT projects.

7. List and discuss the major difficulties in assessing IT investments Incorrectly Defining What Is Measured- The results of any investment justification depend on what is actually measured. Productivity increases and decreases may occur in other areas. Thus, the actual productivity may not be properly measured or even defined. The problem of definitions can be overcome by using appropriate metrics and key performance indicators. Other Difficulties- Many IT investments, such as those in e-CRM, may take five to six years to show significant positive results, but many justification studies do not wait that long to measure productivity changes. Relating IT Expenditures to Organizational Performance. The relationship between investment and performance is frequently indirect; factors such as shared IT assets and how they are used can impact organizational performance and make it difficult to assess the value of an IT investment. A major difficulty in justifying IT investment is the existence of substantial intangible benefits in addition to tangible ones. 8. Describe the issue of intangible benefits and some solutions used to evaluate them. Many IT projects generate intangible benefits such as faster time to market; employee, user, and customer satisfaction; easier distribution; greater organizational agility; and improved control. These are very desirable benefits, but it is difficult to place an accurate monetary value on them. Some of the following measures can be used to measure their effectiveness Supplement hard financial metrics with soft ones that may be more strategic in nature and may be important leading indicators of financial outcomes. Think carefully about short-term benefits that can “pay the freight” for the initial investment in the project. Follow the unanticipated. Keep an open mind about where the payoff from IT projects may come from, and follow opportunities that present themselves. For example, Eli Lilly & Co. created a Web site called InnoCentive (innocentive.com) to attract scientists to solve corporate problems in return for financial rewards (“bounties”). In the process, Lilly established contact with 8,000 nonemployees (exceptional scientists), and Lilly’s HR department has used this list of contacts for recruiting. 9. List some IT costing issues. One of the major issues is to allocate fixed costs among several IT projects. Fixed costs are those costs that remain the same in total regardless of change in the activity level. For IT, fixed costs include infrastructure cost, cost of IT services, and IT management cost.

The cost of a system does not end when the system is installed. Costs for keeping it running, dealing with bugs, and for improving and changing the system may continue for some time. 10. List four revenue models. •

Sales- Companies generate additional revenue from selling merchandise or services over their Web sites

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Transaction fees- A company receives a commission based on the volume of transactions made. IT increases this value. Transaction fees may be a fixed value per month. Alternatively, transaction fees can be levied per transaction.

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Subscription fees- Customers pay a fixed amount, usually monthly; to get some type of service. An example would be the access fee for AOL or Verizon. Thus, AOL’s primary revenue model is subscription (fixed monthly payments).

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Advertising fees- Companies charge others for allowing them to place a banner on their sites

11. Define ROI, NVP, IRR, and payback period ROI- The most common traditional tool for evaluating capital investments is return on investment (ROI), which measures the effectiveness of management in generating profits with its available assets NPV- Analysts convert future values of benefits to their present-value equivalent. They then can compare the present value of the future benefits to the costs required to achieve those benefits, in order to determine whether the benefits exceed the costs. If you have an investment that produces a number of cash flows over time, the internal rate of return (IRR) which is defined to be the discount rate that makes the NPV of those cash flows equal to zero can be used. The payback period is the point at which the yearly benefits of a project equal the costs. 12. List five advanced IT justification methods. •

Business case- This is a process of creating a document for justifying an IT investment, including funding an entire IT company.

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Total cost (and benefits) of ownership. This approach calculates the total cost over the lifetime of a specific IT system, hardware, or project.

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Benchmarks- This method is appropriate for evaluating EC infrastructure. Using industry standards, the organization can determine what the industry is spending on e-CRM. Then the organization can decide how much it should spend.

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Value analysis- With the value analysis method, the organization evaluates intangible benefits using a low-cost, trial EC system before deciding whether to commit to a larger 6

investment in a complete system. •

Information economics- Using the idea of critical success factors, this method focuses on key organizational objectives and potential impacts of the proposed EC project on those objectives.

13. Describe the business case approach. A business case is a written document that is used by managers to garner funding for one or more specific applications or projects. Its major emphasis is the justification of specific required investments, but it also provides the bridge between an initial IT plan and its execution. Its purpose is not only to get approval and funding, but also to provide the foundation for tactical decision making and technology risk management. 14. What is TCO? What is TBO? TCO is a formula for calculating the cost of owning, operating, and controlling an IT system, even one as simple as a PC, over its life cycle. The cost includes acquisition cost (hardware and software), operations cost (maintenance, training, operations, evaluation, technical support, installation, downtime, auditing, virus damage, and power consumption), and control cost (standardization, security, and central services). Total benefits of ownership (TBO) - These benefits cover both tangible and intangible benefits. 15. How can investment in IT infrastructure be assessed by benchmarks? A comparison of measures of performance or of an organization’s expenditures with the averages for the industry, or comparisons with values of the most efficient performers in the industry indicate how well the organization is using its infrastructure. If performance is below standard, corrective action is indicated. The benchmark approach implicitly assumes that IT infrastructure investments are justified if they are managed efficiently. 16. What is activity-based costing? Activity-Based Costing is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each. 17. Define IT metrics and provide three examples of benefits. A metric is a specific, measurable standard against which actual performance is compared. Metrics can produce very positive results in organizations by driving behavior in a number of ways. Some of the benefits of using metrics in IT include revenue growth, cost reduction and improved customer service. 18. List some IT metrics. Revenue growth, cost reduction, cost reduction, cost avoidance, customer fulfillment, 7

customer service, and customer communications. 19. Define ROI calculators and explain their use. ROI calculators a mostly Excel-based tools for assessing IT investments measuring the profitability of IT investments. ROI calculators for e-services also are available. For instance, Streaming Media, Inc. (streamingmedia.com) provides an ROI calculator to measure the costs and benefits of telecommunication bandwidth for videoconferencing, streaming video, and video file servers. Few organizations have attempted to assess the ROI on e-learning, perhaps because it is so difficult to calculate and justify. 20. List five success factors for e-procurement. •

Increased order fulfillment rate

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Increased on-time deliveries

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Decreased number of rejects received from suppliers

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Decreased purchase order processing time

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Decreased prices due to increased supplier visibility and order aggregation

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Decreased ratio of freight costs to purchases

21. List five performance metrics for e-procurement. Customer satisfaction, spend management, strategic contracting, contract utilization and group purchasing 22. List three tangible and three intangible benefits of e-CRM. Revenue per salesperson represents a financial tangible metric. Other tangible benefits include the average time to close a deal with a customer and the average response time to customers’ inquiries. Intangible metrics are captured as customer satisfaction and call quality. 23. List some metrics that can justify e-training. •

Effectiveness of IT in supporting training-related tasks

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Ease of use and usefulness of IT-based tools used by training providers, including hardware, software, media, and methodologies

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Delivery and presentation of training materials

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Ease of use and usefulness of communication tools

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Relevance of the course to the trainee’s job

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Satisfaction with course content and presentation

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Quality of instruction

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Effectiveness of instructor

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Overall satisfaction with the training experience

24. How is justification of mobile computing done? Justifying the cost of mobile computing may be difficult due to cost sharing and intangible benefits. Many medium and large corporations are considering implementing RFID systems to improve their supply chain. Although such systems offer many tangible benefits that can be defined, many measures cannot be developed due to the fact that the technology is new and that legal requirements (for privacy protection) are still evolving. There are several calculators that help companies do the following: •

Calculate the return on the wireless workforce.

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Calculate the return on outsourcing mobile device management.

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Calculate the cost of the wireless networks.

25. How is the cost of SOX calculated? See Figure 17.4 26. How do IT and EC impact cost reduction? How do they impact the production function? IT and especially Web-based systems can considerably increase productivity and profitability. For digital products the costs associated will continue to decline with increased quantity. The variable cost in the case of digital products is very little, so once the fixed cost is covered, an increase in quantity produces a continuous decrease in average cost. The production function will decline since you can get the same quantity with less labor and IT cost. 27. Describe reach versus richness in EC/IT environments. Another economic impact of EC is the trade-off between the number of customers a company can reach (called reach) and the amount of interactions and information services it can provide to them (richness). According to Evans and Wurster (2000), for a given level of cost (resources), there is a trade-off between reach and richness. The more customers a company wants to reach, the fewer services it can provide to them. 28. Describe measuring IT pay-off issues. 9

The business case for an IT application develops the baseline of desired results against which actual performance can and should be measured. The business case should cover both the financial and the nonfinancial performance metrics against which to measure the e-business implementation. Web-based systems are being implemented by many organizations. However, hardly any efforts are being made to perform cost-benefit analysis or to measure return on investment (ROI) on Web-based systems. 29. Define chargeback and describe why it is an issue. In the chargeback approach, all costs of IT are allocated to users as accurately as possible, based on actual costs and usage levels. Accurate allocation sounds desirable in principle, but it can create problems in practice. If fixed costs are allocated on the basis of total usage throughout the organization, which varies from month to month, charges will fluctuate for an individual unit even though its own usage does not change. These considerations can reduce the credibility of the chargeback system. 30. Why do IT projects fail? According to CIO Insight (2008), the major reasons that IT projects failed are: •

The business needs have been changed

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The project does not deliver what it is supposed to

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The problem addressed with IT is not a priority anymore

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The cost exceeds the budget

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The project does not support the business strategy.

Questions for Discussion 1. What are the general implications for managers, organizations, and consumers of constantly increasing computer capabilities and declining costs? Constantly increasing computing capabilities at declining costs allow the organizations, consumers, and managers alike, to buy more computing power in order to solve problems or issues associated with their fields. Organizations will solve the same problem faster and they will be more innovative to create new uses. Consumers will benefit from the greater functionality and lower costs. Managers might be overwhelmed with more available information processing power and decision support facilities, but they would benefit from the available cost to performance ratio. 2. What are the impacts of exponentially increasing computer hardware power and declining price-to-performance ratios on business production activities and new product development? Expanding computer hardware power and declining price-to-performance costs enables new

and more extensive applications of information technology, which make it possible for organizations to improve their efficiency and effectiveness. Creative organizations will find innovative uses for new technology in order to develop or enhance products, services, and operational activities. These new products and services provide a competitive advantage for the organization, as well as benefit consumers, with their greater functionality and lower costs. However, the increasingly diverse use of this new potential makes it more and more difficult to get a true picture of the benefits relative to the associated costs. 3. Discuss what is necessary to achieve productivity gains from IT investments. To achieve productivity gains from IT investments, it is usually necessary to reengineer processes to optimize the efforts of technology and personnel working together, rather than to simply replace manual with automated activities. Such business process reengineering typically produces intangible side effects. For example, faster response or improved quality, the value of which is more difficult to quantify than cost savings. An alternative approach is to create better products through IT. Organizations are using IT to make their marketing and customer service more effective. In contrast to simple cost displacement, the benefits of enhanced products and services are intangible and difficult to objectively quantify. 4. Why is it more difficult to measure productivity in service industries? It is hard to judge increases in something that can be as intangible or undefined as effort put into it. Often, as production increases, layoff of personnel ensues, producing a leveling effect, with no appreciable gain. 5. Compare and contrast metrics and best practices. (See KM in Chapter 10).Give an example of each in an IT in a university. Metrics produce numeric measures of performance but may be misleading. For example, increased availability of bandwidth in an IT system may be due to the conditions that existed at the time of the test. In IT, tests should be performed at times of high, low, and average usage, and the results compared. If your tests are run at midnight on Saturday night, chances are that the system was not in heavy use. The grades that a student receives on a test may represent only a raw, non-curved score, and may not reflect the intensity of that particular test. Best practices are accepted as the best methodology for that particular item but may not be the only acceptable method. In IT, this is the actual performance of the system, as opposed to metric scores for the performance. In a university setting, it would be studying the practices and teachings in successful courses and applying them to all classes. 6. Discuss what may happen when an organization does not charge users for IT services. It is difficult to rationalize the profitability of a division that has no income. In trying to rationalize the productivity paradox relative to technology, it becomes impossible to see the departmental value. Organizations most likely do not charge users for IT services, and this it is most likely

because it is very difficult to identify the total costs of IT. As a result, in some organizations, the ISD functions as an unallocated cost center. All expenses go into an overhead account. The problem with this approach is that IT becomes a "free good" with no explicit cost, so there are no incentives to control usage or avoid waste. 7. Discuss the relationship between metrics and key performance indicators (KPI). A metric is a specific, measurable standard against which actual performance is compared. Metrics can produce very positive results in organizations by driving behavior in a number of ways. Metrics can help to communicate the strategy to the workforce through performance targets, increase accountability when metrics are linked to performance-appraisal programs, align the objectives of individuals, departments, and divisions to the enterprise’s strategic objectives, evaluate the performance of IT systems, including Web-based systems, assess the health of companies and define the value proposition of business models. Key performance indicators (KPI), which are the quantitative expression of critically important metrics (known as critical success factors), frequently measure metrics that deals directly with performance (e.g., sales, profits). 8. A company is planning a wireless-based CRM system. Almost all of the benefits are intangible. How can you justify the project to top management? One straightforward solution to the problem of evaluating intangible benefits in cost-benefit analysis is to make rough estimates of monetary values for all intangible benefits, and then conduct a financial analysis, such as ROI on the benefits. Another way of justifying this CRM system to top management will be to use soft financial metrics such as customer and partner satisfaction, customer loyalty, response time to competitive actions, and improved responsiveness. Other measures will be to look at the short-term benefits of the initial investment and also keep an open mind and follow opportunities that present themselves 9. What is IT infrastructure, and why is it difficult to justify its cost? IT infrastructure is how specific computers, networks, databases, etc. are arranged, connected, operated and managed. It is difficult to justify their cost because it is difficult to explain their synergy with other projects in an organization and to perceive their long-term opportunities. IT infrastructure supports strategic positioning, knowledge recordation, and job enrichment, all of which are intangible benefits 10. Discuss the economic advantages of digital products compared to non-digital ones. The expenses of digital products vary little, while those of non-digital are at the whim of every supplier. Also, non-digital goods costs will drop as production increases to a point, and then will increase with marketing and with the associated costs, like adding additional supervisors and production staff. 11. Enter businesscase.com and find material on ROI analysis. Discuss how ROI is related to a business case. ROI is the ratio of money gained or lost on an investment relative to the amount of money 12

invested whereas a business case is a document that breaks down an investment trying to justify its implementation. This website provides several valuable solutions for ROI analysis and business case writing.

Internet Exercises These exercises are based on the availability of the websites on the Internet at the time of assignment. I would leave it to my fellow instructors to check and validate the websites before assigning the exercises to the students.

Minicase Justifying IT Investment in the State of Iowa For years, state agencies in the state of Iowa presented many projects knowing that a few of them will be approved. However some very important ones were left out and some unneeded ones were approved because of political influence. The solution was to use an IT value model. The basic idea was to promote performance-based government, an approach that measures the results of government programs and a methodology was developed to measure the value any new IT project would create. This resulted in a higher efficiency in the approval of projects and also minimized politics and political pressures in approving projects.

Summary This chapter has introduced the fundamentals of IT economics, Moore’s law and the financial and technological trends of IT, while emphasizing productivity gain, the tangible and intangible benefits of IT, and outsourcing. Finally, the issue of the economic impact of systems development failures and the concept of increasing returns were discussed.