Management Information Systems Managing the Digital Firm, 17th edition Kenneth C Laudon Instructor M

Management Information Systems Managing the Digital Firm, 17th edition BY Kenneth C. Laudon

Email: Richard@qwconsultancy.com

Chapter 1 Information Systems in Global Business Today Student Learning Objectives 1-1 How are information systems transforming business and why are they so essential for running and managing a business today?

1-2 What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations?

1-3 What academic disciplines are used to study information systems and how does each contribute to an understanding of information systems?

1-4 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Business functions, 17 Business model, 12 Business processes, 10 Complementary assets, 25 Computer hardware, 19 Computer literacy, 16 Computer software, 19 Culture, 18 Data, 14 Data management technology, 19 Data workers, 17 Digital firm, 10 Extranets, 20 Feedback, 15 Information, 14 Information system, 14 Information systems literacy, 16 Information technology (IT), 14

Information technology (IT) infrastructure, 20 Input, 15 Internet, 19 Intranets, 20 Knowledge workers, 17 Management information systems (MIS), 16 Middle management, 17 Network, 19 Networking and telecommunications technology, 19 Operational management, 17 Organizational and management capital, 25 Output, 15 Processing, 15 Production or service workers, 17 Senior management, 17 Sociotechnical view, 27 World Wide Web, 20

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Teaching Suggestions You are probably meeting in the first class session to introduce yourself, the course, and to meet the students. It is good to get to the classroom early and meet the students as they come in. Learn a few names as the students enter.

After going over requirements for the course, give an overview of the course stressing this is not a technical course. Typically, you cannot do enough to put non-technical types at ease.

The opening case, “Smart Stores Reinvent the Retail Space,” shows students that even the most successful businesses must continually embrace technology upgrades and improvements as a way to enhance customer value and increase a business’s competitive advantage. Students will become familiar with the idea that different kinds of businesses have had to change the way they operate.

Acrelec, a French digital signage company, is piloting technology to help retailers manage store curbside pickups by customers placing orders online. Customers can use a retailer’s smartphone app to indicate they are coming to pick up an order, and the Acrelec system will estimate when a customer will arrive at a particular store. Object-recognition cameras identify exactly when a customer’s car arrives and where it is parked. Acrelec is especially useful for big-box retailers, grocery stores, and home-improvement stores.

Shelves have become more than just a surface for storing and displaying objects. New systems for “smart” shelves use proximity sensors, 3D cameras, microphones, RFID readers, and weight sensors to enable interactions between shoppers in physical stores and the shelves they are standing in front of. These systems can create a highly personalized shopping experience that fundamentally improves the way shoppers move inside physical stores.

Brands and retailers such as Pepsi, Walmart, and Albertsons are starting to use Smart Shelf by AWM to replicate the benefits of the online experience in physical retail environments. Using super-wide-angle low-light HD cameras, retailers deploying Smart Shelf can view and track their products in real-time. The solution improves operational efficiencies by highlighting specific shelves that need product stocking and allows for real-time on-shelf marketing to consumers. When retailers connect Smart Shelf to their mobile apps, they can help shoppers locate products themselves through their smartphones and tablets.

Section 1-1, “How are information systems transforming business and why are they so essential for running and managing a business today?” gives students a feel for the importance of information systems in business today and how they have transformed businesses on the world stage. A good discussion of the six important business objectives outlined in this section allows the instructor and students to discuss why businesses have become so dependent on information systems today and the importance of these systems for the survival of a firm. Stress to students that information systems are not a luxury. In most businesses they are the core of survival. This would be a good time to ask students 1-2 ..

to discuss how their own schools are using information systems to enhance their product offering.

Globalization is affecting virtually every country in the world. As technology becomes more pervasive and, in some cases easier to use, globalization will continue its steady march. In 2019, an estimated 30 percent of the world economy resulted from foreign trade of goods and services, both imports and exports. Half of Fortune 500 US firms obtain nearly 50 percent of their revenue from foreign operations. For instance, more than 50 percent of Intel’s revenues in 2019 came from overseas sales of its microprocessors.

Ask students to provide examples of truly digital firms (Cisco Systems and GE) as opposed to those businesses (local mom-and-pop stores or a local doctor’s office) that still perform many business processes outside of integrated information systems.

Review the six strategic business objectives: operational excellence; new products, services, and business models; customer and supplier intimacy; improved decision making; competitive advantage; and survival. The rest of the text will continually refer to these six objectives as reasons why firms should incorporate and integrate business processes with information systems.

Interactive Session: Organizations: Will the Coronavirus Pandemic Make Working from Home the New Normal?

Case Study Questions 1. Define the problem described in this case. What are the management, organization, and technology issues raised by this problem?

Not all employees have access to the Internet at home, and many work in industries that require on-site work. About 80 percent of American adults have high-speed broadband Internet service at home. Although email and text messaging are very useful, they are not effective tools for communication compared to the information exchange and personal connection of face-to-face conversations. Remote work also inhibits the creativity and innovative thinking that take place when people interact with each other face-to-face, and videoconferencing is only a partial solution.

2. Identify the information technologies used to provide a solution to this problem.

Was this a successful solution? Why or why not?

Information technologies driving these changes include broadband high-speed Internet connections, laptop computers, tablets, smartphones, email, messaging, and videoconferencing tools. As companies shift their work from face-to-face to remote, video conferencing is becoming the new normal for meetings. There are definite benefits to remote work: lower overhead, more flexible schedules, reductions in employee commuting time and attrition rates, and increases in productivity. (Many companies reported that productivity did not suffer when employees worked at home 1-3 ..

during the pandemic.) According to Global Workplace Analytics, a typical company saves about $11,000 per half-time telecommuter per year.

3. Will working from home become the dominant way of working in the future?

Why or why not?

According to a recent MIT report, 34 percent of Americans who previously commuted to work stated that they were working from home by the first week of April 2020 due to the coronavirus outbreak. Prior to the pandemic, the number of people regularly working from home remained in the single digits, with only about 4 percent of the US workforce working from home at least half the time. However, the trend of working from home had been slowly gaining momentum thanks to advances in information technology for remote work and changes in corporate work culture.

The coronavirus pandemic may mark a tipping point.

It is likely that many people who started working from home for the first time during the pandemic will continue to do so thereafter. New health guidelines about distancing will require some workplaces to expand to accommodate all their employees or to have a significant percentage of employees work permanently from home.

Section 1-2, “What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations?” gives students the facts and definitions that underpin information systems and allow students to knowledgeably discuss information systems. Students do not need the knowledge of a technical person, but they do need to understand the role of information technology and how it must support the organization’s business strategy.

They must also understand how information technology can be used to help transform a business. Note that the chapter’s definitions and terms help prepare students to discuss information systems as an intricate part of business systems. Encourage students to see that technology is subordinate to the organization and its purposes.

This is also a good place to reinforce the differences between information systems literacy and computer literacy. When asked to describe company information systems, students often depict information systems in terms of technology. It is important to stress that information systems are more than just technology, and that they have management, organization, and technology dimensions. Figure 1-5 and the diagram at the beginning of the chapter can be used to illustrate this point.

Ask students why some companies can achieve much better results using information systems while others cannot. That will help them understand the concept of complementary assets and show that there is much more to building a digital firm than simply buying the latest, greatest hardware and software. It will also help them understand the delicate relationship between technology, management, and organizations assets.

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Interactive Session: Technology: UPS Competes Globally with Information Technology Case Study Questions 1. What are the inputs, processing, and outputs of UPS’s package tracking system?

Inputs: The inputs include package information, customer signature, pickup, delivery, time-card data, current location (while en route), and billing and customer clearance documentation.

Processing: The data are transmitted to a central computer and stored for retrieval.

Data are also reorganized so that they can be tracked by customer account, date, driver, and other criteria.

Outputs: The outputs include pickup and delivery times, location while en route, and package recipient. The outputs also include various reports, such as all packages for a specific account or a specific driver or route, as well as summary reports for management.

2. What technologies are used by UPS? How are these technologies related to UPS’s business strategy?

Technologies include handheld computers (DIADs), bar code scanning systems, wired and wireless communications networks, desktop computers, UPS’s central computer (large mainframe computers), and storage technology for the package delivery data. UPS also uses telecommunication technologies for transmitting data through pagers and cellular phone networks. The company uses in-house software for tracking packages, calculating fees, maintaining customer accounts and managing logistics, as well as software to access the World Wide Web. UPS has used the same strategy for over 90 years. Its strategy is to provide the “best service and lowest rates.” One of the most visible aspects of technology is the customer’s ability to track his/her package via the UPS website. However, technology also enables data to seamlessly flow throughout UPS and helps streamline the workflow at UPS. Thus, the technology described in the scenario enables UPS to be more competitive, efficient, and profitable. The result is an information system solution to the business challenge of providing a high level of service with low prices in the face of mounting competition.

3. What strategic business objectives do UPS’s information systems address?

Operational excellence: UPS has maintained leadership in small-package delivery services despite stiff competition from FedEx and the U.S. Postal System by investing heavily in advanced information technology.

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New products, services, and business models: UPS is now leveraging its decades of expertise managing its own global delivery network to manage logistics and supply chain activities for other companies. It created a UPS Supply Chain Solutions division that provides a complete bundle of standardized services to subscribing companies at a fraction of what it would cost to build their own systems and infrastructure. These services include supply chain design and management, freight forwarding, customs brokerage, mail services, multimodal transportation, and financial services in addition to logistics services.

Customer and supplier intimacy: Customers can download and print their own labels using special software provided by UPS or by accessing the UPS website. UPS spends more than $1 billion each year to maintain a high level of customer service while keeping costs low and streamlining its overall operations.

Improved decision making: Special software creates the most efficient delivery route for each driver that considers traffic, weather conditions, and the location of each stop. In a network with 55,000 routes in the United States alone, shaving even one mile off each driver’s daily route translates into big savings in time, fuel consumption, miles driven, and carbon emissions—as much as $50 million per year.

Competitive advantage: UPS is leveraging its decades of expertise managing its own global delivery network to manage logistics and supply chain activities for other companies. Its Supply Chain Solutions division provides a complete bundle of standardized services to subscribing companies at a fraction of what it would cost to build their own systems and infrastructure. In this manner UPS provides a highly differentiated product that its competitors cannot easily duplicate.

4. What would happen if UPS’s information systems were not available?

Arguably, UPS would not be able to compete effectively without technology. UPS could not provide the same level of services to its customers at reasonable prices.

From the customers’ perspective, these technologies provide value because they help customers complete their tasks more efficiently. Customers view UPS’s technology as value-added services as opposed to increasing the cost of sending packages.

Section 1-3, “What academic disciplines are used to study information systems and how does each contribute to an understanding of information systems?”

Too often, information systems are thought to be all about hardware and software. Issues that focus on human behavioral aspects of information systems are overlooked or minimized. That can lead to disaster. Figure 1-9 may help you explain contemporary approaches to information systems.

After contrasting the technical and behavioral approaches, you should stress to your students that the sociotechnical approach does not ignore the technical but considers it as a part of the organization.

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Section 1-4, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as a financial client support and sales assistant. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 1-1 How are information systems transforming business and why are they so essential for running and managing a business today?

Identify three major new information system trends.

Three information system trends that are influencing the way businesses interact with employees, customers, suppliers, and business partners include IT innovations, new business models, e-commerce expansion, management changes, and changes in firms and organizations. (Learning Objective 1-1: How are information systems transforming business and why are they so essential for running and managing a business today? AACSB: Application of knowledge.)

Describe the characteristics of a digital firm.

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Significant business relationships with customers, suppliers, and employees are digitally enabled and mediated.

Core business processes are accomplished through digital networks spanning the entire organization or linking multiple organizations.

Key corporate assets—intellectual property, core competencies, and financial and human assets—are managed through digital means.

They sense and respond to their environments far more rapidly than traditional firms.

They offer extraordinary opportunities for more flexible global organization and management, practicing time-shifting and space-shifting. (Learning Objective 11: How are information systems transforming business and why are they so essential for running and managing a business today? AACSB: Application of knowledge.)

Describe the challenges and opportunities of globalization in a “flattened” world.

Customers no longer need to rely on local businesses for products and services. They can shop 24/7 for virtually anything and have it delivered to their door or desktop.

Companies can operate 24/7 from any geographic location around the world. Jobs can just as easily move across the state or across the ocean. Employees must continually develop high-level skills through education and on-the-job experience that cannot be outsourced. Business must avoid markets for goods and services that can be produced 1-7 ..

offshore much cheaper. The emergence of the Internet into a full-blown international communications system has drastically reduced the costs of operating and transacting business on a global scale. (Learning Objective 1-1: How are information systems transforming business and why are they so essential for running and managing a business today? AACSB: Application of knowledge.)

List and describe six reasons why information systems are so important for business today.

Six reasons why information systems are so important for business today include: (1) Operational excellence (2) New products, services, and business models (3) Customer and supplier intimacy (4) Improved decision making (5) Competitive advantage (6) Survival Information systems are the foundation for conducting business today. In many industries, survival and even existence without extensive use of IT is inconceivable, and IT plays a critical role in increasing productivity. Although information technology has become more of a commodity, when coupled with complementary changes in organization and management, it can provide the foundation for new products, services, and ways of conducting business that provide firms with a strategic advantage. (Learning Objective 1-1: How are information systems transforming business and why are they so essential for running and managing a business today? AACSB: Application of knowledge.)

1-2 What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations?

Define an information system and describe the activities it performs.

An information system is a set of interrelated components that work together to collect, process, store, and disseminate information to support decision making, coordination, control, analysis, and visualization in an organization. In addition to supporting decision making, information systems may also help managers and workers analyze problems, visualize complex subjects, and create new products.

(Learning Objective 1-2: What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? AACSB: Application of knowledge.)

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List and describe the organizational, management, and technology dimensions of information systems.

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Organization: The organization dimension of information systems involves issues such as the organization’s hierarchy, functional specialties, business processes, culture, and political interest groups.

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Management: The management dimension of information systems involves setting organizational strategies, allocating human and financial resources, creating new products and services and re-creating the organization if necessary.

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Technology: The technology dimension consists of computer hardware, software, data management technology, and networking/telecommunications technology.

(Learning Objective 1-2: What is an information system? How does it work?

What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? AACSB: Application of knowledge.)

Distinguish between data and information and between information systems literacy and computer literacy.

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Data are streams of raw facts representing events occurring in organizations or the physical environment before they have been organized and arranged into a form that people can understand and use.

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Information is data that have been shaped into a form that is meaningful and useful to human beings.

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Information systems literacy is a broad-based understanding of information systems. It includes a behavioral as well as a technical approach to studying information systems.

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In contrast, computer literacy focuses primarily on knowledge of information technology. It is limited to understanding how computer hardware and software works. (Learning Objective 1-2: What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? AACSB: Analytical thinking.)

Explain how the Internet and the World Wide Web are related to the other technology components of information systems.

The Internet and World Wide Web have had a tremendous impact on the role that information systems play in organizations. These two tools are responsible for the increased connectivity and collaboration within and outside the organization. The Internet, World Wide Web, and other technologies have led to the redesign and reshaping of organizations. They have helped transform the organization’s structure, scope of operations, reporting and control mechanisms, work practices, work flows, and products and services. (Learning Objective 1-2: What is an information system?

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How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? AACSB: Analytical thinking.)

Define complementary assets and describe their relationship to information technology.

Complementary assets are those assets required to derive value from a primary investment. Firms must rely on supportive values, structures, and behavior patterns to obtain a greater value from their IT investments. Value must be added through complementary assets such as new business processes, management behavior, organizational culture, and training. (Learning Objective 1-2: What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? AACSB: Application of knowledge.)

Describe the complementary social, managerial, and organizational assets required to optimize returns from information technology investments.

Table 1-2 lists the complementary social, managerial, and organization assets required to optimize returns from information technology investments. Here are a few of them: Organizational assets: • Supportive culture that values efficiency and effectiveness • Appropriate business model • Efficient business processes • Decentralized authority Managerial assets: • Strong senior management support for technology investment and change • Incentives for management innovation • Teamwork and collaborative work environments Social assets: • The Internet and telecommunications infrastructure • IT-enriched educational programs raising labor force computer literacy • Standards (both government and private sector) (Learning Objective 1-2: What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? AACSB: Application of knowledge.)

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1-3 What academic disciplines are used to study information systems and how does each contribute to an understanding of information systems?

List and describe each discipline that contributes to a technical approach to information systems.

A technical approach to information systems emphasizes mathematically-based models to study information systems and the physical technology and formal capabilities of information systems. Students should know the differences between computer science (theories of computability, computation methods, and data storage and access methods), management science (development of models for decision making and managerial practice), and operations research (mathematical techniques for optimizing organizational parameters such as transportation, inventory control, and transaction costs). (Learning Objective 1-3: What academic disciplines are used to study information systems and how does each contribute to an understanding of information systems? AACSB: Application of knowledge.)

List and describe each discipline that contributes to a behavioral approach to information systems.

A behavioral approach to information systems focuses on questions such as strategic business integration, behavioral problems of systems utilization, system design and implementation, social and organizational impacts of information systems, political impacts of information systems, and individual responses to information systems.

Solutions to problems created by information technology are primarily changes in attitudes, management, organizational policy, and behavior. (Learning Objective 1-3: What academic disciplines are used to study information systems and how does each contribute to an understanding of information systems? AACSB: Application of knowledge.)

Describe the sociotechnical perspective on information systems.

A sociotechnical perspective combines the technical approach and behavioral approach to achieve optimal organizational performance. Technology must be changed and designed to fit organizational and individual needs and not the other way around. Organizations and individuals must also change through training, learning, and allowing technology to operate and prosper. (Learning Objective 1-3: What academic disciplines are used to study information systems and how does each contribute to an understanding of information systems? AACSB: Application of knowledge.)

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Discussion Questions 1-4 Information systems are too important to be left to computer specialists. Do you agree? Why or why not?

Student answers to this question will vary.

1-5 If you were setting up the website for a Major League Baseball team, what management, organization, and technology issues might you encounter?

Student answers to this question will vary.

1-6 What are some of the organizational, managerial, and social complementary assets that help make UPS’s information systems so successful?

Student answers to this question will vary.

Hands-On MIS Projects This section gives students an opportunity to analyze real world information systems needs and requirements. It provides several exercises you can use to determine if students are grasping the material in the chapter.

Management Decision Problems 1-7 Snyder’s of Hanover: The financial department uses spreadsheets and manual processes for much of its data gathering and reporting. Assess the impact of this situation on business performance and management decision making.

• Data entry errors from repetitive entry • No information available on-demand • Late reporting of critical decision-making information • Time consuming (Learning Objective 1-2: What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? AACSB: Analytical thinking.)

1-8 Dollar General Corporation: Wants to keep costs as low as possible so it does not use an automated method for keeping track of inventory at each store. What decisions have to be made before investing in an information system solution?

• Determine business problems—mismanagement of inventory, too little or too much inventory, no ability to track inventory.

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• •

Lack of an information system to manage inventory is actually increasing costs rather than decreasing them.

What is the exact problem the company wants to solve—reduce costs.

(Learning Objective 1-1: How are information systems transforming business and why are they so essential for running and managing a business today? AACSB: Analytical thinking, Application of knowledge.)

Improving Decision Making: Using Databases to Analyze Sales Trends: Software skills: Database querying and reporting Business skills: Sales trend analysis 1-9 This exercise helps students understand how they can use database software to produce valuable information from raw data. The solutions provided here were created using the query wizard and report wizard capabilities of Microsoft Access.

Students can, of course, create more sophisticated reports if they wish, but most information can be obtained from simple query and reporting functions. The main challenge is to get students to ask the right questions about the information.

• Which products should be restocked?

• Which stores and sales regions would benefit from a promotional campaign and additional marketing?

• When (what time of the year) should products be offered at full price, and when should discounts be used?

The answers to these questions can be found in the Microsoft Access File named: MIS16ch01_solutionfile.mdb (Learning Objective 1-2: What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? AACSB: Analytical thinking.)

Improving Decision Making: Using the Internet to Locate Jobs Requiring Information Systems Knowledge Software skills: Internet-based software Business skills: Job searching 1-10 In addition to having students research jobs in their chosen career field, it may be quite interesting to have them research jobs in other career fields so they can see that virtually every job and/or career requires information systems skills.

(Learning Objective 1-3: What academic disciplines are used to study information systems and how does each contribute to an understanding of information systems?

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AACSB: Written and oral communication, Analytical thinking, Reflective thinking, Application of knowledge.)

Collaboration and Teamwork Project 1-11 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, Google Sites, to complete the assignment.

Case Study: New Technology at UPS Clashes with Outdated Ways of Working 1-12 Identify the problem faced by UPS. Was it a technology problem, an organizational problem, or a management problem? Explain your answer.

The major challenge faced by UPS is staying competitive with new rivals such as Amazon.com and appropriately updating investments in information technology.

The problem encompasses problems at the people, organizational, and managerial levels: • Outdated equipment required more employee ‘touch points’ at the sorting centers. Each additional ‘touch point’ introduces additional possibility for error, even with well-qualified workers.

• At the organization level, errors were adding up to missorted packages which can add a day to deliveries, and degrading customer service.

• At the managerial level, managers were working with historical data to make decisions regarding undeliverable packages. With new technology, they now have access to real-time data to help make actual decisions (i.e., staffing) versus estimating.

(Learning Objective 1: Why are information systems so essential for running and managing a business today? AACSB: Analytical thinking, Reflective thinking.)

1-13 Describe the solution to this problem pursued by UPS? Is this a successful solution? Why or why not?

The primary solution being integrated by UPS is the automation of older facilities to reduce the number of human touch points. This investment, including super hubs, can now sort packages 30 percent more efficiently, and with far fewer errors. In another example, an upgraded facility with 750 workers were able to process the same number of packages as an older facility with 1,170 workers. By all accounts, the upgrades have been very successful.

(Learning Objective 2: What is an information system? How does it work? What are its people, organizational, and technology components? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

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1-14 Diagram the package sorting process at UPS before and after automation.

Using Business Process Model and Notation (BPMN), the following two diagrams illustrate the packing sorting process before and after automation.

(Learning Objective 2: What is an information system? How does it work? What are its people, organizational, and technology components? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

1-15 How did automated package sorting change operations and decision making at UPS? The automated package sorting improved operations by requiring fewer human touch points and automating most of the process with the exception unloading and loading boxes onto a trailer. In some instances, new automated facilities provided additional jobs.

Based on IT innovations including Bluetooth enhancements providing real-time information to managers, decisions can be made using actual data rather than historical data requiring estimating. This improvement allows for better allocation of resources and increased efficiency with fewer errors. (Learning Objective 1: How are information systems transforming business and why are they so essential for running and managing a business today? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

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Chapter 2 Global E-business and Collaboration Student Learning Objectives 2-1 What are business processes? How are they related to information systems?

2-2 How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance?

2-3 What is the role of the information systems function in a business?

2-4 Why are systems for collaboration and social business so important, and what technologies do they use?

2-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Business intelligence, 45 Chief data officer (CDO), 65 Chief information officer (CIO), 64 Chief knowledge officer (CKO), 65 Chief privacy officer (CPO), 65 Chief security officer (CSO), 65 Collaboration, 54 Customer relationship management (CRM) systems, 51 Decision-support systems (DSS), 46 Digital dashboard, 48 Electronic business (e-business), 52 Electronic commerce (e-commerce), 52 E-government, 52 End users, 65 Enterprise applications, 49 Enterprise systems, 50

Executive support systems (ESS), 48 Information systems department, 64 Information systems managers, 64 Interorganizational system, 51 IT governance, 66 Knowledge management systems (KMS), 51 Management information systems (MIS), 46 Portal, 48 Programmers, 64 Social business, 56 Supply chain management (SCM) systems, 51 Systems analysts, 64 Teams, 55 Telepresence, 59 Transaction processing systems (TPS), 44

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Teaching Suggestions The opening vignette, "Enterprise Social Networking Transforms Sharp Corporation into a More Innovative Connected Organization," provides an outstanding example of how the company embraced social business tools to improve its odds for success, and solidify its commitment to using unique innovative technology to contribute to the culture and welfare of individuals throughout the world. These technologies are the same ones every business needs to succeed.

Sharp was facing stiff competition from Asian competitors and looked for ways to improve its business processes and organizational communication. Sharp, employees 50,000 people worldwide and the large, centralized firm with a traditional hierarchical culture made it difficult for employees to experiment and innovate on their own.

Directives were only flowing downward, and the company’s younger employees were looking for opportunities to share ideas and opinions freely.

Sharp implemented Yammer, Microsoft’s enterprise social networking platform for internal business uses, which enables employees to create groups to collaborate on projects and share and edit documents. It also includes a news feed that allows employees to easily learn what is happening company wide.

By using Yammer, employees share updates, ask for feedback, and connect volunteers around improvement initiatives. One project resulted in a 60 percent simplification of a key quality process that saved the company thousands of euros and reduced overall endto-end process time.

Within months of implementation, over 10,000 users within the company were using Yammer. The system has helped improve the flow of information in both directions (i.e., management to rank-in-file-employees) with some department managers using Yammer to solicit input from employees regarding potential technologies that could be implemented in the organization to improve process and business efficiencies.

Section 2-1, “What are business processes? How are they related to information systems” Table 2-1 may help students understand that every business, large and small, uses the same basic business processes. Referring to this table may help as you examine information needs for each functional area. You could have students select a business with which they are familiar and identify some of the business processes involved in each of the basic functional areas.

Another good classroom exercise is to use Figure 2-1 to compare how the order fulfillment process can be accomplished sequentially, as the figure shows, versus simultaneously as a new information system would allow.

Section 2-2, “How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance” This section focuses on how information systems serve various management levels in 2-2 ..

companies. The ultimate goal is for students to realize that one system helps serve other systems and working together, all the systems serve the entire organization.

Type of System

Information Inputs

Information Outputs

Transaction Processing Systems (TPS) Management Information Systems (MIS)

Transactions; daily events

Detailed reports; lists; summaries

Summary transaction data; high-volume data; simple models Optimized for data analysis, analytic models and data analysis tools Aggregate data; external, internal

Summary and exception reports

Decision Support Systems (DSS)

Executive Support Systems (ESS)

Users

Operations personnel; first-line supervisors Middle managers

Interactive; simulations; analysis

Professionals, staff managers

Projections; responses to queries

Senior managers

It is likely a students’ main encounter will be with TPS systems when they first begin their careers. Stress the importance of accurate data at the TPS level because it serves as the initial source for the other systems.

Typically, DSS and ESS systems will be the least familiar. Students may better understand them if you ask these types of questions: Why do national retail chains open stores in certain locations and not others? How can a retail chain determine which type of clothing to stock at different geographic locations?

Most importantly, students need to understand that each type of information system supports the different kinds of decisions made at each managerial level.

It’s quite possible students feel overwhelmed by all the different kinds of information systems described in the first part of this section. “Systems for Linking the Enterprise” helps you tie together all the information systems into a cohesive package and shows how data and information can flow seamlessly through an organization.

Enterprise systems: Central to this section is the need to coordinate activities, decisions, and knowledge across the firm’s different levels, functions, and business units. Enterprise systems use a single central data repository to supply all users with a consolidated view of employees, customers, suppliers, and vendors. The key to effectively using enterprise systems is to eliminate redundancy and duplication, not just in the information systems but also in business processes.

Supply chain management systems: Students should understand the importance of a business managing its relationships with suppliers through a free-flowing exchange of information. The concept may seem foreign to those students who think a company is a closed entity and should not share data or information with anyone outside the 2-3 ..

organization. A review of a typical supply chain may be helpful: sourcing, producing, and delivering goods and services. It may also be helpful to engage the students in an exercise that lists all the entities involved in producing and delivering goods and services.

Customer relationship management systems: Ask students how many times they have quit doing business with a company because of poor customer service. Ask them how many times they have had to supply a business with the same information simply because they talked to a different department in the company. Discuss how important it is for every functional area in a business to have the same consolidated view of its customers to avoid these kinds of problems.

Knowledge management systems: It is likely that few, if any, students have had any experience with these systems. Point out that businesses are beginning to realize how much expertise and experience is locked away in employees’ heads and that it’s imperative to find a way to capture that information. Moreover, it isimportant that businesses find a way to make the expertise and experience available to a wide range of users. On the other hand, students should understand that employees can be reluctant to share their knowledge with systems developers for fear they may lose their jobs to a new system! Also, employees may not be able to precisely describe how they do what they do on the job.

Intranets and extranets: As Internet-based technologies continue to expand the basic platforms for disseminating information, smaller businesses that cannot afford to implement enterprise applications can turn to intranets and extranets. Your difficulty will be getting students to understand the difference between the two since they operate basically the same way. Intranets are limited to internal users; extranets are available to external users as well as internal users. Both are an inexpensive way to quickly disseminate information and data across functional lines and organizational boundaries.

E-business, e-commerce, and e-government: Have students give examples of their own experiences with of each of these. Students are most often confused between e-business and e-commerce. Stress that e-business refers to the use of digital technology and the Internet to execute major business processes while e-commerce is more narrowly centered on the buying and selling of goods and services over the Internet.

Interactive Session: Organizations: The City of Mississauga Goes Digital Case Study Questions 1. Describe the problems the City of Mississauga hoped to address using digital technology.

The City of Mississauga is facing a changing demographic with fewer middle-income individuals and more low-income individuals. As such, management has a vision for all residents to have the advantages that access to digital technology provides.

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The city is also working to move to a paperless city as much as possible. Further they are interested in doing a better job of tracking buses and other city vehicles to become more efficient and effective. Finally, management is interested in providing improved traffic flow and safety with improved traffic intersections.

2. What technologies did Mississauga employ for a solution? Describe each of these technologies and the role each played in a solution.

City employees have broken down Mississauga into 23 defined communities with one hub center and 500 mobility kits for residents with future expansions anticipated.

This effort will help provide better access to digital technology for all residents regardless of income levels.

To help go paperless and reduce the need for travel, the city is helping to provide infrastructure needed to encourage videoconferencing where residents can participate in meetings remotely.

City employees have updated their vehicles to allow for real-time updates on location and other travel variables. The real-time snowplow information is a unique way to better inform the public and track activities using onboard sensors that indicate when blades are being used. Finally, Mississauga implemented a new high-capacity fiber optic system to improve over 700 traffic intersections.

3. What management, organization, and technology issues did the City of Mississauga have to address in developing a solution?

The City of Mississauga appeared to have very effective individuals working on various technology projects. In some cases, city officials collaborated with other municipalities which required additional coordination and integration efforts. The city also worked with businesses to partner on initiatives to create and support a more versatile workplace.

4. How did the technologies in this case improve operations and decision making at the City of Mississauga?

The technologies in this case have helped transform the City of Mississauga as a destination to attract a younger and motivated workforce. Improved operations and decision making were particularly recognized in tracking city vehicles. The real-time information about bus locations was used for timing maintenance and warranties to reduce downtime. In addition, location data about bus locations and routes is being provided to the public to improve travel schedules. The real-time information provided by the sensors on the snowplows provided management with data to help make better decisions and potentially a safer environment during storms.

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Section 2-3 “Why are systems for collaboration and social business so important, and what technologies do they use” Students have probably used most of these systems without even realizing their business value. Your task is to relate these increasingly common technologies to business processes and needs. Discuss how they can use cell phones, instant messaging, social networking sites, and wikis in a business setting to communicate, collaborate, and share ideas with team members, business partners, customers, and suppliers.

One exercise you can use to reinforce the usefulness of team collaboration is to have small student groups explore social networking sites or Twitter to see how many postings by businesses they can find. For instance, Twitter has tweets for Free Honey Bunches of Oats at Walmart and a tweet for an article about General Electric’s solar technology.

Businesses also make use of the popular YouTube.com to post videos of their products.

This exercise will help demonstrate how businesses must constantly adapt their marketing strategies to reach customers. You can also generate a discussion about students’ experience on these kinds of sites in relation to business uses and ask them to relate how effective these new methods of engaging customers are.

Table 2-3 emphasizes the benefits of collaboration while Figure 2-7 highlights the necessity of having the appropriate organization structure and culture, along with the right technology, to successfully use collaboration in an organization. Discuss how the absence of even one of these three can hinder or prevent collaboration. Ask students to draw on their own experiences to compare and contrast firms with a collaborative culture to those without.

Often people and businesses decide which collaborative tools to use based on which ones they are most familiar with rather than which are the most appropriate tool for the task at hand.

You can have student teams evaluate one or more collaborative programs for an organization to which they belong like a sports team, sorority/fraternity, workplace, or even their use in your classroom. Have them use the time/space matrix in Figure 2-8 and the information in the section “Checklist for Managers: Evaluating and Selecting Collaboration and Social Software Tools” to help select the best tool.

Have students explore the use of business wikis first-hand by visiting SAP’s Enterprise Solution Wiki at http://wiki.sdn.sap.com/wiki/display/ESpackages/ES+Wiki+Home. The wikis will help demonstrate the usefulness of having so much knowledge at your fingertips plus the ease with which companies are gathering, storing, and disseminating knowledge.

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Interactive Session: Technology: Quality Videoconferencing: Something for Every Budget Case Study Questions 1. How do the videoconferencing tools described in this case promote collaboration and innovation?

The current generation of telepresence platforms provide much more than video collaboration, with the ability to coordinate multiple rich data streams that integrate digital information from mobile, desktop, and video, create a collaborative environment and move the information to where managers and professionals are making decisions.

Zoom provides a less expensive and easier to use cloud-based option for online video and audio conference, collaboration, chat, screen-sharing, and webinars across various devices. Zoom provides a free basic version for up to 100 participants and for around $20 per month offer services that can accom9odate up to 1,000 participants and 10,000 viewers.

Videoconferencing is becoming a tool of choice to promote collaboration and innovation as they allow individuals to manage business processes and to connect and collaborate with others around the world.

2. How is videoconferencing related to the business models and business strategies of the organizations described in this case?

Nepris uses Zoom to connect teachers with industry experts to help make the instructional experience more immersive with real-world application. Zoom provides a reasonably priced option to allow Nepris to compete in this niche space.

FCTI, which is a leading US ATM network and service provider, also uses Zoom for video conferencing. The goal is to help employees collaborate more effectively than email, text messaging, or phone calls.

3. Describe the specific ways in which video conferencing technology helped each of the organizations in this case improve their operations and decision making.

Zoom provides both companies with the opportunity to conference via tablets and smartphones. As such, both companies can participate in meetings and collaborations from remote locations. In the case of Nepris, it allows experts to participate with instructors while accommodating the industry expert’s busy, and often remote, schedules.

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4. If you were a small or medium-sized business, what criteria would you use to determine whether to use Zoom videoconferencing?

Student answers will vary.

Section 2-4. “What is the role of the information systems function in a business?” If possible, arrange a session with the school’s information systems department to allow students to see first-hand how such a center works and who is responsible for running the systems. Have the IT staff and students participate in a Question and Answer forum about how typical processes are handled. Many students have a better appreciation of how these complex centers work when they see one in operation rather than just reading about it.

Stress to students that in all but the smallest of firms, these systems are critical to operational efficiency and sheer survival in a very competitive marketplace.

Most importantly, students should understand that the IT staff is responsible for the well-being of all users in an organization. Users and the IT staff are teammates not polarizing opposites.

Section 2-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as a sales support specialist. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 2-1 What are business processes? How are they related to information systems?

Define business processes and describe the role they play in organizations.

A business process is a logically related set of activities that define how specific business tasks are performed. Business processes are the ways in which organizations coordinate and organize work activities, information, and knowledge to produce their valuable products or services.

How well a business performs depends on how well its business processes are designed and coordinated. Well-designed business processes can be a source of competitive strength for a company if it can use the processes to innovate or perform better than its rivals. Conversely, poorly designed or executed business processes can be a liability if they are based on outdated ways of working and impede responsiveness or efficiency. (Learning Objective 2-1: What are business processes?

How are they related to information systems? AACSB: Application of knowledge.)

Describe the relationship between information systems and business processes.

Information systems automate manual business processes and make an organization more efficient. Data and information are available to a wider range of decision2-8 ..

makers more quickly when information systems are used to change the flow of information. Tasks can be performed simultaneously rather than sequentially, speeding up the completion of business processes. Information systems can also drive new business models that perhaps would not be possible without the technology.

(Learning Objective 2-1: What are business processes? How are they related to information systems? AACSB: Application of knowledge.)

2-2 How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance?

Describe the characteristics of transaction processing systems (TPS) and the roles they play in a business.

Transaction processing systems (TPS) are computerized systems that perform and record daily routine transactions necessary in conducting business; they serve the organization’s operational level. The principal purpose of systems at this level is to answer routine questions and to track the flow of transactions through the organization.

• At the operational level, tasks, resources, and goals are predefined and highly structured.

• Managers need TPS to monitor the status of internal operations and the firm’s relationship with its external environment.

• TPS are major producers of information for other types of systems.

• Transaction processing systems are often so central to a business that TPS failure for a few hours can lead to a firm’s demise and perhaps that of other firms linked to it.

(Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Application of knowledge.)

Describe the characteristics of management information systems (MIS) and explain how MIS differ from TPS and from DSS. Middle management needs systems to help with monitoring, controlling, decisionmaking, and administrative activities.

• MIS provide middle managers with reports on the organization’s current performance. This information is used to monitor and control the business and predict future performance.

• MIS summarize and report the company’s basic operations using data supplied by TPSs. The basic transaction data from TPS are compressed and usually presented in reports that are produced on a regular schedule.

• MIS serve managers primarily interested in weekly, monthly, and yearly results, although some MIS enable managers to drill down to see daily or hourly data if required.

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• • •

MIS generally provide answers to routine questions that have been specified in advance and have a predefined procedure for answering them.

MIS systems generally are not flexible and have little analytical capability.

Most MIS use simple routines, such as summaries and comparisons, as opposed to sophisticated mathematical models or statistical techniques.

MIS differs from TPS in that MIS deals with summarized and compressed data from the TPS. Although MIS have an internal orientation, DSS will often use data from external sources, as well as data from TPS and MIS. DSS supports “what-if” analyses rather than providing the long-term structured analysis inherent in MIS systems. MIS are generally not flexible and provide little analytical capabilities. In contrast, DSS are designed for analytical purposes and are flexible. (Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Application of knowledge.)

Describe the characteristics of decision-support systems (DSS) and how they benefit businesses.

Decision-support systems (DSS) support nonroutine decision-making for middle managers.

• DSS provide sophisticated analytical models and data analysis tools to support semistructured and unstructured decision-making activities.

• DSS use data from TPS, MIS, and external sources, in condensed form, allowing decision makers to perform “what-if” analysis.

• DSS focus on problems that are unique and rapidly changing; procedures for arriving at a solution may not be fully predefined.

• DSS are designed so that users can work with them directly; these systems include interactive, user-friendly software.

(Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Application of knowledge.)

Describe the characteristics of executive support systems (ESS) and explain how these systems differ from DSS. Executive support systems (ESS) help senior managers address strategic issues and long-term trends, both in the firm and in the external environment.

• ESS address nonroutine decisions requiring judgment, evaluation, and insight because there is no agreed-on procedure for arriving at a solution.

• ESS provide a generalized computing and communications capacity that can be applied to a changing array of problems.

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ESS are designed to incorporate data about external events, such as new tax laws or competitors, but they also draw summarized information from internal MIS and DSS. • ESS are designed for ease-of-use and rely heavily on graphical presentations of data.

(Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Application of knowledge.)

Explain how enterprise applications improve organizational performance.

An organization operates in an ever-increasing competitive and global environment.

The successful organization focuses on the efficient execution of its processes, customer service, and speed to market. Enterprise applications provide an organization with a consolidated view of its operations across different functions, levels, and business units. Enterprise applications allow an organization to efficiently exchange information among its functional areas, business units, suppliers, and customers. (Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Analytical thinking.)

Define enterprise systems, supply chain management systems, customer relationship management systems, and knowledge management systems and describe their business benefits.

Enterprise systems integrate the key business processes of an organization into a single central data repository. This makes it possible for information that was previously fragmented in different systems to be shared across the firm and for different parts of the business to work more closely together.

Business benefits include: • Information flows seamlessly throughout an organization, improving coordination, efficiency, and decision making.

• Gives companies the flexibility to respond rapidly to customer requests while producing and stocking only that inventory necessary to fulfill existing orders.

• Increases customer satisfaction by improving product shipments, minimizing costs, and improving a firm’s performance.

• Improves decision making by improving the quality of information for all levels of management. That leads to better analyses of overall business performance, more accurate sales and production forecasts, and higher profitability.

In short, supply chain management (SCM) systems help businesses better manage relationships with their suppliers. The objective of SCM is to get the right number of products from the companies’ source to their point of consumption in the least 2-11 ..

amount of time and with the lowest cost. SCM provide information to help suppliers, purchasing firms, distributors, and logistics companies share information about orders, production, inventory levels, and delivery of products and services so that they can source, produce, and deliver goods and services efficiently. SCM helps organizations achieve great efficiencies by automating parts of these processes or by helping organizations rethink and streamline these processes. SCM is important to a business because through its efficiency it can coordinate, schedule, and control the delivery of products and services to customers.

Business benefits include: • Decide when and what to produce, store, and move • Rapidly communicate orders • Track the status of orders • Check inventory availability and monitor inventory levels • Reduce inventory, transportation, and warehousing costs • Track shipments • Plan production based on actual customer demand • Rapidly communicate changes in product design Customer relationship management (CRM) systems enable a business to better manage its relationships with existing and potential customers. With the growth of the web, potential customers can easily comparison shop for retail and wholesale goods and even raw materials, so treating customers better has become very important.

Business benefits include: • CRM systems provide information to coordinate all the business processes that deal with customers in sales, marketing, and service to optimize revenue, customer satisfaction, and customer retention. This information helps firms identify, attract, and retain the most profitable customers; provide better service to existing customers; and increase sales.

• CRM systems consolidate customer data from multiple sources and provide analytical tools for answering questions such as: What is the value of a particular customer to the firm over his/her lifetime?

• CRM tools integrate a business’s customer-related processes and consolidate customer information from multiple communication channels, giving the customer a consolidated view of the company.

• Detailed and accurate knowledge of customers and their preferences helps firms increase the effectiveness of their marketing campaigns and provide higher-quality customer service and support.

Knowledge management systems (KMS) enable organizations to better manage processes for capturing and applying knowledge and expertise. These systems collect all relevant knowledge and experience in the firm and make it available wherever and 2-12 ..

whenever it is needed to improve business processes and management decisions.

They also link the firm to external sources of knowledge.

Business benefits include: • KMS support processes for acquiring, storing, distributing, and applying knowledge, as well as processes for creating new knowledge and integrating it into the organization.

• KMS include enterprise-wide systems for managing and distributing documents, graphics, and other digital knowledge objects; systems for creating corporate knowledge directories of employees with special areas of expertise; office systems for distributing knowledge and information; and knowledge work systems to facilitate knowledge creation.

• KMS use intelligent techniques that codify knowledge and experience for use by other members of the organization and tools for knowledge discovery that recognize patterns and important relationships in large pools of data.

(Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Application of knowledge.)

Explain how intranets and extranets help firms integrate information and business processes.

Because intranets and extranets share the same technology and software platforms as the Internet, they are easy and inexpensive ways for companies to increase integration and expedite the flow of information within the company (intranets alone) and with customers and suppliers (extranets). They provide ways to distribute information and store corporate policies, programs, and data. Both types of nets can be customized by users and provide a single point of access to information from several different systems. Businesses can connect the nets to transaction processing systems easily and quickly. Interfaces between the nets and TPS, MIS, DSS, and ESS systems provide input and output for users. (Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Analytical thinking 2-3 Why are systems for collaboration and social business so important, and what technologies do they use?

Define collaboration and social business and explain why they have become so important in business today.

Collaboration is working with others to achieve shared and explicit goals. It focuses on task or mission accomplishment and usually takes place in a business, or other organizations, and between businesses. Collaboration can be short-lived or longer term, depending on the nature of the task and the relationship among participants. It can be one-to-one or many-to-many.

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Social business is part of an organization’s business structure for getting things done in a new collaborative way. It uses social networking platforms to connect employees, customers, and suppliers. The goal of social business is to deepen interactions with groups inside and outside a company to expedite and enhance information-sharing, innovation, and decision-making.

Collaboration and social business are important because of the: • Changing nature of work. More jobs are becoming “interaction” jobs. These kinds of jobs require face-to-face interaction with other employees, managers, vendors, and customers. They require systems that allow the interaction workers to communicate, collaborate, and share ideas.

• Growth of professional work. Professional jobs in the service sector require close coordination and collaboration.

• Changing organization of the firm. Work is no longer organized in a hierarchical fashion as much as it is now organized into groups and teams who are expected to develop their own methods for accomplishing tasks.

• Changing scope of the firm. Work is more geographically separated than before.

• Emphasis on innovation. Innovation stems more from groups and teams than it does from a single individual.

• Changing culture of work and business. Diverse teams produce better outputs, faster, than individuals working on their own.

(Learning Objective 2-3: Why are systems for collaboration and social business so important, and what technologies do they use? AACSB: Application of knowledge.)

List and describe the business benefits of collaboration and social business.

The general belief is that the more a business firm is collaborative in nature, the more successful it will be and that collaboration within and among firms is more essential than in the past. The overall economic benefits of collaboration and social business are significant.

The business benefits of collaboration and social business are listed in Table 2-3: • Productivity: people working together accomplish tasks faster, with fewer errors, than those working alone.

• Quality: people can communicate errors and correct them faster when working together versus working alone.

• Innovation: people working in groups can generate more innovative ideas than if they were working alone.

• Customer service: people working in teams can solve customer complaints and issues faster and more effectively versus working in isolation.

• Financial performance: collaborative firms have superior sales, sales growth, and financial performance.

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(Learning Objective 2-3: Why are systems for collaboration and social business so important, and what technologies do they use? AACSB: Application of knowledge.)

Describe a supportive organizational culture and business processes for collaboration.

Historically, organizations were built on hierarchies which did not allow much decision making, planning, and organizing at lower levels of management or by employees. Communications were generally vertical through management levels rather than horizontal between groups of employees.

A collaborative culture relies on teams of employees to implement and achieve results for goals set by senior managers. Policies, products, designs, processes, and systems are much more dependent on teams at all levels of the organization to devise, to create, and to build. Rather than employees being rewarded for individual results, they are rewarded based on their performance in a team. The function of middle managers in a collaborative business culture is to build the teams, coordinate their work, and monitor their performance. In a collaborative culture, senior management establishes collaboration and teamwork as vital to the organization, and it implements collaboration for the senior ranks of the business as well. (Learning Objective 2-3: Why are systems for collaboration and social business so important, and what technologies do they use? AACSB: Application of knowledge.)

List and describe the various types of collaboration and social business tools.

Some of the more common enterprise-wide information systems that businesses can use to support interaction jobs include: • Internet-based collaboration environments like IBM Notes and WebEx provide online storage space for documents, team communications (separated from email), calendars, and audio-visual tools members can use to meet faceto-face.

• Email and Instant Messaging (IM) are reliable methods for communicating whenever and wherever around the globe.

• Cell phones and wireless handhelds give professionals and other employees an easy way to talk with one another, with customers and vendors, and with managers. These devices have grown exponentially in sheer numbers and in applications available.

• Social networking is no longer just “social.” Businesses are realizing the value of providing easy ways for interaction workers to share ideas and collaborate with each other.

• Wikis are ideal tools for storing and sharing company knowledge and insights. They are often easier to use and cheaper than more proprietary knowledge management systems. They also provide a more dynamic and current repository of knowledge than other systems.

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•

Virtual worlds house online meetings, training sessions, and “lounges” where real-world people meet, interact, and exchange ideas.

• Google tools, cyberlockers, and cloud collaboration allow users to quickly create online group-editable websites that include calendars, text, spreadsheets, and videos for private, group, or public viewing and editing.

• Microsoft SharePoint software makes it possible for employees to share their Office documents and collaborate on projects using Office documents as the foundation.

(Learning Objective 2-3: Why are systems for collaboration and social business so important, and what technologies do they use? AACSB: Application of knowledge.)

2-4 What is the role of the information systems function in a business?

Describe how the information systems function supports a business.

The information systems department is the formal organizational unit responsible for information technology services. The information systems department is responsible for maintaining the hardware, software, data storage, and networks that comprise the firm’s IT infrastructure. (Learning Objective 2-4: What is the role of the information systems function in a business? AACSB: Application of knowledge.)

Compare the roles played by programmers, systems analysts, information systems managers, the chief information officer (CIO), chief security officer (CSO), chief data officer (CDO) and chief knowledge officer (CKO).

• •

•

• •

Programmers are highly trained technical specialists who write the software instructions for computers.

Systems analysts constitute the principal liaisons between the information systems groups and the rest of the organization. The systems analyst’s job is to translate business problems and requirements into information requirements and systems.

Information systems managers lead teams of programmers and analysts, project managers, physical facility managers, telecommunications managers, or database specialists.

Chief information officer is a senior manager who oversees the use of information technology in the firm.

Chief security officer is responsible for information systems security in the firm and has the principle responsibility for enforcing the firm’s information security policy. The CSO is responsible for educating and training users and IS specialists about security, keeping management aware of security threats and breakdowns, and maintaining the tools and policies chosen to implement security.

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Chief data officer is responsible for enterprise-wide governance and utilization of information to maximize the value the organization can realize from its data. The CDO ensures the firm is collecting appropriate data, analyzing it appropriately, and using the results to support business decisions.

• Chief knowledge officer helps design programs and systems to find new sources of knowledge or to make better use of existing knowledge in organizational and management processes.

(Learning Objective 2-4: What is the role of the information systems function in a business? AACSB: Analytical thinking, Application of knowledge.)

Discussion Questions 2-5 How could information systems be used to support the order fulfillment process illustrated in Figure 2-1? What are the most important pieces of information these systems should capture? Explain your answer.

Student answers to this question will vary.

2-6 Identify the steps that are performed in the process of selecting and checking a book out from your college library and the information that flows among these activities. Diagram the process. Are there any ways this process could be improved to improve the performance of your library or your school? Diagram the improved process.

Student answers to this question will vary.

2-7 Use the time/space collaboration and social tool matrix to classify the collaboration and social technologies used by the Sharp Corporation.

Student answers to this question will vary.

Hands-on MIS Projects Management Decision Problems 2-8 Don’s Lumber Company: The prices of lumber and other building materials are constantly changing. When a customer inquires about the price of pre-finished wood flooring, sales representatives consult a manual price sheet and then call the supplier for the most recent price. The supplier in turn uses a manual price sheet, which has been updated each day. Often the supplier must call back Don’s sales reps because the company does not have the newest pricing information immediately on hand.

Assess the business impact of this situation, describe how this process could be improved with information technology, and identify the decisions that would have to be made to implement a solution.

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Manually updating price sheets leads to slower sales processes, pricing errors if sales reps are using outdated information, and customer dissatisfaction due to delays in obtaining information. By putting the data online using an extranet and updating it as necessary, sales reps consult the most current information immediately. That leads to faster sales and more satisfied customers. Necessary decisions include how much information to make available online, who will have access to it, and how to keep the information secure. Senior management would likely make these decisions. (Learning Objective 2-1: What are business processes? How are they related to information systems? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

2-9 Henry’s Hardware: Owners do not keep automated, detailed inventory or sales records. Invoices are not maintained or tracked (other than for tax purposes). The owners use their own judgment in identifying items that need to be reordered. What is the business impact of this situation? How could information systems help Henry and Kathleen run their business? What data should these systems capture? What decisions could the systems improve?

The business impact includes lost sales, over- and under-ordering products, improper sales accounting, and more costly inventory control. An information system could capture data that allows owners to maintain proper inventories, order only those products needed, and ensure proper sales accounting. Decisions on pricing, product levels, and inventory replenishment could be vastly improved based on data and not a best-guess venture. (Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Analytical thinking, Application of knowledge.)

Improving Decision Making: Using a Spreadsheet to Select Suppliers Software skills: Spreadsheet date functions, data filtering, DAVERAGE function Business skills: Analyzing supplier performance and pricing 2-10 Although the format of the student’s answers will vary, a suggested solution can be found in the Microsoft Excel File named: MIS16ch02_solutionfile.xls.

This exercise requires some student knowledge of spreadsheet database functions.

At a minimum, students should know how to sort the database by various criteria such as item description, item cost, vendor number, vendor, name, or A/P terms.

Students may need to be told that A/P Terms is expressed as the number of days that the customer has to pay the vendor for a purchase. In other words, 30 designates net 30 days. The vendor that allows customers the longest amount of time to pay for an order would, of course, offer the most favorable payment terms.

Students will need to add additional columns for calculating the actual delivery time for each order and the number of days the delivery is late. The Actual Delivery Time can be calculated by subtracting the Promised Ship Date from the Arrival 2-18 ..

Date. The number of days late can be calculated by subtracting the Promised Transit Time from the Actual Delivery Time. If the number of days late is negative, it indicates that the order arrived early.

These numbers are useful when trying to determine which vendor has the best ontime delivery track record. Students can use the DAVERAGE function to determine the average delivery time for each vendor. Students can also use one of the database functions to determine the vendor with the best accounts payable terms. To determine the vendor with the lowest prices for the same item when it is supplied by multiple vendors, students can filter the database using the item description. This filtered list can then be sorted by item cost and vendor number. (Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Written and oral communication, Analytical thinking, Application of knowledge.)

Achieving Operational Excellence: Using Internet Software to Plan Efficient Transportation Routes Software skills: Internet-based software Business skills: Transportation planning 2-11 Student answers will vary due to Google adjusting times based on time of day and conditions. Only to show how convenient these kinds of online tools are, ask students to use a regular map and calculator to draw out the two routes. (Lots of ughs!) (Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? AACSB: Analytical thinking, Application of knowledge.)

Shortest distance: 10 hours, 11 minutes; 506.56 miles Shortest time: 8 hours, 35 minutes; 533.61 miles

Collaboration and Teamwork Project 2-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, or Google Sites to complete the assignment.

Case Study: Is Social Business Good Business?

2-13 Identify the management, organization, and technology factors affecting adoption of internal corporate social networks.

Management: Employees that are used to collaborating and doing business in more traditional ways need an incentive to use social software. Most companies are not 2-19 ..

providing that incentive: only a small number of social software users believe the technology to be necessary to their jobs. A successful social business strategy requires leadership and behavioral changes. Just sponsoring a social project is not enough—managers need to demonstrate their commitment to a more open, transparent work style.

Organization: Companies that have tried to deploy internal social networks have found that employees are used to doing business in a certain way and overcoming the organizational inertia and culture can prove difficult. Enterprise social networking systems were not at the core of how most of the surveyed companies collaborate. The social media platform that will work best depends on its specific business purpose. Firms should first identify how social initiatives will improve work practices for employees and managers. Most importantly, social business requires a change in thinking and in most cases, employees cannot be forced to use social business apps.

Technology: Ease of use and increased job efficiency are more important than peer pressure in driving adoption of social networking technologies. Content on the networks needs to be relevant, up-to-date, and easy to access; users need to be able to connect to people who have the information they need, and that would otherwise be out of reach or difficult to reach. (Learning Objective 2-1: What are business processes? How are they related to information systems? Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance?, Learning Objective 2-3: Why are systems for collaboration and social business so important, and what technologies do they use?, AACSB: Analytical thinking, Application of knowledge.)

2-14 Compare the experiences implementing internal social networks of the organizations described in this case. Why was Standard Bank successful? What role did management play in this process?

NASA’s Goddard Space Flight Center abandoned its enterprise social network called Spacebook because no one knew how the tools would help people do their jobs better and more efficiently. It did not focus enough on people or take into consideration the organization’s culture and politics.

Northwards Housing, a nonprofit organization providing affordable housing services in Manchester, England, has an open organizational culture, which encourages two-way communication and information transparency. Northwards has 340 employees, who do everything from rent collection to scheduling repairs and cleaning maintenance. The organization wanted a way of exchanging information internally and with its customers that was easy to use and did not require much time for technical updates. Northwards introduced Yammer in 2012 and now has 85 percent of employees engaged with the network.

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The use of Yammer at Standard Bank started to take off in 2013, when the bank staged an important conference for its executives around the world. They were looking for a collaborative platform for communicating conference logistics and posting content such as PowerPoint presentations. Many agencies and consultants who worked for the bank used Yammer and liked the tool. Once conference participants saw how intuitive and useful Yammer was and they wanted to use it in their own operations. Usage exploded, and the Yammer social network grew to over 20,000 users just six months after Standard Bank adopted the Enterprise version.

Belinda Carreira, Standard Bank’s Executive Head of Interactive Marketing notes that successful adoption and use of a social tool such as Yammer will hit roadblocks without proper planning and organizational buy-in. Many factors must be considered. Carreira recommends that Yammer implementors work closely with their organization’s IT department, risk and compliance teams, human resources, communications department, and executive leadership across the organization.

(Learning Objective 2-2: How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? Learning Objective 2-3: Why are systems for collaboration and social business so important, and what technologies do they use?, AACSB: Analytical thinking, Application of knowledge.)

2-15 Should all companies implement internal enterprise social networks? Why or why not?

Yes, companies should implement internal enterprise social networks, if for no other reason than they are cheaper and easier than other systems to operate and reduce expenses in other areas. The systems also improve productivity, in some cases dramatically. Companies should provide incentives if they must to encourage adoption of the new collaboration methods. Executives should be the first to use them which will speed their adoption. Executives must also tie these networks to financial results. Management must also encourage the necessary organizational cultural changes to help make the social networking tools a success. (Learning Objective 2-1: What are business processes? How are they related to information systems? Learning Objective 2-3: Why are systems for collaboration and social business so important, and what technologies do they use?, AACSB: Analytical thinking, Application of knowledge.)

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Chapter 3 Information Systems, Organizations, and Strategy Student Learning Objectives 3-1 Which features of organizations do managers need to know about to build and use information systems successfully?

3-2 What is the impact of information systems on organizations?

3-3 How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems?

3-4 What are the challenges posed by strategic information systems, and how should they be addressed?

3-5 How will MIS help my career Learning Catalytics is a “bring your own device” student engagement, assessment, and classroom intelligence system. It allows instructors to engage students in class with realtime diagnostics. Students can use any modern, web-enabled device (smartphone, tablet, or laptop) to access it. For more information on using Learning Catalytics in your course, contact your Pearson Representative.

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Agency theory, 87 Benchmarking, 101 Best practices, 101 Business ecosystem, 105 Competitive forces model, 91 Core competency, 103 Disruptive technologies, 84 Efficient customer response system, 93 Mass customization, 95 Network economics, 104 Organization, 79

Platform, 105 Primary activities, 100 Product differentiation, 92 Routines, 82 Support activities, 101 Switching costs, 98 Transaction cost theory, 87 Value chain model, 100 Value web, 102 Virtual company, 104

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Teaching Suggestions The opening case, “Walmart’s New Supercenter Strategy” illustrates some of the ways that information systems help businesses compete and also the challenges of sustaining a competitive advantage.

What may be the most interesting part of this vignette is how initially when Walmart tried to create a profitable e-commerce presence, they experienced significant losses.

They decided that supercenters would be the best way to leverage the online space with online grocery pickup or delivery service run out of the stores.

Walmart also determined they could use the supercenters to sell warehouse and shipping capacity to third parties selling through them. They could use the data they amass on hundreds of millions of customers to sell online advertising.

An interesting aspect of this case that jumps into the chapter’s material nicely is how companies find it necessary to change their business strategies over time, or at least fine tune them. This vignette illustrates how businesses must continually change their core strategy in response to changes brought about by their internal and external environment.

Section 3-1, “Which features of organizations do managers need to know about to build and use information systems successfully?” The chapter begins by dissecting an organization from both a technical and behavioral point of view. The technical definition focuses on three elements: capital and labor; inputs from the environment; and outputs to the environment. See Figure 3-2. The behavioral view emphasizes group relationships, values, and structures as shown in Figure 3-3. These two definitions are not contradictory. The technical definition focuses on thousands of firms in competitive markets while the behavioral definition focuses on individual firms and an organization’s inner workings.

All organizations have certain characteristics: routines and business processes, politics, culture, reciprocal relationship with environments, and structure. Table 3-2 defines the five organizational structures.

Most students belong to organizations of some kind. You can generate some dynamic discussions by having students determine the type of structure some of their organizations are. For instance, if they work at Starbucks, which organizational type is the company? If they work at a retail store, they may have a much different type of organization.

Perhaps the best, and most fun, part of this section focuses on disruptive technologies.

Ask students to define other disruptive technologies they may have experience with other than just those in Table 3-1. For instance, electric cars vs. gasoline-fueled cars, Internet Radio vs. CD players, and satellite radio vs. local radio, are all examples of disruptive technologies currently taking place.

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Section 3-2, “What is the impact of information systems on organizations” By understanding that information systems impact organizations two ways, economically and behaviorally, students can understand that technological change is much more than just updating computer hardware and software. Technology becomes a substitute for traditional capital like labor, buildings, and machinery. The transaction cost theory says that firms and individuals seek to economize on transaction costs much as they do on production costs. Information technology helps lower transaction costs by making it cheaper and easier to communicate and collaborate with external suppliers instead of trying to do everything in-house. The agency theory says that a firm is viewed as a “nexus of contracts” among self-interested individuals rather than as a unified, profitmaximizing entity. Information technology reduces agency costs by reducing the number of managers necessary to supervise the individual agents (employees). The impact of information technology on both of these theories shows why firms can reduce the number of employees while maintaining or increasing the levels of production.

From a behavioral standpoint, information technology flattens or reduces the levels of hierarchy in an organization because information flows more freely and more widely through the firm. Decision making is pushed to lower levels of the hierarchy. Managers make decisions faster and better because more information is available more quickly and accurately, thanks to information technology. Professional workers become more selfmanaging. Decision making becomes more decentralized. Workers rotate from team to team depending on the tasks at hand.

Now, ask your students these questions from the text: • Who makes sure that self-managed teams do not head off in the wrong direction?

• Who decides which person works on which team and for how long?

• How can managers evaluate the performance of someone who is constantly rotating from team to team?

• How do people know where their careers are headed?

It’s very important for students to understand that the most common reason large IT projects fail is not the failure of technology, but because of organizational and political resistance to change. People simply do not like change and will resist it in a variety of ways. Ask students to analyze companies that have struggled with major organizational change like Daimler-Chrysler and even Microsoft. By understanding that the introduction of new information systems involves more than just plunking down new computers on employees’ desks, students can realize that new systems involve changes to tasks, organizational structure, and people.

Most importantly, information systems must be built with a clear understanding of the organization in which they will be used. What works for one company may not work for another. As information systems like SAP and SalesForce.com proliferate, the danger is that these systems will not work in organizations whose structures are not a good fit. In those cases, the organization must align itself with the information system rather than the other way around.

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Section 3-3, “How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems?” This section is one of the most critical sections in the text. Understanding business strategy and how information systems can aid employees in making far-reaching and deep-rooted decisions is critical to the long-range success of any corporation. At this point, students need to focus on business level strategies and the various ways firms achieve an advantage over other firms. They will learn how to use these strategies in order to address a key question: How can we compete effectively in a particular market?

The firm-level and industry-level strategies are analyzed in this section, and a key analytical tool, Porter’s Competitive Forces model, is introduced. The model focuses on four strategic areas: traditional competitors, new market entrants, substitute products, customers, and suppliers.

A great exercise is to have students name businesses and companies that use information system strategies for dealing with competitive forces: low cost leadership, product differentiation, focus on market niche, and strengthening customer and supplier intimacy.

Ask your working students to describe the strategies pursued by their organizations.

Interactive Session: Organizations: Shipping Wars Case Study Questions 1. Why is shipping so important for e-commerce? Explain your answer.

Convenient and seamless online ordering and shipping processes, along with free or low-cost delivery or two-day delivery, are a source of competitive advantage for online merchants over traditional brick-and-mortar retailers.

2. Compare the shipping strategies of Amazon, FedEx, and UPS? How are they related to each company’s business model?

Amazon is building a fleet of delivery vans and expanding its fleet of Boeing 737 and 767 airplanes for this purpose. Amazon Air is a cargo airline operating exclusively to transport Amazon packages. Amazon is not trying to replace these other shippers but does want to gain some control over logistics in order to guarantee that Amazon Prime members get their two-day shipping on time and that it has capability to handle very large sales volumes during the holidays or bad weather periods. Amazon will also save on costs.

The direction FedEx has chosen calls for focusing on its ground delivery service and establishing new partnerships with other retailers and brands to serve the broader e-commerce market. FedEx thinks it can overtake Amazon and become the fastest, most cost-efficient e-commerce delivery service.

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Unlike FedEx, UPS is deepening its ties to Amazon. It wants to stay neutral, whereas FedEx has broken away from Amazon in favor of courting the brick-and-mortar retailers. UPS is also relying more on the U.S. Postal Service, especially for Sunday deliveries.

3. Will FedEx succeed in its push into ground shipping? Why or why not?

Student answers will vary.

Interactive Session: Management: Customer Experience Management: A New Strategic Weapon Case Study Questions 1. What is customer experience management? How can it contribute to competitive advantage?

Customer experience is distinguished from customer service in that it encompasses the entire customer journey—all the interactions between a customer and a company throughout their entire business relationship, including awareness, discovery, cultivation, advocacy, purchases, and service. Companies that implemented a successful customer experience strategy achieved higher customer satisfaction, increasing revenues and reducing customer turnover. Customers are willing to pay prices higher by as much as 13 percent if they have had a great customer experience.

2. How does information technology support customer experience management? Give examples.

Technology allows for companies to recognize issues, then make quicker changes in response to those issues on their platforms. Amazon’s shipping times were too long, so Amazon created its own Prime shipping network. Checking out was too difficult, so Amazon introduced one-click ordering for Prime customers. Customers were not loyal to the Amazon brand—they looked for the best price wherever it was available.

Amazon Prime is a subscription service for which you pay a monthly or annual fee.

This decreases price sensitivity because customers feel like they are missing out if they do not take advantage of the fast shipping they’d already paid for.

Netflix’s subscribers had indicated they wanted a service to highlight coming attractions, so the company tested a large preview unit at the top of the screen.

However, although customers had asked for this capability, they did not use it, and the unit was actually making it harder for users to reach programs they wanted to view right away. Netflix solved the problem by moving the coming attractions to a section viewers could navigate to if they were interested.

3. How did information technology and customer experience management change operations and decision making at the organizations described in this case?

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It allowed these companies to understand customer issues and react in a way to make the experience more user friendly by switching the way they ran their operations. This was made much easier using technology.

Section 3-4: “What are the challenges posed by strategic information systems, and how should they be addressed?” This section reinforces the idea that information systems should be subservient to business objectives. Have students use the information in the subsection “Management Checklist: Performing a Strategic Systems Analysis” to analyze an organization they are familiar with—the school they are attending or a place where they may have worked.

Take the opportunity to remind students that “Aligning IT with Business Objectives” is one of the most important concepts they’ll learn in this class. Technology must serve the business and business people must take an active role in helping shape IT in a business.

Section 3-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level business development representative. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 3-1 Which features of organizations do managers need to know about to build and use information systems successfully?

Define an organization and compare the technical definition of organizations with the behavioral definition.

Students can make use of Figures 3-2 and Figure 3-3 in answering this question.

The technical definition defines an organization as a stable, formal social structure that takes resources from the environment and processes them to produce outputs.

This definition of an organization focuses on three elements: capital, labor, and production and products for consumption. The technical definition also implies that organizations are more stable than an informal group, are formal legal entities, and are social structures.

The behavioral definition states that an organization is a collection of rights, privileges, obligations, and responsibilities that are delicately balanced over a period of time through conflict and conflict resolution. This definition highlights the people within the organization, their ways of working, and their relationships.

The technical definition shows us how a firm combines capital, labor, and information technology. The behavioral definition examines how information technology impacts the inner workings of the organization. (Learning Objective 3-1: 3-6 ..

Which features of organizations do managers need to know about to build and use information systems successfully? AACSB: Application of knowledge.)

Identify and describe the features of organizations that help explain differences in organizations’ use of information systems.

Common features for organizations include: • Routines and business processes: Standard operating procedures have been developed that allow the organization to become productive and efficient thereby reducing costs over time.

• Organizational politics: Divergent viewpoints about how resources, rewards, and punishments should be distributed bring about political resistance to organization change.

• Organizational culture: Assumptions that define the organizational goals and products create a powerful restraint on change, especially technological change.

• Organizational environments: Reciprocal relationships exist between an organization and environments; information systems provide organizations a way to identify external changes that might require an organizational response.

• Organizational structure: Information systems reflect the type of organizational structure—entrepreneurial, machine bureaucracy, divisionalized bureaucracy, professional bureaucracy, or adhocracy. (Learning Objective 3-1: Which features of organizations do managers need to know about to build and use information systems successfully? AACSB: Application of knowledge.)

3-2 What is the impact of information systems on organizations?

Describe the major economic theories that help explain how information systems affect organizations.

The two economic theories discussed in the book are transaction cost theory and agency theory. The transaction cost theory is based on the notion that a firm incurs transaction costs when it buys goods in the marketplace rather than making products for itself. Traditionally, firms sought to reduce transaction costs by getting bigger, hiring more employees, through vertical and horizontal integration, and with smallcompany takeovers.

Information technology helps firms lower the cost of market participation (transaction costs) and helps firms shrink in size while producing the same or greater amount of output.

The agency theory views the firm as a nexus of contracts among interested individuals. The owner employs agents (employees) to perform work on his or her 3-7 ..

behalf and delegates some decision-making authority to the agents. Agents need constant supervision and management, which introduces management costs. As firms grow, management costs rise. Information technology reduces agency costs by providing information more easily so that managers can supervise a larger number of people with fewer resources. (Learning Objective 3-2: What is the impact of information systems on organizations? AACSB: Application of knowledge.)

Describe the major behavioral theories that help explain how information systems affect organizations.

Behavioral theories, from sociology, psychology, and political science, are useful for describing the behavior of individual firms. Behavioral researchers theorize that information technology could change the decision-making hierarchy by lowering the costs of information acquisition and distribution. IT could eliminate middle managers and their clerical support by sending information from operating units directly to senior management and by enabling information to be sent directly to lower-level operating units. It even enables some organizations to act as virtual organizations because they are no longer limited by geographic locations.

One behavioral approach views information systems as the outcome of political competition between organizational subgroups. IT becomes very involved with this competition because it controls who has access to what information, and information systems can control who does what, when, where, and how. (Learning Objective 3-2: What is the impact of information systems on organizations? AACSB: Application of knowledge.)

Explain why there is considerable organizational resistance to the introduction of information systems.

There is considerable organizational resistance to new information systems because they change many important organizational dimensions, such as culture, structure, politics, and work. Leavitt puts forth a model that says that changes in technology are absorbed, deflected, and defeated by organizational task arrangements, structures, and people. In this model the only way to bring about change is to change the technology, tasks, structure, and people simultaneously. In a second model, the authors speak of the need to unfreeze organizations before introducing an innovation, quickly implementing the new system, and then refreezing or institutionalizing the change.

(Learning Objective 3-2: What is the impact of information systems on organizations? AACSB: Analytical thinking.)

Describe the impact of the Internet and disruptive technologies on organizations.

The Internet increases the accessibility, storage, and distribution of information and knowledge for organizations; nearly any information can be available anywhere at any time. The Internet increases the scope, depth, and range of information and knowledge storage. It lowers the cost and raises the quality of information and knowledge distribution. That is, it lowers transaction costs and information 3-8 ..

acquisition costs. By using the Internet, organizations may reduce several levels of management, enabling closer and quicker communication between upper levels of management and lower levels. The Internet also lowers agency costs.

Disruptive technologies caused by technological changes can have different effects on different companies depending on how they handle the changes. Some companies create the disruptions and succeed very well. Other companies learn about the disruption and successfully adopt it. Other companies are obliterated by the changes because they are very efficient at doing what no longer needs to be done. Some disruptions mostly benefit the firm. Other disruptions mostly benefit consumers.

(Learning Objective 3-2: What is the impact of information systems on organizations? AACSB: Application of knowledge.)

3-3 How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems?

Define Porter’s competitive forces model and explain how it works.

This model provides a general view of the firm, its competitors, and the firm’s environment. Porter’s model is all about the firm’s general business environment. In this model, five competitive forces shape the fate of the firm: • Traditional competitors • New market entrants • Substitute products and services • Customers • Suppliers (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems?

AACSB: Application of knowledge.)

Describe what the competitive forces model explains about competitive advantage.

Some firms do better than others because they either have access to special resources that others do not, or they are able to use commonly available resource more efficiently. It could be because of superior knowledge and information assets.

Regardless, they excel in revenue growth, profitability, or productivity growth, ultimately increasing their stock market valuations compared to their competitors.

(Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Application of knowledge.)

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List and describe four competitive strategies enabled by information systems that firms can pursue.

The four generic strategies, each of which often is enabled by using information technology and systems include: • Low-cost leadership: Lowest operational costs and the lowest prices.

• Product differentiation: Enable new products and services, or greatly change the customer convenience in using existing products and services.

• Focus on market niche: Enable a specific market focus and serve this narrow target market better than competitors.

• Strengthen customer and suppliers: Tighten linkages with suppliers and develop intimacy with customers. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Application of knowledge.)

Describe how information systems can support each of these competitive strategies and give examples.

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Low-cost leadership: Use information systems to improve inventory management, supply management, and create efficient customer response systems. Example: Walmart.

Product differentiation: Use information systems to create products and services that are customized and personalized to fit the precise specifications of individual customers. Examples: Google, eBay, Apple, Lands’ End. Focus on market niche: Use information systems to produce and analyze data for finely tuned sales and marketing techniques. Analyze customer buying patterns, tastes, and preferences closely in order to efficiently pitch advertising and marketing campaigns to smaller target markets. Examples: Hilton Hotels, Harrah’s.

Strengthen customer and supplier intimacies: Use information systems to facilitate direct access from suppliers to information within the company.

Increase switching costs and loyalty to the company. Examples: IBM, Amazon.com. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Application of knowledge.)

Explain why aligning IT with business objectives is essential for strategic use of systems.

The basic principle of IT strategy for a business is to ensure the technology serves the business and not the other way around. The more successfully a firm can align its IT with its business goals, the more profitable it will be. Business people must take an 3-10 ..

active role in shaping IT to the enterprise. They cannot ignore IT issues. They cannot tolerate failure in the IT area as just a nuisance to work around. They must understand what IT can do, how it works, and measure its impact on revenues and profits.

(Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Analytical thinking.)

Define and describe the value chain model.

The value chain model highlights specific activities in the business where competitive strategies can best be applied and where information systems will most likely have a strategic impact. The model identifies specific, critical leverage points where a firm can use information technology most effectively to enhance its competitive position.

The value chain model views the firm as a series of basic activities that add a margin of value to a firm’s products or services. The activities are categorized as either primary or support activities. Primary activities are most directly related to production and distribution of the firm’s products and services, which create value for the customer. Support activities make the delivery of primary activities possible and consist of organization infrastructure. A firm’s value chain can be linked to the value chains of its suppliers, distributors, and customers. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Application of knowledge.)

Explain how the value chain model can be used to identify opportunities for information systems.

Information systems can be used at each stage of the value chain to improve operational efficiency, lower costs, improve profit margins, and forge a closer relationship with customers and suppliers. Organizations can use information systems to help examine how value-adding activities are performed at each stage of the value chain. Information systems can improve the relationship with customers (customer relationship management systems) and with suppliers (supply chain management systems) who may be outside the value chain but belong to an extended value chain.

Information systems can help businesses track benchmarks in the organization and identify best practices of their particular industries. After analyzing various stages in the value chain, an organization can devise a list of candidate applications for information systems. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Analytical thinking.)

Define the value web and show how it is related to the value chain.

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A value web is a collection of independent firms that use information technology to coordinate their value chains to collectively produce a product or service. It is more customer driven and operates in a less linear fashion than the traditional value chain.

The value web is a networked system that can synchronize the business processes of customers, suppliers, and trading partners among different companies in an industry or in related industries. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Application of knowledge.)

Explain how the value web helps businesses identify opportunities for strategic information systems.

Information systems enable value webs that are flexible and adaptive to changes in supply and demand. Relationships can be bundled or unbundled in response to changing market conditions. Firms can accelerate their time to market and to customers by optimizing their value web relationships to make quick decisions on who can deliver the required products or services at the right price and location.

Information systems make it possible for companies to establish and operate value webs. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Analytical thinking.)

Describe how the Internet has changed competitive forces and competitive advantage.

The Internet has nearly destroyed some industries and severely threatened others. The Internet has also created entirely new markets and formed the basis of thousands of new businesses. The Internet has enabled new products and services, new business models, and new industries to rapidly develop.

Because of the Internet, competitive rivalry has become much more intense. Internet technology is based on universal standards that any company can use, making it easy for rivals to compete on price alone and for new competitors to enter the market.

Because information is available to everyone, the Internet raises the bargaining power of customers, who can quickly find the lowest-cost provider on the web. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Application of knowledge.)

Explain how information systems promote synergies and core competencies.

A large corporation is typically a collection of businesses that are organized as a collection of strategic business units. Information systems can improve the overall performance of these business units by promoting synergies and core competencies.

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(Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Analytical thinking.)

Describe how promoting synergies and core competencies enhances competitive advantage.

The concept of synergy is that when the output of some units can be used as inputs to other units, or two organizations can pool markets and expertise, these relationships lower costs and generate profits. In applying synergy to situations, information systems are used to tie together the operations of disparate business units so that they can act as a whole.

A core competency is an activity for which a firm is a world-class leader. In general, a core competency relies on knowledge that is gained over many years of experience and a first-class research organization or simply key people who stay abreast of new external knowledge. Any information system that encourages the sharing of knowledge across business units enhances competency. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Application of knowledge.)

Explain how businesses benefit by using network economics and ecosystems.

In a network, the marginal costs of adding another participant are almost zero, whereas the marginal gain is much larger. The larger the number of participants in a network, the greater the value to all participants because each user can interact with more people.

The availability of Internet and networking technology has inspired strategies that take advantage of the abilities of the firm to create networks or network with each other. In a network economy, information systems facilitate business models based on large networks of users or subscribers that take advantage of network economies.

Internet sites can be used by firms to build communities of users that can result in building customer loyalty and enjoyment and build unique ties to customers, suppliers, and business partners. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Analytical thinking.)

Define and describe a virtual company and the benefits of pursuing a virtual company strategy.

A virtual company uses networks to link people, assets, and ideas, enabling it to ally with other companies to create and distribute products and services without being 3-13 ..

limited by traditional organizational boundaries or physical locations. One company can use the capabilities of another company without being physically tied to that company. The virtual company model is useful when a company finds it cheaper to acquire products, services, or capabilities from an external vendor or when it needs to move quickly to exploit new market opportunities and lacks the time and resources to respond on its own. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? AACSB: Application of knowledge.)

3-4 What are the challenges posed by strategic information systems, and how should they be addressed?

List and describe the management challenges posed by strategic information systems.

Information systems are closely intertwined with an organization’s structure, culture, and business processes. New systems disrupt established patterns of work and power relationships, so there is often considerable resistance to them when they are introduced.

Implementing strategic systems often requires extensive organizational change and a transition from one sociotechnical level to another. Such changes are called strategic transitions and are often difficult and painful to achieve. Moreover, not all strategic systems are profitable. They are expensive and difficult to build because they entail massive sociotechnical changes within the organization. Many strategic information systems are easily copied by other firms so that strategic advantage is not always sustainable. The complex relationship between information systems, organizational performance, and decision making must be carefully managed. (Learning Objective 3-4: What are the challenges posed by strategic information systems, and how should they be addressed? AACSB: Application of knowledge.)

Explain how to perform a strategic systems analysis.

Managers should ask the following questions to help them identify the types of systems that may provide them with a strategic advantage.

1. What is the structure of the industry in which the firm is located? Analyze the competitive forces at work in the industry; determine the basis of competition; determine the direction and nature of change within the industry; and analyze how the industry is currently using information technology.

2. What are the business, firm, and industry value chains for this particular firm?

Decide how the company creates value for its customers; determine how the firm uses best practices to manage its business processes; analyze how the firm leverages its core competencies; verify how the industry supply chain and customer base are changing; establish the benefit of strategic partnerships and

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value webs; clarify where information systems will provide the greatest value in the firm’s value chain.

3. Have we aligned IT with our business strategy and goals? Articulate the firm’s business strategy and goals; decide if IT is improving the right business processes and activities in accordance with the firm’s strategy; agree on the right metrics to measure progress toward the goals. (Learning Objective 3-4: What are the challenges posed by strategic information systems, and how should they be addressed? AACSB: Analytical thinking.)

Discussion Questions 3-5 It has been said that there is no such thing as a sustainable competitive advantage. Do you agree? Why or why not?

Student answers to this question will vary. In general, competitive advantages do not last forever although some can have a very long life.

3-6 It has been said that the advantage that leading-edge retailers such as Dell and Walmart have over their competition isn’t technology; it’s their management.

Do you agree? Why or why not?

Student answers to this question will vary.

3-7 What are some of the issues to consider in determining whether the Internet would provide your business with a competitive advantage?

Student answers to this question will vary.

Hands-On MIS Projects Management Decision Problems 3-8 Macy’s Inc.: Wants to tailor merchandise more to local tastes based on sales patterns in each individual store. How could information systems help management implement this new strategy? What pieces of data should these systems collect to help management make merchandising decisions that support this strategy?

By collecting small pieces of sales data such as size, style, price, and even the time of purchases, each individual store can analyze local sales. Demographic information pulled in from external sources would allow each store to analyze its local customers better and distinguish the typical customer most likely to shop there. Flattening the organizational hierarchy allows local store management to decide which items to stock rather than distant managers who may not be as aware of local trends.

Improving the efficient customer response system would directly link local consumer behavior to distribution and production and supply chains. Focusing on market niches 3-15 ..

would allow local Macy’s store managers to narrowly target local markets better than the competitors. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? Learning Objective 4: What are the challenges posed by strategic information systems, and how should they be addressed? AACSB: Analytical thinking, Application of knowledge.)

3-9 T-Mobile: Despite aggressive campaigns to attract customers with lower mobile phone prices, the company has been losing large numbers of its most lucrative twoyear contract subscribers. Management wants to know why so many customers are leaving and what can be done to entice them back. Are customers concerned about the level of customer service, uneven network coverage, or data plans? How can the company use information systems to help find the answer? What management decisions could be made using information from these systems?

Using the Strategic Systems Analysis in Section 3.4, management should consider these organizational features: • What are the competitive forces at work in the industry, specifically the relative power of suppliers, customers, and substitute services over prices?

• Is the basis of competition quality, price, or brand?

• How is the industry currently using information technology and is the organization behind or ahead of the industry in its application of information systems?

• How is the company creating value for the customer?

• What are the organization’s core competencies?

Management should make these decisions to ensure the strategy works: • Has senior management correctly articulated an appropriate business strategy and goals for the organization?

• Is the company using the right metrics to measure progress toward those goals? (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems?

AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

Improving Decision Making: Using a Database to Clarify Business Strategy Software skills: Database querying and reporting; database design Business skills: Reservation systems; customer analysis 3-10 This exercise encourages students to develop queries and reports to help them make better use of transaction data to understand their business. From analyzing these data, the hotel owners should be able to find ways of generating more revenue. The 3-16 ..

solutions provided here were created using the query wizard and report wizard capabilities of Access. Students can, of course, create more sophisticated reports if they wish, but valuable information can be obtained from simple query and reporting functions.

The existing database can be easily queried to find the average length of stay per room type, the average number of visitors per room type, and the base income per room during a specified period of time. One can see from these queries and reports that ocean-front rooms are the most popular and rooms overlooking side streets are the least popular. Side rooms appear to have the most occupants per room and longer average stays, suggesting that they are used primarily by budget-conscious families on vacation. The owners could consider raising the rates for ocean-front rooms or emphasize ocean views in their advertising and promotions. Additionally, they could step up promotions of their family vacation packages to increase occupancy rates for side rooms.

To answer questions more precisely about the strongest customer base or what types of packages to promote, additional information is required. The database would have to be modified to capture information on whether the rooms were actually rented using the vacation package, business discount package, or romantic weekend package options. The database could also be modified to more clearly identify discounts for long stays or extra charges for more than four guests. (The existing database reflects such discounts and charges in the room rate.) Students should be encouraged to think creatively about what other pieces of information should be captured on the database that would help the owners think strategically. The answers for the report can be found in the Microsoft Access File named: MIS16ch03solutionfile.mdb. (Learning Objective 3-3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? Learning Objective 4: What are the challenges posed by strategic information systems, and how should they be addressed? AACSB: Analytical thinking, Application of knowledge.)

Improving Decision Making: Using Web Tools to Configure and Price an Automobile Software skills: Internet-based software Business skills: Researching product information and pricing 3-11 Answers will vary a great deal, and with the option of choosing a car other than the Ford Escape, each student will more than likely turn in a different report. You might suggest that the students set up an Excel spreadsheet to use when comparing the auto information from each of the three web sites. This will allow them to see from lineto-line the differences and similarities between the prices, safety ratings, features, etc. Also, have the students write a brief summary of the two reviews they read concerning the autos they choose. Their final report should refer to the reviews to 3-17 ..

explain the decision they made and should include a review of the three web sites with suggestions for improvement. (Learning Objective 3: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? Learning Objective 3-4: What are the challenges posed by strategic information systems, and how should they be addressed? AACSB: Written and oral communication, Analytical thinking, Application of knowledge.)

Collaboration and Teamwork Project 3-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, or Google Sites to complete the assignment.

Case Study: Is Time Running Out for Bed Bath & Beyond?

3-13 Analyze Bed Bath & Beyond using the competitive forces and value chain models.

Bed Bath & Beyond has started to focus on their market niche and is working to do a better job showcasing products in the online space before customers even come to a store. They are also implementing changes in their technology to be a low-cost leader among their competitors with the ability to more quickly be able to react and adjust their pricing. (Learning Objective 3-1: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies use information systems for competitive advantage? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

3-14 Define the problem faced by Bed Bath & Beyond? What management, organization, and technology factors contributed to the problem?

It had fallen behind the times with its approach to selling and marketing, losing market share to established and emerging retailers with more innovative (and digitally enabled) ways of selling and cultivating customers. Bed Bath & Beyond is being outflanked by traditional retailers who had expanded their home goods presence, as well as e-commerce newcomers selling online directly to consumers.

Amazon, Walmart, and Target have launched cheaper private label home goods brands, and Wayfair is also coming on strong, with aggressive advertising campaigns.

Bed Bath & Beyond was too immersed in the past, relying on coupons to attract shoppers and a “pile it high” mentality that overcluttered stores, making them hard to shop at. According to former Bed Bath and Beyond marketing executive Amy Laskin, management did not understand how to compete in a new digital environment.

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The company espoused a very frugal culture, where employees and managers were not allowed to use Post-it Notes because they were considered too expensive. Until recently many employees lacked laptops, or the company-issued ones were outdated.

This mindset, along with a lack of a sense of urgency, may have helped the company in earlier times, but it discouraged management from investing heavily in technology or taking risks.

Bed Bath & Beyond took three years to make a website upgrade and two years to roll out a new customer loyalty program. The company would test new store concepts but rarely roll them out to the entire chain. Managers often fretted over minor details. Bed Bath & Beyond’s website was launched in 1999, but is believed to account for only 20 percent of its overall sales. Competitor Williams-Sonoma generates more than 50 percent of its sales online. Even after Bed Bath & Beyond updated its website 6 years ago, many e-commerce functions remained clumsy and antiquated. For example, at warehouses fulfilling online orders, products were picked and packed manually. Employees had to manually enter product descriptions and photos rather than having them automatically uploaded. (Learning Objective 3-1: How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies use information systems for competitive advantage? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

3-15 Evaluate the solution Bed Bath & Beyond is trying to implement. Will it be effective? Why or why not?

Bed Bath & Beyond’s technology investments focus on four key areas: merchandising, pricing, service, and digital experience. Bed Bath & Beyond has increased its IT group by nearly 500 people, many of whom have been assigned to the digital part of the business. Bed Bath & Beyond will focus on better integration of its systems to obtain a more comprehensive view of customers as they interact with the company across multiple channels. The company will try to connect and consolidate all of its data in one central platform, using more predictive modeling tools for optimization of pricing, markdowns, and direct mail campaigns. A new point-of-sale (POS) system automates many manual processes, with capabilities for personalized coupon offers.

An important new capability is the use of dynamic pricing (setting flexible prices for products and services based on current market demands) to optimize pricing decisions in real time. A large portion of Bed Bath & Beyond’s current product array is carried by its competitors. While the company is building a more differentiated product assortment, it can use competitive and dynamically changing prices to stand out from the crowd.

Bed Bath & Beyond has been transitioning to a “show more, carry less” approach in its stores. It intends to have a broad product assortment on display, but much of it will not be available for in-store purchases. Customers will have to order these items 3-19 ..

online either in the store or from home. The idea is that Bed Bath & Beyond cannot possibly stock every store with everything it sells, but it can display items to customers who can then take advantage of its online inventory. Experts point out that this approach is difficult to execute successfully, since forcing customers to defer purchases is not good sales practice. Home Depot was able to improve its profitability without adding more stores by adding more online efficiency, but that does not mean Bed Bath & Beyond can replicate its experience.

Student answers will vary on whether it will be effective or not.

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Chapter 4 Ethical and Social Issues in Information Systems Student Learning Objectives 4-1 What ethical, social, and political issues are raised by information systems?

4-2 What specific principles for conduct can be used to guide ethical decisions?

4-3 Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property?

4-4 How have information systems affected laws for establishing accountability, liability, and the quality of everyday life?

4-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Accountability, 127 Carpal tunnel syndrome (CTS), 148 Computer abuse, 146 Computer crime, 146 Computer vision syndrome (CVS), 150 Cookies, 133 Copyright, 136 Digital divide, 148 Digital Millennium Copyright Act, (DMCA), 139 Due process, 127 Ethical “no free lunch” rule, 128 Ethics, 122 Fair Information Practices (FIP), 130 General Data Protection Regulation (GDPR), 132 Golden Rule, 128 Immanuel Kant’s Categorical Imperative, 128 Information rights, 124 Informed consent, 135 Intellectual property, 136 4-1 ..

Liability, 127 Nonobvious relationship awareness (NORA), 126 Opt-in, 135 Opt-out, 135 Patent, 137 Privacy, 130 Profiling, 125 Repetitive stress injury (RSI), 148 Responsibility, 127 Risk Aversion Principle, 128 Safe harbor, 133 Slippery slope rule, 128 Spam, 146 Spyware, 134 Trade secret, 138 Trademarks, 138 Utilitarian Principle, 128 Web beacons, 134

Teaching Suggestions This is an interesting, stimulating chapter to present in class with the opportunity to create dynamic discussions. Your students will have a variety of opinions about the ethical issues presented in this chapter. You may want to open the discussion by asking if any students have had first-hand experiences with personal data compromises. You may also ask students how they defend themselves against misuse of information systems and data. Most of them probably don’t.

The opening case, “Your Smartphone: Big Brother’s Best Friend” shows that technology can be a double-edged sword. It can be the source of many benefits. It can also be used to track any number of metrics provided by you as a user of apps when you agree to the terms upon downloading.

By law these companies are required to describe their data collection practices, but most of the legal jargon they provide is hard for the average user to understand, and most do not read these legal disclosures.

Location data is shared among many companies and the regulation in this area is lacking so information is bought and sold regularly. It is important that users consider this when using apps, because while most of this data is not meant to be used for anything devious, they should consider how much information they want to willingly share.

Section 4-1, What ethical, social, and political issues are raised by information systems? Many people do not want to discuss or even think about technology-related ethical and social issues, at least not until a large scandal takes place that may affect them personally like the Target Department Store data breach that occurred in December 2013.

However, the use of new technology always presents these kinds of problems.

Throughout this chapter it is imperative that you discuss these issues so that students can see both the positive and negative sides of technology. It is important for students to understand that almost every technology improvement opens the door to potential misuse and abuse. Table 4-2 discusses technology trends that have helped create some of the ethical issues our society is now facing.

Ask your students to use Figure 4-1 to identify what they feel would be the five moral dimensions of information systems as it relates to their school. When asking them to complete this project, stress to them that the main management challenges posed by the ethical and social impact of information systems are the need to understand the moral risk of new technology and the difficulty of establishing corporate ethics policies that address information systems issues. For each of the five moral dimensions of information systems, corporations should develop a corporate ethics policy statement to guide individuals and to encourage appropriate decision making. The policy areas are: (1) information rights and obligations, (2) property rights and obligations, (3) system quality, (4) quality of life, (5) accountability and control.

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Section 4-2, What specific principles for conduct can be used to guide ethical decisions? This section provides the basic concepts of responsibility, accountability, and liability as they apply to information system issues. It is easy to blame problems on a computer system but you should remind students that behind every computer is a human being. People have the responsibility to make wise decisions about how information systems are used and how data are protected against abuse and misuse. Using the five-step process outlined in the subsection “Ethical Analysis” leads the way to abiding by the ethical principles. You may want to review how codes of conduct apply to each information system user and manager.

You may want to discuss recent legal activity regarding Twitter postings and web postings. Lawsuits alleging slander and libel have been filed against people posting tweets that target individuals and businesses. Even though most of these lawsuits have not been settled, students should understand the accountability issues associated with everything they do and say on the Internet.

Section 4-3, Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? This section is designed to teach students how they should protect information systems and data. Although most people immediately think of their own data, students should understand they will have a responsibility to protect other people’s data once they enter the workforce even if they do not work in the Information Technology Department.

Regardless of how many laws governments pass, they are only as effective as those people who abide by them. Compare the opt-out privacy practices of U.S. companies vs. the opt-in privacy policies practiced in European Union countries. Have students give examples of how U.S. companies would have to change their business processes to accommodate EU rules.

This section provides more detail about the five moral dimensions mentioned in the first section. Information technology makes it very easy to violate each of the dimensions. It’s important for students to understand that intellectual property rights extend to most of the content they’ll find on the Internet. Ask students how they would feel if they spent hours and hours creating content only to find out that someone else had swiped it and used it without permission or remuneration.

Section 4-4, How have Information systems affected laws for establishing accountability, liability, and the quality of everyday life? When discussing accountability, liability, and control, ask students if they have first-hand experience with data errors. Examples might include credit bureau errors, checking account errors, or incorrect information recorded in their student records. If so, ask them to explain the kinds of problems they experienced because of the errors. Then ask them to explain who they think should be responsible for detecting and correcting the errors.

Because most students probably have a Facebook account, it is a good way to discuss how involved they should be in determining a company’s privacy policies. Facebook has 4-3 ..

had thousands of customers complain about its lack of concern for users’ privacy; in fact, thousands of users have quit using Facebook because of this issue. Ask students if they are aware of Facebook’s privacy policy. Have they even read it? If not, why not? Are they concerned about the massive amount of data Facebook collects on them and that it uses their information to sell advertising, enriching the company but not the individual?

Ask students to research Facebook’s privacy policies and give their opinion.

Interactive Session: Management: The Boeing 737 MAX Crashes: What Happened and Why? Case Study Questions 1. What is the problem described in this case? Would you consider it an ethical dilemma? Why or why not?

Yes, the Boeing 737 Max crashes pose an ethical dilemma. Boeing was so intent on saving time and money with the 737 MAX that safety took a back seat. The company pressured the Federal Aviation Administration (FAA) to allow it to self-certify a large portion of the 737 MAX’s development. With little oversight, Boeing focused on improving fuel efficiency as much as possible in record time.

Boeing failed to disclose the complexity of the new system to the FAA and failed to provide adequate pilot documentation and training.

2. Describe the role of people, organization, and technology factors in the Boeing 737 MAX safety problems. To what extent was management responsible?

The original version of MCAS relied on data from at least two types of sensors, but Boeing’s final version used just one. In both the Lion Air and Ethiopian Air crashes, it was a single damaged sensor that sent the planes into irrecoverable nosedives.

According to three FAA officials, Boeing never disclosed this change to MCAS to FAA staff involved in determining pilot training needs. When Boeing asked to remove the description of the system from the pilot’s manual, the F.A.A. agreed.

Consequently, most MAX pilots did not know about the software until after the first crash.

Boeing did not provide 737 MAX test pilots with detailed briefings about how fast or steeply MCAS could push down a plane’s nose, and that the system relied on a single sensor—rather than two—to verify the accuracy of incoming data about the angle of a plane’s nose.

Lawsuits will ultimately determine the extent to which management was responsible.

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3. Is the solution provided by Boeing adequate? Explain your answer.

No. All 737 MAX planes are grounded and the future of the plane and Boeing itself are clouded. All pilots flying 737 MAX planes were never trained using flight simulators.

Instead, Boeing presented two-hour lessons about the new plane using iPads and gave pilots a 13-page handbook explaining differences between the 737 MAX and earlier 737 models. Boeing never trained pilots on the new MCAS software, and many pilots did not know this capability existed.

4. What steps could Boeing and the FAA have taken to prevent this problem from occurring?

For starters, Boeing could have fully disclosed the effects of moving the engine on flight capabilities and exactly what the software did to adjust for the stalling problem to the FAA. They could have provided sufficient training, documentation, and simulator software to enable pilots to fly the plane safely.

Interactive Session: Technology: Do Smartphones Harm Children? Maybe, Maybe Not Case Study Questions: 1. Identify the problem described in this case study. In what sense is it an ethical dilemma?

One of the possible ethical dilemmas posed by the saturation of smartphones in society, and especially with young children, is the growing problem of the underdevelopment of social skills and relationships that become very valuable in business and in personal lives.

The average American teenager who uses a smartphone receives his or her first phone at age 10 and spends over 4.5 hours a day on it (excluding texting and talking). Seventy-eight percent of teens check their phones at least hourly and 50 percent report feeling “addicted” to their phones. Several studies have shown the negative effects of heavy smartphone and social media use on the mental and physical health of children whose brains are still developing. These range from distractions in the classroom to a higher risk of suicide and depression. A recent survey of over 2,300 teachers by the Center on Media and Child Health and the University of Alberta found that 67 percent of the teachers reported that the number of students who are negatively distracted by digital technologies in the classroom is growing. Seventy-five percent of these teachers think students’ ability to focus on educational tasks has decreased.

Research by psychology professor Jean Twenge of San Diego State University found that U.S. teenagers who spend 3 hours a day or more on electronic devices are 35 4-5 ..

percent more likely, and those who spend 5 hours or more are 71 percent more likely, to have a risk factor for suicide than those who spend less than 1 hour. This research also showed that eighth-graders who are heavy users of social media have a 27 percent higher risk of depression. Those who spend more than the average time playing sports, hanging out with friends in person, or doing homework have a significantly lower risk. Additionally, teens who spend 5 or more hours a day on electronic devices are 51 percent more likely to get less than 7 hours of sleep per night (versus the recommended 9).

2. Compare the research findings approving or disapproving of smartphone use among children and teenagers.

Some original research suggested that depression was tied to teenage use when it exceeded certain levels, but more recent research seems to suggest the correlations are not as nearly pronounced or valid. In most cases, the phone is a mirror revealing problems a child would have even without the phone.

3. Should restrictions be placed on children’s and teenagers’ smartphone use?

Why or why not?

Student opinions will vary on this question. However, studies and scientific data are continuing to show that restrictions on the use of smartphones by not just children and teenagers but also adults have a more positive affect on their overall well-being.

Section 4-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as a junior privacy analyst. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 4-1. What ethical, social, and political issues are raised by information systems?

Explain how ethical, social, and political issues are connected and give some examples.

Figure 4-1 can be used to answer this question. Information technology has raised new possibilities for behavior for which laws and rules of acceptable conduct have not yet been developed. The introduction of new information technology has a ripple effect, raising new ethical, social, and political issues that must be dealt with on the individual, social, and political levels. Ethical, social, and political issues are closely related. Ethical issues confront individuals who must choose a course of action, often in a situation in which two or more ethical principles are in conflict (a dilemma).

Social issues spring from ethical issues as societies develop expectations in individuals about the correct course of action. Political issues spring from social conflict and are mainly concerned with using laws that prescribe behavior to create situations in which individuals behave correctly.

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In giving examples, students can identify issues surrounding the five moral dimensions of the information age. These include: information rights and obligations, property rights and obligations, accountability and control, system quality, and quality of life. (Learning Objective 4-1: What ethical, social, and political issues are raised by information systems? AACSB: Ethical understanding and reasoning; analytical thinking.)

List and describe the key technological trends that heighten ethical concerns.

Table 4-2 summarizes the five key technological trends responsible for heightening ethical concerns. These trends include: • Computing power doubles every 18 months • Data storage costs rapidly declining • Data analysis advances • Networking advances and the Internet • Mobile device growth impact Increasing computer power, storage, and networking capabilities including the Internet can expand the reach of individual and organizational actions and magnify their impacts. The ease and anonymity with which information can be communicated, copied, and manipulated in online environments are challenging traditional rules of right and wrong behavior. (Learning Objective 4-1: What ethical, social, and political issues are raised by information systems? AACSB: Ethical understanding and reasoning; Application of knowledge.)

Differentiate between responsibility, accountability, and liability.

Responsibility is a key element of ethical actions. Responsibility means that you accept the potential costs, duties, and obligations for the decisions you make.

Accountability is a feature of systems and social institutions. It means that mechanisms are in place to determine who took responsible action.

Liability is a feature of political systems in which a body of laws is in place that permits individuals to recover the damages done to them by other actors, systems, or organizations. (Learning Objective 4-1: What ethical, social, and political issues are raised by information systems? AACSB: Ethical understanding and reasoning; analytical thinking.)

4-2. What specific principles for conduct can be used to guide ethical decisions?

List and describe the five steps in an ethical analysis.

The five steps in ethical analysis are: • Identify and describe clearly the facts.

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• Define the conflict or dilemma and identify the higher-order values involved.

• Identify the stakeholders.

• Identify the options that you can reasonably take.

• Identify the potential consequences of your options.

(Learning Objective 4-2: What specific principles for conduct can be used to guide ethical decisions? AACSB: Ethical understanding and reasoning; Application of knowledge.)

Identify and describe six ethical principles.

Six ethical principles are available to judge conduct. These principles are derived independently from several cultural, religious, and intellectual traditions and include: • Golden Rule—Do unto others as you would have them do unto you.

• Immanuel Kant’s Categorical Imperative—If an action is not right for everyone to take, it is not right for anyone.

• Descartes’ rule of change—If an action cannot be taken repeatedly, it is not right to take at all.

• Utilitarian Principle—Take the action that achieves the higher or greater value.

• Risk Aversion Principle—Take the action that produces the least harm or the least potential cost.

• “No free lunch” rule—Assume that virtually all tangible and intangible objects are owned by someone else unless there is a specific declaration otherwise.

These principles should be used in conjunction with an ethical analysis to guide decision making. The ethical analysis involves identifying the facts, values, stakeholders, options, and consequences of actions. Once completed, you can consider which ethical principle to apply to a situation to arrive at a judgment.

(Learning Objective 4-2: What specific principles for conduct can be used to guide ethical decisions? AACSB: Ethical understanding and reasoning; Application of knowledge.)

4-3. Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property?

Define privacy and Fair Information Practices.

Privacy is the claim of individuals to be left alone, free from surveillance, or interference from other individuals or organizations, including the state. Claims of privacy are also involved at the workplace.

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Fair information practices are a set of principles governing the collection and use of information about individuals. FIP principles are based on the notion of a mutuality of interest between the record holder and the individual. (Learning Objective 4-3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; Application of knowledge.)

Explain how the Internet challenges the protection of individual privacy and intellectual property.

Contemporary information systems technology, including Internet technologies, challenges traditional regimens for protecting individual privacy and intellectual property. Data storage and data analysis technology enables companies to easily gather personal data about individuals from many different sources and analyze these data to create detailed electronic profiles about individuals and their behaviors. Data flowing over the Internet can be monitored at many points. The activities of website visitors can be closely tracked using cookies, web beacons, and other web monitoring tools. Not all websites have strong privacy protection policies, and they do not always allow for informed consent regarding the use of personal information. (Learning Objective 4-3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; Analytical thinking.)

Explain how informed consent, legislation, industry self-regulation, and technology tools help protect the individual privacy of Internet users.

The online industry prefers self-regulation rather than having state and federal governments passing legislation that tightens privacy protection.

In February 2009, the FTC began the process of extending its fair information practices doctrine to behavioral targeting. The FTC held hearings to discuss its program for voluntary industry principles for regulating behavioral targeting. The online advertising trade group Network Advertising Initiative published its own self-regulatory principles that largely agreed with the FTC. Nevertheless, the government, privacy groups, and the online ad industry are still at loggerheads over two issues. Privacy advocates want both an opt-in policy at all sites and a national Do Not Track list. The industry opposes these moves and continues to insist on an opt-out capability being the only way to avoid tracking (Federal Trade Commission, 2009). Nevertheless, there is an emerging consensus among all parties that greater transparency and user control (especially making opt-out of tracking the default option) is required to deal with behavioral tracking.

Privacy protections have also been added to recent laws deregulating financial services and safeguarding the maintenance and transmission of health information about individuals. The Gramm-Leach-Bliley Act of 1999, which repeals earlier restrictions on affiliations among banks, securities firms, and insurance companies, includes some privacy protection for consumers of financial services. All financial 4-9 ..

institutions are required to disclose their policies and practices for protecting the privacy of nonpublic personal information and to allow customers to opt out of information-sharing arrangements with nonaffiliated third parties.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), which took effect on April 14, 2003, includes privacy protection for medical records. The law gives patients access to their personal medical records maintained by healthcare providers, hospitals, and health insurers and the right to authorize how protected information about themselves can be used or disclosed. Doctors, hospitals, and other healthcare providers must limit the disclosure of personal information about patients to the minimum amount necessary to achieve a given purpose. (Learning Objective 4-3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; Analytical thinking.)

List and define three different regimes that protect intellectual property rights?

Intellectual property is subject to a variety of protections under three different legal traditions: • Trade secrets • Copyright • Patent law Traditional copyright laws are insufficient to protect against software piracy because digital material can be copied so easily. Internet technology also makes intellectual property even more difficult to protect because digital material can be copied easily and transmitted to many different locations simultaneously over the Net. Web pages can be constructed easily using pieces of content from other websites without permission. (Learning Objective 4-3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; Application of knowledge.)

4-4. How have information systems affected laws for establishing accountability, liability, and the quality of everyday life?

Explain why it is so difficult to hold software services liable for failure or injury.

In general, insofar as computer software is part of a machine, and the machine injures someone physically or economically, the producer of the software and the operator can be held liable for damages. Insofar as the software acts like a book, storing and displaying information, courts have been reluctant to hold authors, publishers, and booksellers liable for contents (the exception being instances of fraud or defamation), and hence courts have been wary of holding software authors liable for book-like software.

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In general, it is very difficult (if not impossible) to hold software producers liable for their software products that are considered to be like books, regardless of the physical or economic harm that results. Historically, print publishers, books, and periodicals have not been held liable because of fears that liability claims would interfere with First Amendment rights guaranteeing freedom of expression.

Software is very different from books. Software users may develop expectations of infallibility about software; software is less easily inspected than a book, and it is more difficult to compare with other software products for quality; software claims actually to perform a task rather than describe a task, as a book does; and people come to depend on services essentially based on software. Given the centrality of software to everyday life, the chances are excellent that liability law will extend its reach to include software even when the software merely provides an information service. (Learning Objective 4-4: How have information systems affected laws for establishing accountability, liability, and the quality of everyday life? AACSB: Ethical understanding and reasoning; Analytical thinking.)

List and describe the principal causes of system quality problems?

Three principle sources of poor system performance are: • Software bugs and errors • Hardware or facility failures caused by natural or other causes • Poor input data quality Zero defects in software code of any complexity cannot be achieved and the seriousness of remaining bugs cannot be estimated. Hence, there is a technological barrier to perfect software, and users must be aware of the potential for catastrophic failure. The software industry has not yet arrived at testing standards for producing software of acceptable but not perfect performance. Although software bugs and facility catastrophes are likely to be widely reported in the press, by far the most common source of business system failure is data quality. Few companies routinely measure the quality of their data, but individual organizations report data error rates ranging from 0.5 to 30 percent. (Learning Objective 4-4: How have information systems affected laws for establishing accountability, liability, and the quality of everyday life? AACSB: Ethical understanding and reasoning; application of knowledge.)

Name and describe four quality of life impacts of computers and information systems.

Four quality of life impacts of computers and information systems include: • Jobs can be lost when computers replace workers or tasks become unnecessary in reengineered business processes.

• Ability to own and use a computer may be exacerbating socioeconomic disparities among different racial groups and social classes.

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• •

Widespread use of computers increases opportunities for computer crime and computer abuse.

Computers can create health problems, such as repetitive stress injury, computer vision syndrome, and technostress. (Learning Objective 4-4: How have information systems affected laws for establishing accountability, liability, and the quality of everyday life? AACSB: Ethical understanding and reasoning; information technology; application of knowledge.)

Define and describe computer vision syndrome and repetitive stress injury (RSI) and explain their relationship to information technology.

Computer vision syndrome refers to any eyestrain condition related to display screen use in desktop computers, laptops, e-readers, smartphones, and handheld video games. The condition affects about 90 percent of people who spend three hours or more per day at a computer. Its symptoms, which are usually temporary, include headaches, blurred vision, and dry and irritated eyes.

Repetitive stress injury (RSI) is avoidable. RSI occurs when muscle groups are forced through repetitive actions often with high-impact loads or tens of thousands of repetitions under low-impact loads such as working at a computer keyboard.

Three management actions that could reduce RSI injuries include: • Designing workstations for a neutral wrist position and using proper monitor stands and footrests all contribute to proper posture and reduced RSI. • Using ergonomically designed devices such as keyboards and mice are also options.

• Promoting and supporting frequent rest breaks and rotation of employees to different jobs.

(Learning Objective 4-4: How have information systems affected laws for establishing accountability, liability, and the quality of everyday life? AACSB: Ethical understanding and reasoning; information technology; application of knowledge.)

Discussion Questions 4-5 Should producers of software-based services, such as ATMs, be held liable for economic injuries suffered when their systems fail?

Student answers to this question will vary.

4-6 Should companies be responsible for unemployment their information systems cause? Why or why not?

Student answers to this question will vary.

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4-7 Discuss the pros and cons of allowing companies to amass personal data for behavioral targeting.

Student answers to this question will vary.

Hands-on MIS Projects Management Decision Problems 4-8 InfoFree’s website is linked to massive databases that consolidate personal data on millions of people. Users can purchase marketing lists of consumers broken down by location, age, gender, income level, home value, and interests. One could use this capability to obtain a list, for example, of everyone in Peekskill, New York, making $150,000 or more per year. Do data brokers such as InfoFree raise privacy issues?

Why or why not? If your name and other personal information were in this database, what limitations on access would you want in order to preserve your privacy?

Consider the following data users: government agencies, your employer, private business firms, other individuals.

To answer these questions, students should be clear on what constitutes an ethical dilemma. As such, a dilemma is described as two diametrically opposed courses of action that support worthwhile values. There are several valid reasons why data is being collected and sold. For example, marketers buy lists of consumers broken down by location, demographics, and interests. Their purpose in doing so is to market their products and services more efficiently. Governments buy data to be used in law enforcement and counterterrorism activities. These practices are done in order to protect the citizens of the country. However, the buying and selling of personal data can have a more sinister agenda. Often this data is bought and sold illegally, and it is used to conduct criminal activity, take benefits away from others, and even cause death and destruction.

The collection of personal information on individuals and their impending invasion of privacy are bound to have an ethical dilemma attached. One of the most prevalent and discussed elements of these ethical dilemmas has been connected to the invasion of privacy. We live in an “information society” and technology such as data gathering is viewed as being a double-edge sword. For example, after the September 11, 2001 terrorist attacks, ChoicePoint was very instrumental in helping the U.S. government screen candidates for the new federally controlled airport security workforce. However, shortly after that ChoicePoint themselves came under attack for unscrupulous data selling practices. (Learning Objective 4-1: What ethical, social, and political issues are raised by information systems? AACSB: Ethical understanding and reasoning; reflective thinking.)

4-9 Small insurance company: Examines the options businesses have for monitoring employee usage of the Internet. What kind of ethical dilemmas are created for 4-13 ..

employers and employees when a business monitors the activities of its employees?

Calculate the amount of time each employee spends on the web and then rank the employees in the order of the amount of time each spent online. Do the students’ findings and contents of the report indicate any ethical problems employees are creating? Is the company creating an ethical problem by monitoring its employees’ use of the Internet? Use the guidelines for ethical analysis presented in this chapter to develop a solution to the problems you have identified.

User Name

Total minutes

Legitimate minutes

Kelleher, Claire McMahon, Patricia Milligan, Robert Olivera, Ernesto Talbot, Helen Wright, Steven

248 127 155 40 260 38

96 44

35 15

Suspect minutes 152 83 155 40 225 23

Although it appears that most of the employees are using the Internet for non-business reasons, managers must be cautious about making accusations based on raw data. For instance, while Talbot may clearly be visiting personal, non-business websites like Nordstrom and eBay, perhaps she was asked by her supervisor to find a gift for another employee’s birthday. Employee Wright spent 15 minutes on the autobytel.com website.

This could very well be a legitimate use of the Internet since this is an insurance company. At first glance it appears that McMahon is abusing her Internet usage. But she may be spending 83 minutes on the iTunes site at the request of her boss.

The point is, managers may be creating not just an ethical problem but relationship problems with employees if simple raw data is used to make unfounded accusations.

(Learning Objective 4-1: What ethical, social, and political issues are raised by information systems? Learning Objective 4-4: How have information systems affected laws for establishing accountability, liability, and the quality of everyday life? AACSB: Ethical understanding and reasoning; analytical thinking, diverse and multicultural work environments, application of knowledge.)

Achieving Operational Excellence: Creating a Simple Blog Software skills: Blog creation Business skills: Blog and web page design 4-11 This exercise will not turn students into professional bloggers (although it might), but it will give them a feel for its basic functions. Students are asked to create a simple blog using software available at Blogger.com. Here are the elements they should include in their blog: •

Pick a sport, hobby, or topic of interest

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Name the blog, give it a title, and choose a template 4-14 ..

•

Post at least four entries

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Upload an image

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Add capabilities for other registered users

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Briefly describe how your blog could be useful to a company selling products or services

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List the tools available to Blogger that would make your blog more useful for business and describe the business uses of each

Each student’s blog will differ, depending on the content and design they have chosen. What students should take away from this exercise is that blogs are becoming legitimate business tools and not just social time-wasters. Many companies now encourage employees to blog as a way to communicate with other employees, customers, suppliers, and business partners. Blogs are becoming a vital tool for virtual companies and work teams. (Learning Objective 4-4: How have information systems affected laws for establishing accountability, liability, and the quality of everyday life? AACSB: Ethical understanding and reasoning; application of knowledge.)

Improving Decision Making: Analyzing Web Browser Privacy Software skills: Web browser software Business skills: Analyzing Web browser privacy protection features 4-11 This project will help develop Internet skills for using the privacy protection features of leading web browser software.

Examine the privacy protection features and settings for two leading web browsers, such as Internet Explorer, Microsoft Edge, Mozilla Firefox, or Google Chrome.

Make a table comparing the features of two of these browsers in terms of functions provided and ease of use.

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How do these privacy protection features protect individuals?

Internet Explorer and Edge uses InPrivate Filtering to help protect users’ web browsing trails: “InPrivate Filtering helps prevent website content providers from collecting information about sites you visit. Here’s how it works.

Many web pages use content—such as advertisements, maps, or web analysis tools— from websites other than the one you are visiting. These websites are called content providers or third-party websites. When you visit a website with third-party content, some information about you is sent to the content provider. If a content provider offers content to many of the websites you visit, the content provider could develop a profile of your browsing preferences. Profiles of browsing preferences can be used in a variety of ways, including for analysis and serving targeted advertisements.

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Usually this third-party content is displayed seamlessly, such as in an embedded video or image. The content appears to originate from the website you originally went to, so you may not know that another website might be able to see where you are surfing.

Web analysis or web measurement tools report website visitors’ browsing habits and are not always obvious to you. While these tools can sometimes appear as visible content (such as a visitor counter, for example), they are often not visible to users, as is often the case with web beacons. Web beacons are typically single-pixel transparent images whose sole purpose is to track website usage, and they do not appear as visible content.

InPrivate Filtering works by analyzing web content on the web pages you visit, and if it sees the same content being used on a number of websites, it will give you the option to allow or block that content. You can also choose to have InPrivate Filtering automatically block any content provider or third-party website it detects, or you can choose to turn off InPrivate Filtering.

Mozilla Firefox also uses privacy settings to prevent browsing tracking: “Most major websites track their visitors’ behavior and then sell or provide that information to other companies (like advertisers). Firefox has a Do Not Track feature that lets you tell websites you don’t want your browsing behavior tracked.

Tracking is a term that includes many different methods that websites, advertisers and others use to learn about your web browsing behavior. This includes information about what sites you visit, things you like, dislike and purchase. They often use this information to show ads, products or services specifically targeted to you.

When you turn on the Do Not Track feature, Firefox tells every website you visit (as well as their advertisers and other content providers) that you don’t want your browsing behavior tracked. Honoring this setting is voluntary — individual websites are not required to respect it. Websites that do honor this setting should automatically stop tracking your behavior without any further action from you.

Turning on Do Not Track will not affect your ability to log in to websites nor cause Firefox to forget your private information—such as the contents of shopping carts, location information or login information. Note: You may see less relevant advertising on websites if you have the Do Not Track option activated.

(Learning Objective 4-3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; written and oral communication, application of knowledge.)

•

How do these privacy protection features impact what businesses can do on the Internet?

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The privacy features disrupt the normal collection of individual data while they are in use. The features may not block the total collection of data, however. Businesses may be prevented from gaining a complete picture of an individual’s browsing habits rendering other data less useful in fully identifying a person. (Learning Objective 4-3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; written and oral communication, application of knowledge.)

•

Which browser does the best job of protecting privacy? Why?

Answers will vary based on individual preferences and experiences. For instance, some students may not care whether an employer can continue tracking pages they visit. Others may find it a nuisance to continually turn on the private filters for each tab window they use in the browser — as is the case with Internet Explorer. (Learning Objective 4-3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; written and oral communication, application of knowledge.)

Collaboration and Teamwork Project 4-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case: Facebook Privacy: Your Life for Sale 4-13 Perform an ethical analysis of Facebook. What is the ethical dilemma presented by this case?

The stakeholders involved in an ethical analysis of Facebook include Facebook (obviously), advertisers, device makers, data collecting agencies, Electronic Privacy Information Center (EPIC), governments and individual users.

Facebook collects an incredible amount of personal data on its users. It is using its ability to track online activity of its members to develop a frighteningly accurate picture of their lives. It gathers personal information about users, both with and without their consent, which can be used against them in other ways. It also collects data of friends of users without their knowledge or consent. All the data on users and users’ friends is available for sale.

Facebook’s goal is to get its users to share as much data as possible, because the more Facebook knows, the more accurately it can serve relevant advertisements and thus, charge higher fees to advertisers.

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Facebook’s critics are concerned that the repository of personal data of the size that Facebook has amassed requires protections and privacy controls that extend far beyond those that Facebook currently offers.

(Learning Objective 1: What ethical, social, and political issues are raised by information systems? AACSB: Ethical understanding and reasoning; Analytical thinking, Application of knowledge.)

4-14 What is the relationship of privacy to Facebook’s business model?

The less privacy Facebook offers to its users, the more valuable and useful its business model becomes. By providing more privacy to its users, the less data it collects, stores, and provides to advertisers. That makes its business model less valuable because advertisements cannot be as fully developed for individual users.

Facebook CEO Mark Zuckerberg says that people want the world to be more open and connected. He also wants the world to be more open and connected because his company stands to make more money in that world.

While Facebook has shut down several of its more egregious privacy-invading features, and enhanced its consent process, the company’s data use policies make it very clear that, as a condition of using the service, users grant the company wide latitude in using their personal information in advertising. The default option for users is “opt-in”; most users do not know how to control use of their information; and they cannot “opt out” of all sharing if they want to use Facebook. This is called the “control paradox” by researchers: even when users are given controls over the use of their personal information, they typically choose not to use those controls. Although users can limit some uses of their information, an advanced degree in Facebook data features is required.

Facebook also had data-sharing partnerships with at least 60 device makers all of whom could capitalize on the data and make more money for their companies. Data sharing restrictions placed on software developers from collecting information about customers’ friends did not extend to device makers.

(Learning Objective 3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; Analytical thinking, Reflective thinking.)

4-15 Describe the weaknesses of Facebook’s privacy policies and features. What management, organization, and technology factors have contributed to those weaknesses?

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Management: Ninety-three percent of people polled believe that Internet companies should be forced to ask for permission before using their personal information much like European countries require. Seventy-two percent want the ability to opt out of online tracking. Executives and managers must develop policies and procedures that address those concerns at the same time they are developing a competitive strategy to effectively use personal information to increase the company’s value to advertisers.

Privacy advocate groups like the Electronic Privacy Information Center want Facebook to restore their more robust privacy settings from 2009. If they do this, some of its value to advertisers will diminish.

Organization: Facebook’s value and growth potential are determined by how effectively it can leverage the personal data that is aggregated about its users to attract advertisers. It also stands to gain from managing and avoiding the privacy concerns raised by its users and government regulators.

Technology: Facebook does not have a good history when it comes to privacy violations and missteps. This raises doubts about whether they should be responsible for the personal data of hundreds of millions of people. They have settled lawsuits with the Federal Trade Commission in which they were barred from misrepresenting the privacy or security of its users’ personal information. It was charged with deceiving its users by telling them they could keep their information on Facebook private, then repeatedly allowing it to be shared and made public. They have also come under fire for collecting information about users who are not logged into Facebook or do not have accounts with the company. They keep track of activity on other sites that have “Like” buttons or “recommendations” widgets, and records the time of your visit and your IP address when you visit a site with those features, regardless of whether or not you click on them.

(Learning Objective 2: What specific principles for conduct can be used to guide ethical decisions? AACSB: Ethical understanding and reasoning; Analytical thinking, Application of knowledge.)

4-16 Will Facebook be able to have a successful business model without invading privacy? Explain your answer. Are there any measures Facebook could take to make this possible?

Opinions will vary on this question. Certainly, Facebook’s ability to leverage as much as possible from advertisers may be diminished if it cannot collect every nugget of information about its users to sell to advertisers. However, it could make up some of the lost revenue by charging users a premium fee for the company to not collect as much information and restore a higher level of privacy to those who are willing to pay for it.

For the first time since its founding, Facebook is facing a serious existential crisis, and potentially a threat to its business model. Facebook’s current crisis follows from a history of privacy abuses in its short 14-year life. However, there are some signs that 4-19 ..

Facebook might become more responsible with its data collection processes, whether by its own volition or because it is forced to do so. As a publicly traded company, Facebook now invites more scrutiny from investors and regulators.

The company can allow users to view all the data it collects on them and allow them to delete information they deem necessary. They can also allow users to opt-out of the tracking systems much like European users already can.

Facebook should continue to explore additional revenue streams outside of what it already has in advertising.

Critics have asked Facebook why it does not offer an ad-free service—like music streaming sites for a monthly fee. Others want to know why Facebook does not allow users to opt out of tracking. But these kinds of changes would be difficult for Facebook because its business model depends entirely on the largely unfettered use of its users’ personal private information, just as it declares in its data use policy. That policy states openly that if you use Facebook you agree to their terms of service, which enable it to share your information with third parties.

(Learning Objective 3: Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? AACSB: Ethical understanding and reasoning; Analytical thinking, Application of knowledge.)

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Chapter 5 IT Infrastructure and Emerging Technologies Student Learning Objectives 5-1 What is IT infrastructure and what are the stages and drivers of IT infrastructure evolution?

5-2 What are the components of IT infrastructure?

5-3 What are the current trends in computer hardware platforms?

5-4 What are the current computer software platforms and trends?

5-5 What are the challenges of managing IT infrastructure and management solutions?

5-6 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Android, 178 Application server, 169 Apps, 195 BYOD, 182 Chrome OS, 178 Clients, 169 Client/server computing, 169 Cloud computing, 170 Consumerization of IT, 182 Edge computing, 189 Green computing (green IT), 189 Hypertext markup language (HTML), 191 HTML5, 191 Hybrid cloud, 188 Infrastructure as a service (IaaS), 185 iOS, 178 Java, 191 Legacy systems, 180 Linux, 178 Mainframe, 167

Open-source software, 190 Operating system, 178 Outsourcing, 194 Platform as a service (PaaS), 185 Private cloud, 188 Public cloud, 188 Quantum computing, 183 Scalability, 196 Server, 169 Service level agreement (SLA), 195 Service-oriented architecture (SOA), 192 Software as a service (SaaS), 185 Software package, 194 Software-defined storage (SDS), 183 Tablet computers, 180 Technology standards, 174 Total cost of ownership (TCO), 198 UNIX, 178 Virtualization, 183 Web browser, 191 5-1 ..

Mashup, 195 Minicomputers, 167 Mobile device management, (MDM), 196 Moore’s Law, 171 Multicore processor, 190 Multitiered client/server architecture, 169 Multitouch, 178 Nanotechnology, 173 On-demand computing, 188

Web hosting service, 179 Web server, 169 Web services, 192 Windows, 170 Windows 10, 178 Wintel PC, 169 XML, 192

Teaching Suggestions Your students’ knowledge and comfort level with technology is likely to vary, making this chapter difficult to teach and test. The technically-adept may know much of this material, while nontechnical students will find the contents instructive and helpful in their future careers where familiarity with basic technology concepts and vocabulary will be important for their jobs. You may want to approach the chapter from a business standpoint—the role of technology in the success of an organization.

One way to begin the chapter discussion is to present several horror stories. (Your students may even be able to provide stories of their own.) For example, many firms have found moving to a client/server architecture is not the dream they were led to believe.

The shortage of support, programming, and management tools, as well as the shortage of staff who understands the technology and programs in such an environment, have doomed many such changes to client/server architecture. Also, you should mention to your students that programming problems have cost organizations millions of dollars and provide examples of programming projects that simply failed.

The opening case “American Airlines Heads for the Cloud” demonstrates the benefits of using the cloud to potentially replace legacy systems as a way to improve the customer experience. American Airlines had a goal of allowing customers the opportunity to rebook flights that were canceled due to bad weather. Unfortunately, the legacy system did not allow for this because customer-facing applications were contained in silos and not able to integrate as needed.

The IBM Cloud suite of services included computer hardware, software, storage, networking, and other services. With this new partnership, a dynamic rebooking app was developed in less than five months. The Cloud is now being used for additional customerfacing projects and helping American focus more time on future innovations, and less on legacy systems maintenance.

Section 5-1, “What is IT infrastructure, and what are the stages and drivers of IT infrastructure evolution?” Introduces students to essential computer hardware terminology and concepts. The trek through the five evolutionary stages in computing 5-2 ..

platforms provides a backdrop for explaining how we got to the current phase of computing. Moore’s Law, usually misstated, helps explain how the technology industry has been able to continually produce new, faster, and cheaper products year-after-year.

Building products upon technology standards that ensure product compatibility has been another important driver. Ask students to imagine how difficult it would be if those standards had been ignored and they had to continually worry about purchasing noncompatible products. A good example of this is the often incompatibility between Apple Computers and PCs. Section 5-2, “What are the components of IT infrastructure?” Explains seven major components that make up an IT infrastructure. These include: computer hardware platforms, operating systems platforms, enterprise software applications, networking and telecommunications technology, consultants and system integrators, data management and storage, and Internet platforms. Each component is briefly explained in this section with a broader explanation provided in later parts of the text. What is important here is that students understand there is more to a firm’s IT infrastructure than merely hardware and software.

Because most of their experience is with PCs, students probably do not realize that mainframe computers still exist. Even though IBM is the only large manufacturer, mainframes have taken on a new life as massive data storage and processing needs have grown, thanks to the Internet. Airlines, insurance companies, financial institutions, and government agencies use mainframes to operate massive transaction processing systems such as airline reservation systems. Segue that into a discussion about the tremendous data storage capacity students now have in small devices like iPods or flash memory drives. Students probably do not realize that consulting and system integration services are an important and separate component of an organization’s IT infrastructure. There is simply no way a large company can provide all of its own IT support in today’s complex world.

Section 5-3 “What are the current trends in computer hardware platforms?” Consider spending most of your time on the newest hardware trends: netbooks, grid computing, cloud computing, autonomic computing, virtualization, and multicore processors. That is where many businesses are headed, and students are likely to bump into these trends when they enter the workforce. All these technologies are designed to help businesses reduce their IT overhead costs while making their hardware more efficient. In particular, cloud computing is becoming a hot trend in the business world because it offers small and medium-size businesses access to computing capacity they otherwise would not be able to afford. Explain that many of these trends are possible because of the proliferation of networking/telecommunications platforms and the Internet platform.

Although the advantages of cloud computing may seem overwhelming because the technology allows users to access programs and data from virtually anywhere, for many large businesses it can create problems based on security risks and the transfer of IT responsibilities to third parties.

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Interactive Session: Management: What Should Firms Do about BYOD? Case Study Questions 1. What are the advantages and disadvantages of allowing employees to use their personal mobile devices for work?

Advantages: Employees using their own mobile devices would allow companies to enjoy all the same benefits of a mobile workforce without spending company funds on the devices. This includes increased employee satisfaction and workplace productivity. Mobility experts can help a company leverage mobility more effectively. Employees can be more productive and happier with a BYOD policy in place.

Disadvantages: IT departments need to overcome several logistical hurdles before allowing employees to use their own smartphones, including security, inventory management, support, integrating mobile devices into pre-existing IT functions and systems, and measuring return on investment. When employees are not able to access critical data, or encounter other problems with their mobile devices, they will need assistance from the information systems department. Some devices are much more prone to hackers thereby threatening the security of corporate networks.

2. What management, organization, and technology factors should be addressed when deciding whether to allow employees to use their personal mobile devices for work?

Management: When employees make changes to their personal phone, such as switching cellular carriers, changing their phone number, or buying a new mobile device, companies will need to quickly and flexibly ensure that their employees are still able to remain productive.

Organization: A significant portion of corporate IT resources is dedicated to managing and maintaining a large number of devices within an organization. In the past, companies tried to limit business smartphone use to a single platform, making it easier to keep track of each mobile device and to roll out software upgrades or fixes.

Firms need an efficient inventory management system that keeps track of which devices employees are using, where the device is located, whether it is being used, and what software it is equipped with. For unprepared companies, keeping track of who gets access to what data could be a nightmare.

Technology: The mobile digital landscape is very complex and complicated, with a variety of devices and operating systems on the market that do not have well-developed tools for administration and security. Android’s fragmentation and multiple versions make it more difficult and costly for corporate IT to manage. To access company information, the company’s networks must be configured to receive connections from a device. Virtualization helps companies manage mobile devices 5-4 ..

easier. Companies often use technologies that allow them to wipe data from devices remotely or encrypt data if the device is stolen.

3. Compare and evaluate how the companies described in this case study dealt with the challenges of BYOD. Swiss Re and Brother Industries have successfully implemented a BYOD policy with the use of an Enterprise Mobility Management (EMM) system called MobileIron.

This system can support multiple operating systems, allowing for the management of different mobile devices and operating systems from a single platform. Both Swiss Re and Brother placed limitations on the types of devices employees can use, limiting the devices to Apple products that are the easiest to support and require little maintenance compared to other mobile tools. Swiss Re plans to extend their BYOD program to include Android devices in the future.

Arup Group Limited, a multinational professional services firm in London, has also used MobileIron, but allows a wider array of devices to be used. 65 percent of the devices within their BYOD program are based on iOS, 30 percent on Android, and the remainder on Windows for mobile devices.

4. Allowing employees to use their own smartphones for work will save a company money. Do you agree? Why or why not?

Allowing employees to use their own smartphones won’t necessarily save money when you consider the TCO and the extra efforts required on the part of the IT staff, especially if the smartphone becomes a point of entry for malware. There are significant concerns with securing company information accessed with mobile devices.

By using virtualization, employees can access their entire desktop on their smartphones and mobile handhelds and thus are able to use the same programs on the road that they use in the office. Placing virtualization software on employees’ personal tablets is less expensive than outfitting them with company-purchased laptops.

One of the biggest worries that managers have about mobility is the difficulty of measuring their return on investment.

Interactive Session: Organizations: Look to the Cloud Case Study Questions 1. What business benefits do cloud computing services provide? What problems do they solve?

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Eliminates need for large up-front capital investments in systems.

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• • • • • • •

Eliminates lengthy implementations on corporate computers.

Low cost subscriptions; no expensive licensing and maintenance fees.

No hardware for subscribers to purchase, scale, and maintain.

No operating systems, database servers or applications servers to install.

No consultants and staff.

Accessible via standard web browser with behind-the-scene software updates.

Better scalability eliminates cost and complexity of managing multiple layers of hardware and software.

2. What are the disadvantages of cloud computing?

The disadvantages include: • Responsibility for data storage and control is transferred away from the organization to a third party.

• Security risks and chances of data compromises are increased.

• Risk diminishing system reliability.

• Increased dependency on a third party to make everything work.

• Huge investments in proprietary systems supporting unique business processes may be at risk.

• The platform may not be attractive to larger companies for their application needs.

3. What kinds of businesses are most likely to benefit from using cloud computing?

Why? Small to medium-size businesses are probably the most likely ones to switch to cloud computing because of cost factors and the lack of having in-house resources to provide the same level of computing capacity. Businesses that are trying to increase the sophistication of their computing capabilities could also benefit from switching to cloud computing as long as the two are compatible. Also, companies that have small sales and marketing teams can benefit from the software-as-a-service business model.

Section 5-4, “What are the current computer software platforms and trends?” introduces students to emerging software platforms that they probably are not familiar with. Most of these software programs focus on Internet and web applications.

Open-source software is a good discussion point. Most students may think because it is developed by an open community of programmers that it is not “safe or secure.” You should try to dispel this myth by reviewing the Mozilla Firefox web browser. Because most students probably use Windows operating systems on their own computers, they may not be familiar with the Linux OS. If any of your students use Linux, ask them to explain the difference between it and the Windows OS.

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Most students use the web and Internet daily so have them explore how new software technologies are making their experiences richer and more efficient. Have them research mashups and apps on the websites they use the most. If any students use Facebook or other social networking sites, ask them to demonstrate how they use these new technologies.

Perhaps the most important point of this section is to show how these technologies are designed to make computing more seamless between applications and between computing hardware platforms. Increasingly, software is taking on three major characteristics: it is available over the Internet; components are interchangeable; and applications freely integrate with other applications. These characteristics are critical towards making computing easier, faster, and cheaper.

Outsourcing is always a hot topic because most people associate it with job losses in the U.S. Software outsourcing is more than just moving jobs to foreign countries. It also includes commercial software packages and software-as-a-service from online providers.

These software sources provide jobs in many new ways for U.S. based technology workers.

Section 5-5 “What are the challenges of managing IT infrastructure and management solutions?” This section helps students understand that there is more to managing IT infrastructure than just deciding which hardware and software components to purchase and use. Ask students how difficult it is for them to keep up with all the new options coming out. Then ask them to expand that to a typical mid-size company. Many students will work in business units that want to manage their own IT. Discuss the pros and cons of centralized vs. decentralized forms of IT management. Porter’s Competitive Forces Model discussed in Chapter 3 is a solid foundation on which to make many IT infrastructure decisions because it is grounded in the realities of running a business. Table 5-3 will help students understand all the hidden costs of technology ownership.

Section 5-6, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level IT consultant. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 5-1 What is IT infrastructure and what are the stages and drivers of IT infrastructure evolution?

Define IT infrastructure from both a technology and a services perspective.

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Technical perspective is defined as the shared technology resources that provide the platform for the firm’s specific information system applications. It consists of a set of physical devices and software applications that are required to operate the entire enterprise.

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Service perspective is defined as providing the foundation for serving customers, working with vendors, and managing internal firm business processes. In this sense, IT infrastructure focuses on the services provided by all the hardware and software. IT infrastructure is a set of firm-wide services budgeted by management and comprising both human and technical capabilities.

(Learning Objective 5-1: What is IT infrastructure, and what are the stages and drivers of IT infrastructure evolution? AACSB: Application of knowledge.)

List each of the eras in IT infrastructure evolution and describe its distinguishing characteristics.

Five stages of IT infrastructure evolution include: 1. General-purpose mainframe and minicomputer era (1959 to present): Consists of a mainframe performing centralized processing that could be networked to thousands of terminals and eventually some decentralized and departmental computing using networked minicomputers.

2. Personal computer era (1981 to present): Dominated by the widespread use of standalone desktop computers with office productivity tools.

3. Client/server era (1983 to present): Consists of desktop or laptop clients networked to more powerful server computers that handle most of the data management and processing.

4. Enterprise computing era (1992 to present): Defined by large numbers of PCs linked together into local area networks and the growing use of standards and software to link disparate networks and devices into an enterprise-wide network so that information can flow freely across the organization.

5. Cloud and mobile computing era (2000 to present): A model of computing where firms and individuals obtain computing power and software applications over the Internet, rather than purchasing their own hardware and software.

(Learning Objective 5-1: What is IT infrastructure, and what are the stages and drivers of IT infrastructure evolution? AACSB: Application of knowledge.)

Define and describe the following: web server, application server, multitiered client/server architecture.

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Web server: Software that manages requests for web pages on the computer where they are stored and that delivers the page to the user’s computer.

Application server: Software that handles all application operations between browser-based computers and a company’s back-end business applications or databases.

Multitiered client/server architecture: Client/server network in which the work of the entire network is balanced over several different levels of servers.

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(Learning Objective 5-1: What is IT infrastructure, and what are the stages and drivers of IT infrastructure evolution? AACSB: Application of knowledge.)

Describe Moore’s Law and the Law of Mass Digital Storage •

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Moore’s Law: The number of components on a chip with the smallest manufacturing costs per component (generally transistors) had doubled each year. Moore later reduced the rate of growth to a doubling every two years.

Law of Mass Digital Storage: The amount of digital information is roughly doubling every year. The cost of storing digital information is falling at an exponential rate of 100 percent a year.

Both concepts explain developments that have taken place in computer processing, memory chips, storage devices, telecommunications and networking hardware and software, and software design that have exponentially increased computing power while exponentially reducing costs. (Learning Objective 5-1: What is IT infrastructure, and what are the stages and drivers of IT infrastructure evolution?

AACSB: Application of knowledge.)

Describe how network economics, declining communications costs, and technology standards affect IT infrastructure.

Network economics: Metcalfe’s Law helps explain the mushrooming use of computers by showing that a network’s value to participants grows exponentially as the network takes on more members. As the number of members in a network grows linearly, the value of the entire system grows exponentially and theoretically continues to grow forever as members increase.

Declining communication costs: Rapid decline in communication costs and the exponential growth in the size of the Internet is a driving force that affects the IT infrastructure. As communication costs fall toward a very small number and approach zero, utilization of communication and computing facilities explodes.

Technology standards: Growing agreement in the technology industry to use computing and communication standards that define specifications that establish the compatibility of products and the ability to communicate in a network. Technology standards unleash powerful economies of scale and result in price declines as manufacturers focus on the products built to a single standard. Without economies of scale, computing of any sort would be far more expensive than is currently the case.

(Learning Objective 5-1: What is IT infrastructure, and what are the stages and drivers of IT infrastructure evolution? AACSB: Application of knowledge.)

5-2 What are the components of IT infrastructure?

List and describe the components of IT infrastructure that firms need to manage.

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IT infrastructure includes hardware, software, and services: •

Computing platforms: Includes mainframes, midrange computers, desktop and laptop computers, and mobile handheld devices—anything that connect employees, customers, and suppliers into a coherent digital environment.

• Telecommunications services: Data, voice, and video connectivity between employees, customers, and suppliers.

• Data management: Store, manage and analyze data.

• Application software: Includes enterprise resource planning, customer relationship management, supply chain management, and knowledge management systems.

• Physical facilities management: Develop and manage the physical installations for computing, telecommunications, and data management.

• IT management: Planning and developing the infrastructure, coordinate IT services among business units, managing accounting for IT expenditures, and provide project management.

• IT standards: Policies that determine which information technology will be used, when, and how.

• IT education: Employee training in system use and management training for IT investments.

• IT research and development: Research future IT projects and investments that can help the firm differentiate itself from competitors.

(Learning Objective 5-2: What are the stages and technology drivers of IT infrastructure evolution? AACSB: Application of knowledge.)

5-3 What are the current trends in computer hardware platforms?

Describe the evolving mobile platform, consumerization of IT, and cloud computing.

Mobile platform: More and more business computing is moving from PCs and desktop machines to mobile devices like cell phones and smartphones. Data transmissions, web surfing, email and instant messaging, digital content displays, and data exchanges with internal corporate systems are all available through a mobile digital platform. Netbooks, small low-cost lightweight subnotebooks that are optimized for wireless communication and Internet access, are included. The mobile platform is expanding to include tablet computers (iPad) and digital e-book readers.

Consumerization of IT: New information technology that first emerges in the consumer market spreads into business organizations. This concept includes mobile personal devices and business uses of software services that originated in the consumer marketplaces like Google search, Gmail, Google Maps, Dropbox, Facebook, and Twitter.

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Cloud computing: A model of computing where firms and individuals obtain computing capacity, data storage, and software applications over the Internet, rather than purchasing their own hardware and software. Data are stored on powerful servers in massive data centers and can be accessed by anyone with an Internet connection and standard web browser. Public clouds are maintained by external service providers while private clouds are restrained inside a proprietary network or a data center. (Learning Objective 5-3: What are the current trends in computer hardware platforms? AACSB: Application of knowledge.)

Explain how businesses can benefit from virtualization, green computing, and multicore processors.

Virtualization Benefits of server virtualization include: • Run more than one operating system at the same time on a single machine.

• Increase server utilization rates to 70 percent or higher.

• Reduce hardware expenditures. Higher utilization rates translate into fewer computers required to process the same amount of work.

• Mask server resources from server users.

• Reduce power expenditures.

• Run legacy applications on older versions of an operating system on the same server as newer applications.

• Facilitates centralization of hardware administration.

Green computing Businesses can minimize their impact on the environment by adopting better practices and technologies for designing, manufacturing, using, and disposing of computers, servers, and other computing devices. Reducing power consumption in data server centers is the leading practice in the green computing movement.

Multicore processors Benefits of multi-core processors: • Cost savings by reducing power requirements and hardware sprawl.

• Less costly to maintain as fewer systems need to be monitored.

• Performance and productivity benefits beyond the capabilities of today’s singlecore processors.

• Run applications more efficiently than single-core processors—giving users the ability to keep working even while running the most processor intensive task in the background.

(Learning Objective 5-3: What are the current trends in computer hardware platforms? AACSB: Analytical thinking.)

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5-4 What are the current computer software platforms and trends?

Define and describe open source software and Linux and explain their business benefits.

Open-source software provides all computer users with free access to the program code so they can modify the code, fix errors in it, or to make improvements. Opensource software is not owned by any company or individual. A global network of programmers and users manage and modify the software. By definition, open-source software is not restricted to any specific operating system or hardware technology.

Linux is the most well-known open-source software. It is a UNIX-like operating system that can be downloaded from the Internet, free of charge, or purchased for a small fee from companies that provide additional tools for the software. It is reliable, compactly designed, and capable of running on many different hardware platforms, including servers, handheld computers, and consumer electronics. Linux has become popular during the past few years as a robust low-cost alternative to UNIX and the Windows operating system.

Thousands of opensource programs are available from hundreds of websites.

Businesses can choose from a range of opensource software including operating systems, office suites, web browsers, and games. Opensource software allows businesses to reduce the total cost of ownership. It provides more robust software that’s often more secure than proprietary software. (Learning Objective 5-4: What are the current trends in computer software platforms? AACSB: Application of knowledge.)

Define Java and HTML5 and explain why they are important.

Java is used for building applications that run on the web and HTML is used for creating web pages. Java is an operating system that is processor independent. Its object-oriented programming language has become the leading interactive programming environment for the web. Java enables users to manipulate data on networked systems using web browsers, reducing the need to write specialized software.

Hypertext markup language (HTML) is a page description language for specifying how text, graphics, video, and sound are placed on a web page and for creating dynamic links to other Web pages and objects. HTML programs can be custom written, but they also can be created using the HTML authoring capabilities of web browsers or of popular word processing, spreadsheet, data management, and presentation graphics software packages. HTML editors are more powerful HTML authoring tool programs for creating web pages.

HTML5 makes it possible to embed images, audio, video, and other elements directly into a document without processor intensive add-ons. It also makes it easier 5-12 ..

for web pages to function across different display devices, including mobile devices as well as desktops, and it will support the storage of data offline for apps that run over the web. Web pages will execute more quickly and look like smartphone apps.

(Learning Objective 5-4: What are the current trends in computer software platforms?

AACSB: Application of knowledge.)

Define and describe web services and the role played by XML. Web services offer a standardized alternative for dealing with integration across various computer platforms. Web services are loosely coupled software components based on XML and open web standards that are not product specific and can work with any application software and operating system. They can be used as components of web-based applications linking the systems of two different organizations or to link disparate systems of a single company. Web services are not tied to a particular operating system or programming language. Different applications can use them to communicate with each other in a standard way without time-consuming custom coding.

Businesses use web services to tie their websites with external websites creating an apparently seamless experience for users. The benefit derives from not having to recreate applications for each business partner or specific functions within a single company.

XML provides a standard format for data exchange, enabling web services to pass data from one process to another. It performs presentation, communication, and storage of data whereas HTML simply describes how data is presented on web pages.

XML allows computers to manipulate and interpret data automatically and perform operations on data without human intervention. (Learning Objective 5-4: What are the current trends in computer software platforms? AACSB: Application of knowledge.)

Name and describe the three external sources for software.

Software packages and enterprise software: Prewritten commercially available set of software programs that eliminates the need for a firm to write its own software program for certain functions like payroll processing or order handling. Large-scale enterprise software systems provide a single, integrated, worldwide software system for firms at a cost much less than they would pay if they developed it themselves.

Cloud-based software services and tools: A business that delivers and manages applications and computer services from remote computer centers to multiple users using the Internet or a private network. Instead of buying and installing software programs, subscribing companies can rent the same functions from these services.

Users pay for the use of this software either on a subscription or a per-transaction basis. The business must carefully assess the costs and benefits of the service, weighing all people, organizational, and technology issues. It must ensure it can

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integrate the software with its existing systems and deliver a level of service and performance that is acceptable for the business.

Outsourcing custom application development: An organization contracts its custom software development or maintenance of existing legacy programs to outside firms, frequently firms that operate offshore in low-wage areas of the world. An outsourcer often has the technical and management skills to do the job better, faster, and more efficiently. Even though it is often cheaper to outsource the maintenance of an IT infrastructure and the development of new systems to external vendors, a business must weigh the pros and cons carefully. (Learning Objective 5-4: What are the current trends in computer software platforms? AACSB: Application of knowledge.)

Define and describe software mashups and apps.

Mashups are new software applications and services based on combining different online software applications. Users create new software applications and services by combining different online software applications into a new application. The idea is to take different sources and produce a new work that is “greater than” the sum of its parts. Web mashups combine the capabilities of two or more online applications to create a kind of hybrid that provides more customer value than the original sources alone.

Apps are small pieces of software programs that are downloaded to computers or cell phones. Apps turn mobile handheld devices into general-purpose computing tools.

They cost much less than full-fledged software programs and perform one task. They tie customers to a specific hardware platform like the Apple iPhone or Android operating system and increase switching costs. Business-related apps allow users to create and edit documents, connect to corporate systems, schedule and participate in meetings, track shipments, and dictate voice messages.

Businesses benefit from these new tools and trends by not having to re-invent the wheel. Apps have already been developed by someone else and a business can use them for its own purposes. Mashups let a business combine previously developed web applications into new ones with new purposes. They do not have to re-invent the previous applications from scratch—merely use them in the new processes. (Learning Objective 5-4: What are the current trends in computer software platforms? AACSB: Application of knowledge.)

5-5 What are the challenges of managing IT infrastructure and management solutions?

Name and describe the management challenges posed by IT infrastructure.

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Creating and maintaining a coherent IT infrastructure raises multiple challenges including: Dealing with platform and infrastructure change: As firms grow, they can quickly outgrow their infrastructure. As firms shrink, they can get stuck with excessive infrastructure purchased in better times. Scalability refers to the ability of a computer, product, or system to expand to serve a larger number of users without breaking down. Businesses that bring mobile computing and cloud computing platforms into the mix need new policies and procedures for managing them.

Management and governance: Involves who will control and manage the firm’s IT infrastructure. Will the IT infrastructure be centrally controlled and managed or divided among departments and divisions? How will infrastructure costs be allocated among business units?

Making wise infrastructure investments: IT infrastructure is a major capital investment for the firm. If too much is spent on infrastructure, it lies idle and constitutes a drag on firm financial performance. If too little is spent, important business services cannot be delivered, and the firm’s competitors will outperform the underinvesting firm. The organization needs to determine if it will buy or rent all or portions of its IT infrastructure.

Coordinating infrastructure components: Firms create IT infrastructures by choosing combinations of vendors, people, and technology services and fitting them together, so they function as a coherent whole. (Learning Objective 5-5: What are the challenges of managing IT infrastructure and management solutions? AACSB: Application of knowledge.)

Explain how using a competitive forces model and calculating the TCO of technology assets help firms make good infrastructure investments.

The competitive forces model can be used to determine how much to spend on IT infrastructure and where to make strategic infrastructure investments. What is the market demand for the organization’s services? What is the organization’s business strategy? What is the organization’s information technology (IT) strategy, infrastructure, and costs? Has the organization performed an IT assessment? What technology services do competitors offer to their customers, suppliers, and employees? How much does the organization’s competitors spend on IT infrastructure?

The total cost of owning technology resources includes not only the original cost of acquiring and installing hardware and software, but it also includes the ongoing administration costs for hardware and upgrades, maintenance, technical support, training, and even utility and real estate costs for running and housing the technology.

The TCO model can be used to analyze these direct and indirect costs to help firms determine the actual cost of specific technology implementations. (Learning

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Objective 5-5: What are the challenges of managing IT infrastructure and management solutions? AACSB: Analytical thinking.)

Discussion Questions 5-6 Why is selecting computer hardware and software for the organization an important management decision? What management, organization, and technology issues should be considered when selecting computer hardware and software?

Student answers to this question will vary.

5-7 Should organizations use software service providers for all their software needs?

Why or why not? What management, organization, and technology factors should be considered when making this decision?

Student answers to this question will vary.

5-8 What are the advantages and disadvantages of cloud computing?

Student answers to this question will vary.

Hands-On MIS Projects Management Decision Problems 5-9 University of Pittsburgh Medical Center: Demand for additional servers and storage technology was growing by 20 percent each year. UPMC was setting up a separate server for every application; servers and other computers were running different operating systems; it was using technologies from many different vendors.

This case provides an excellent example of how a business can inadvertently create a quagmire with technology. UPMC should consider virtualization to manage its server situation. Virtualization would allow the organization to consolidate many different applications on just a few servers. It could also allow the organization to run different operating systems on a single server. UPMC could consider outsourcing its IT infrastructure so it could concentrate on its core processes. Sometimes an organization must use third-party vendors who specialize in technology, rather than trying to do everything itself. (Learning Objective 5-3: What are the current trends in computer hardware platforms? Learning Objective 5-5: What are the challenges of managing IT infrastructure and management solutions? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

5-10 Qantas Airways: Needs to keep costs low while providing a high level of customer service. Management had to decide whether to replace its 30-year-old 5-16 ..

IT infrastructure with newer technology or outsource it. What factors should be considered in the outsourcing decision? List and describe points that should be addressed in an outsourcing service level agreement.

Qantas should use the competitive forces model to help determine how much it should spend on its IT infrastructure. Then it should determine its total cost of ownership of technology assets. It should assess the costs and benefits of software-asa-service outsourcing, weighing all the management, organizational, and technology issues, including the ability to integrate with existing systems and deliver a level of service and performance that is acceptable for the business. If it chooses to outsource its technology infrastructure, the service level agreement should define the specific responsibilities of the service provider and the level of service expected by Qantas.

The SLA specifies the nature and level of services provided, criteria for performance measurement, support options, provisions for security and disaster recovery, hardware and software ownership and upgrades, customer support, billing, and conditions for terminating the agreement. (Learning Objective 5-3: What are the current trends in computer hardware platforms? Learning Objective 5-4: What are the current trends in computer software platforms? Learning Objective 5-5: What are the challenges of managing IT infrastructure and management solutions? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

Improving Decision Making: Using a Spreadsheet to Evaluate Hardware and Software Options Software skills: Spreadsheet formulas Business skills: Technology pricing 5-11 This project requires students to use their web research skills to obtain hardware and software pricing information, and then use spreadsheet software to calculate costs for various system configurations. Answers may vary, depending on when students accessed the vendors’ websites to obtain pricing information. The sample solution files provided are for purposes of illustration and may not reflect the most recent prices for desktop hardware and software products. (Learning Objective 5-3: What are the current trends in computer hardware platforms? Learning Objective 5-4: What are the current trends in computer software platforms? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

Improving Decision Making: Using Web Research to Budget for a Sales Conference Software skills: Internet-based software Business skills: Researching transportation and lodging costs 5-12 The students will likely find hotels that interest them personally. The template that has been provided has a checklist all the hotel requirements to help keep them on track. You can show this in class or distribute it for your students to use. They 5-17 ..

should also write a brief report detailing why they chose the hotel they did, and price should not be the only issue. Several airlines’ websites are available now and the students will choose various ones based on their knowledge of airlines. Some will go directly to the airline site and others will go to discounters. Ask them to rate the use of the website in their report as well. (Learning Objective 5-3: What are the current trends in computer hardware platforms? Learning Objective 5-4: What are the current trends in computer software platforms? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

Collaboration and Teamwork Project 5-13 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: Project JEDI: A Cloud of Controversy 5-14 Describe the JEDI Project. Why is it so important? What problems was it meant to solve?

Project JEDI is the U.S. Department of Defense’s plan to modernize its IT infrastructure so that employees, officers, and soldiers on the front line can access and manipulate data at the speed of modern enterprises. Project JEDI aims to create a unified cloud infrastructure across the entire Department of Defense (DOD) that will speed the flow of data and analysis to combat troops.

The new plan is part of a larger move toward replacing the military’s branch-specific systems and networks with a more efficient and manageable enterprise model. (Learning Objective 5-3: What are the current trends in computer hardware platforms? Learning Objective 5-5: What are the challenges of managing IT infrastructure and management solutions? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

5-15 What management, organization, and technology issues are raised by this project?

Management: The Center for Digital Government found that cloud migration for government agencies continue to face obstacles, including data mobility, security, compliance, and ensuring the right training and skills. Project JEDI is expected to have an enormous impact on all these fronts.

Organization: The JEDI project will have a huge ripple effect as a cloud innovation driver within the U.S. government and across the private sector. Today, cloud computing has matured into the cornerstone of digital transformation across public and private sectors and as an engine for emerging technologies such as artificial intelligence, big data, and the Internet of Things (IoT).

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Technology: Although all federal agencies must be sure not to compromise security as they shift to the cloud, the bar is even higher for the Pentagon, for the obvious reason that national security is at stake. JEDI should be a catalyst for the development of cutting-edge security advances and best practices whose benefits will eventually spill over to all cloud users across the government and in the private sector. A better enterprise cloud will also support the Pentagon’s plans to expand the use of AI systems throughout the military. (Learning Objective 5-3: What are the current trends in computer hardware platforms? Learning Objective 5-5: What are the challenges of managing IT infrastructure and management solutions? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

5-16 Should the JEDI contract be awarded to a single vendor? Why or why not?

Student answers will vary.

(Learning Objective 2: What are the components of IT infrastructure? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

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Chapter 6 Foundations of Business Intelligence: Database and Information Management Student Learning Objectives 6-1 What are the problems of managing data resources in a traditional file environment?

6-2 What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful?

6-3 What are the principal tools and technologies for accessing information from databases to improve business performance and decision making?

6-4 Why are data governance and data quality assurance essential for managing the firm’s data resources are the current computer software platforms and trends?

6-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Analytic platform, 232 Attribute, 214 Big data, 228 Bit, 213 Blockchain, 225 Byte, 213 Data cleansing, 239 Data definition, 221 Data dictionary, 221 Data governance, 237 Data inconsistency, 215 Data lake, 232 Data manipulation language, 221 Data mart, 231 Data mining, 234 Data quality audit, 239 Data redundancy, 215 Data warehouse, 231 Database, 216 Database management system (DBMS), 217 6-1 ..

Entity, 214 Entity-relationship diagram, 224 Field, 213 File, 213 Foreign key, 218 Hadoop, 231 In-memory computing, 232 Key field, 218 Nonrelational database management systems, 225 Normalization, 223 Online analytical processing (OLAP), 233 Primary key, 218 Program-data dependence, 216 Query, 221 Record, 213 Referential integrity, 224 Relational DBMS, 218 Sentiment analysis, 235 Structured Query Language (SQL), 221 Text mining, 235

Database server, 237 Distributed database, 225

Tuple, 218 Web mining, 236

Teaching Suggestions The essential message of this chapter is the statement that “How businesses store, organize, and manage their data has a tremendous impact on organizational effectiveness.” Data have now become central and even vital to an organization’s survival.

The opening vignette, "Domino’s Masters Data One Pizza at a Time,” shows that data are not easy to access and analyze without properly configured systems. At one time, Dominos had more than 11,000 business users along with other agencies maintaining separate data repositories.

The team’s management implemented a solution by Talend, which provides enterprise application integration and data management using the cloud. The software consolidates point of-sale systems, supply chain centers and other systems into a single enterprise system. This single source helps improve business performance, processes, and provides much better analysis of customer buying patterns and customer responses to advertising and promotions.

Section 6-1, “What are the problems of managing data resources in a traditional file environment?” introduces basic key terms like field, record, file, database, entity, and attribute. Try using a simple spreadsheet print-out to demonstrate these terms. The section points out the drawbacks and difficulties organizations experience with traditional methods of file management. They are: systems grow independently without a companywide plan; data redundancy (duplicate data in multiple data files) and data inconsistency (the same attribute may have different values); program-data dependence, lack of flexibility in delivering information when it’s needed; poor security, and the lack of being able to share data and have it easily available to users.

Section 6-2, “What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful?” This section introduces students to more file organization terms and concepts. A database management system is comprised of three components: a data definition language, data dictionary, and data manipulation language. If you have access to a relational DBMS during class time, you can demonstrate several of the concepts presented in this section.

Database design and management requirements for database systems are introduced.

Help your students see how a logical design allows them to analyze and understand the data from a business perspective, while physical design shows how the database is arranged on direct access storage devices. At this point, you can use the enrollment process at your university as an example. Have your students prepare a logical design for the enrollment process. If you have time and as a class activity, ask your students to prepare an entity-relationship diagram (using Figure 6-11 as a guide), as well as 6-2 ..

normalize the data. Your students will need guidance from you to complete this activity, but it will help them see and understand the logical design process.

Cloud databases and Blockchain distributed database technologies are included in this section. Figure 6.12 is an excellent diagram to explain how a blockchain distributed database records transactions in a peer-to-peer computer network. Blockchain databases are very useful for storing and securing financial transactions, supply chain transactions, medical records, and other types of data.

Section 6-3, “What are the principal tools and technologies for accessing information from databases to improve business performance and decision making?” This section focuses on how data technologies are used: data warehouses, data marts, and data mining.

It also introduces four new technologies: big data, Hadoop, in-memory computing, and analytic platforms. Regardless of their career choice, students will probably use some or all of these in their jobs. Data warehouses and data marts are critical for those who want to use data mining, which in turn has many uses in management analysis and business decisions.

Big data refers to the amounts of data captured and analyzed, often in the petabyte and exabyte range. Typical DBMS systems are not able to capture, store, and analyze the volume of data. Hadoop is an open-source software framework that breaks big data problems into sub-problems, distributes them to processing nodes, and then combines the results into data sets.

In-memory computing eliminates bottlenecks that occur with data is retrieved from and read into traditional, disk-based databases. All data resides entirely in memory and accelerates processing performance while lowering costs.

Analytic platforms use relational and non-relational technology optimized for large datasets. Preconfigured hardware-software systems are specifically designed for query processing and analytics.

Figure 6-12 is an important diagram for illustrating how all these technologies work together.

Keep in mind as you teach this chapter that managing data resources can be very technical, but many students will need and want to know the business uses and business values. In the end, effectively managing data is the goal. Doing it in a way that will enable your students to contribute to the success of their organization is the reason why most students are in this course.

Text mining and web mining are taking on significance as more data and information is stored in text documents and on the web. Web mining is divided into three categories: web content mining, web structure mining, and web usage mining. Each one provides specific information about patterns in web data.

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Interactive Session: Technology: New Cloud Database Tools Help Vodafone Fiji Make Better Decisions Case Study Questions 1. Define the problem faced by Vodafone Fiji. What management, organization, and technology factors contributed to the problem?

Vodafone Fiji must come up with better deals for its customers to persuade them to continue with its services. Unfortunately, Vodafone Fiji’s systems were not able to deliver the information for the task.

Management: Amalgamated Telecom Holdings (Vodafone Fiji’s major shareholder) had recently acquired several other telecommunications companies serving nearby markets in Samoa, American Samoa, Vanuatu, Cook Islands, and Kiribati. The data to be managed and mined for insights increased threefold. These businesses each had different types of data in different systems and different formats.

Organization and Technology: The company lacked the computing power, storage, and data management tools to analyze data quickly, to make informed decisions about which deals to offer to which customers, and the right times to do so. The data was stored on premises in multiple databases.

2. Evaluate Oracle Autonomous Data Warehouse and Oracle Analytics Cloud as a solution for Vodafone Fiji.

Oracle Autonomous Data Warehouse Cloud (ADWC) is a fully managed, high performance elastic cloud service providing analytical capability over data stored in an Oracle database. The environment is optimized for data warehouse workloads and supports all standard SQL and business intelligence (BI) tools. It provides an easy-touse, fully autonomous database that scales elastically as workloads increase, delivers fast query performance, and requires no database administration. Vodafone Fiji would be able to extract, move, and transform data from disparate sources in the cloud, where it could be analyzed much more rapidly.

Oracle Analytics Cloud is a cloud-based platform that can take data in almost any form or size from almost any source (desktop, enterprise, data center), with capabilities for collecting, consolidating, and transforming data, and creating transactional and analytical reports and dashboards. Oracle Analytics Cloud provides self-service capabilities for users to perform what-if modeling and analysis. Users are empowered to visualize and discover data, including working with Big Data.

3. How did the new Oracle tools change decision making at Vodafone Fiji?

Vodafone Fiji can now easily obtain insights from the data collected and adjust its promotions to changing market dynamics. It can target customers who are at risk of 6-4 ..

cancelling Vodafone services as well as those most likely to respond to a special offer.

The warehouse system can produce reports on call patterns to make sure customers are signed up for the optimal set of services, or target customers with 4G plans with free trials to entice them into subscribing to a data plan. Promotional campaigns customized to specific cell sites can encourage customers to get online during low utilization periods.

4. Was using cloud services advantageous for Vodafone Fiji? Explain your answer.

More than 50 rich reports are available to decision makers within minutes. Queries can be completed 5 times faster than before. A data mining procedure that used to take 125 minutes takes only 25 minutes with Oracle Autonomous Data Warehouse; an aggregation query that used to take 294 seconds with the old on-premises system takes only 5 seconds with Oracle Autonomous Data Warehouse. Examining customer service call data, warehouse analytic tools have been able to identify trivial, repetitive inquiries where automated responses are possible, reducing inbound calls by 8 to 10 percent and freeing up customer service agents to focus on up-selling and cross-selling based on specific customer profiles.

Section 6-4, “Why are data governance and data quality assurance essential for managing the firm’s data resources?” This section introduces students to some of the critical management issues surrounding corporate data. Students should realize that setting up the database is only the beginning of the process. Managing the data is the real challenge. In fact, the main point is to show how data management has changed and the reason why data must be organized, accessed easily by those who need it, and protected from the wrong people accessing, modifying, or harming the data.

Developing a database environment requires much more than selecting database technology. It requires a formal information policy governing the maintenance, distribution, and use of information in the organization. The organization must also develop a data administration function and a data-planning methodology. Data planning may need to be performed to make sure that the organization’s data model delivers information efficiently for its business processes and enhances organizational performance. There is political resistance in organizations to many key database concepts, especially the sharing of information that has been controlled exclusively by one organizational group. Data governance, with special emphasis on promoting privacy, security, data quality, and compliance with government regulations is becoming more important. If you have time, you might have students brainstorm on a data governance policy they would like to see implemented in your university. Creating a database environment is a long-term endeavor requiring large up-front investments and organizational change.

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Interactive Session: Management: Big Data Baseball Case Study Questions 1. How did information technology change the game of baseball? Explain.

The use of data analytics and big data have forever changed the game of baseball, and likely every other professional sport. As the cased summarizes in its open, “the use of analytics has revolutionized the game of baseball as we know it, including defensive shifts, swing path changes, and how teams acquire and develop players.”

2. How did information technology affect decision making at MLB teams? What kinds of decisions changed as the result of using big data?

The Michael Lewis’s Book Moneyball provides an example of how the use of analytics and big data has changed the game of baseball. In this book, the Oakland Athletics used analytics to determine which players to recruit. Many of these decisions based on data were unconventional and did not follow prior recruiting strategies.

The Houston Astros used data analytics for on the field decision making and player selection. Further, data analytics also helped with decision making including where to position players on field.

3. How much should baseball rely on big data and analytics? Explain your answer.

Although the use of analytics in baseball will be used moving forward, there are still subjective and instinctive decisions that will utilize traditional decision-making processes.

Scouts and coaches will always have a vital role in all aspects of the game. As the case appropriately closes, “There are nuances to defending against the opposition that are not statistically related, but statistics help when you don’t know players well enough to know what to expect from them.”

Section 6-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level data analyst. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 6-1 What are the problems of managing data resources in a traditional file environment?

List and describe each of the components in the data hierarchy.

Figure 6-1 shows a sample data hierarchy. The data hierarchy includes bits, bytes, fields, records, files, and databases. Data are organized in a hierarchy that starts with the bit, which is represented by either a 0 (off) or a 1 (on). Bits are grouped to form a 6-6 ..

byte that represents one character, number, or symbol. Bytes are grouped to form a field, such as a name or date, and related fields are grouped to form a record. Related records are collected to form files, and related files are organized into a database.

(Learning Objective 6-1: What are the problems of managing data resources in a traditional file environment? AACSB: Application of knowledge.)

Define and explain the significance of entities, attributes, and key fields.

• • •

Entity is a person, place, thing, or event on which information is obtained.

Attribute is a piece of information describing a particular entity.

Key field is a field in a record that uniquely identifies instances of that unique record so that it can be retrieved, updated, or sorted. For example, a person’s name cannot be a key because there can be another person with the same name, whereas a social security number is unique. Also, a product name may not be unique, but a product number can be designed to be unique. (Learning Objective 6-1: What are the problems of managing data resources in a traditional file environment? AACSB: Analytical thinking.)

List and describe the problems of the traditional file environment.

Problems with the traditional file environment include data redundancy and confusion, program-data dependence, lack of flexibility, poor security, and lack of data sharing and availability. Data redundancy is the presence of duplicate data in multiple data files. In this situation, confusion results because the data can have different meanings in different files.

Program-data dependence is the tight relationship between data stored in files and the specific programs required to update and maintain those files. This dependency is very inefficient, resulting in the need to make changes in many programs when a common piece of data, such as the zip code size, changes.

Lack of flexibility refers to the fact that it is very difficult to create new reports from data when needed. Ad-hoc reports are impossible to generate; a new report could require several weeks of work by more than one programmer and the creation of intermediate files to combine data from disparate files. Poor security results from the lack of control over data. Data sharing is virtually impossible because it is distributed in so many different files around the organization. (Learning Objective 6-1: What are the problems of managing data resources in a traditional file environment? AACSB: Application of knowledge.)

6-2 What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful?

Define a database and a database management system.

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A database is a collection of data organized to service many applications efficiently by storing and managing data so that they appear to be in one location. It also minimizes redundant data. A database management system (DBMS) is special software that permits an organization to centralize data, manage them efficiently, and provide access to the stored data by application programs.

A DBMS can reduce the complexity of the information systems environment, reduce data redundancy and inconsistency, eliminate data confusion, create program-data independence, reduce program development and maintenance costs, enhance flexibility, enable the ad hoc retrieval of information, improve access and availability of information, and allow for the centralized management of data, their use, and security. (Learning Objective 6-2: What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful? AACSB: Application of knowledge.)

Name and briefly describe the capabilities of a DBMS. A DBMS includes capabilities and tools for organizing, managing, and accessing the data in the database. The principal capabilities of a DBMS include data definition language, data dictionary, and data manipulation language.

• The data definition language specifies the structure and content of the database.

• The data dictionary is an automated or manual file that stores information about the data in the database, including names, definitions, formats, and descriptions of data elements.

The data manipulation language, such as SQL, is a specialized language for accessing and manipulating the data in the database. (Learning Objective 6-2: What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful? AACSB: Application of knowledge.)

Define a relational DBMS and explain how it organizes data.

The relational database is the primary method for organizing and maintaining data in information systems. It organizes data in two-dimensional tables with rows and columns called relations. Each table contains data about an entity and its attributes.

Each row represents a record and each column represents an attribute or field. Each table also contains a key field to uniquely identify each record for retrieval or manipulation. (Learning Objective 6-2: What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful? AACSB: Application of knowledge.)

List and describe the three operations of a relational DBMS. In a relational database, three basic operations are used to develop useful sets of data: select, project, and join.

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• •

Select operation creates a subset consisting of all records in the file that meet stated criteria. In other words, select creates a subset of rows that meet certain criteria.

Join operation combines relational tables to provide the user with more information that is available in individual tables.

Project operation creates a subset consisting of columns in a table, permitting the user to create new tables that contain only the information required.

(Learning Objective 6-2: What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful?

AACSB: Application of knowledge.)

Explain why non-relational databases are useful.

There are four main reasons for the rise in non-relational databases: cloud computing, unprecedented data volumes, massive workloads for web services, and the need to store new types of data. These systems use more flexible data models and are designed for managing large data sets across distributed computing networks. They are easy to scale up and down based on computing needs.

They can process structured and unstructured data captured from websites, social media, graphics. Traditional relational databases aren’t able to process data from most of those sources. Non-relational databases can also accelerate simple queries against large volumes of structured and unstructured data. There is no need to pre-define a formal database structure or change that definition if new data are added later.

(Learning Objective 6-2: What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful? AACSB: Analytical thinking.)

Define and describe normalization and referential integrity and explain how they contribute to a well-designed relational database.

Normalization is the process of creating small stable data structures from complex groups of data when designing a relational database. Normalization streamlines relational database design by removing redundant data such as repeating data groups.

A well-designed relational database will be organized around the information needs of the business and will probably be in some normalized form. A database that is not normalized will have problems with insertion, deletion, and modification.

Referential integrity rules ensure that relationships between coupled tables remain consistent. When one table has a foreign key that points to another table, you may not add a record to the table with the foreign key unless there is a corresponding record in the linked table. (Learning Objective 6-2: What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful? AACSB: Application of knowledge.)

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Define and describe an entity-relationship diagram and explain its role in database design.

Relational databases organize data into two-dimensional tables (called relations) with columns and rows. Each table contains data on an entity and its attributes. An entityrelationship diagram graphically depicts the relationship between entities (tables) in a relational database. A well-designed relational database will not have many-to-many relationships, and all attributes for a specific entity will only apply to that entity.

Entity-relationship diagrams help formulate a data model that will serve the business well. The diagrams also help ensure data are accurate, complete, and easy to retrieve.

(Learning Objective 6-2: What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful? AACSB: Application of knowledge.)

6-3 What are the principal tools and technologies for accessing information from databases to improve business performance and decision making?

Define big data and describe the technologies for managing and analyzing it.

Traditional databases rely on neatly organized content into rows and columns. Much of the data collected nowadays by companies do not fit into that mold.

Big data describes datasets with volumes so huge they are beyond the ability of typical database management systems to capture, store, and analyze. The term does not refer to any specific quantity of data, but it’s usually measured in the petabyte and exabyte range. It includes structured and unstructured data captured from web traffic, email messages, and social media content like tweets and status messages. It also includes machine-generated data from sensors.

Big data contains more patterns and interesting anomalies than smaller data sets. That creates the potential to determine new insights into customer behavior, weather patterns, financial market activity, and other phenomena.

Hadoop: Open-source software framework that enables distributed parallel processing of huge amounts of data across inexpensive computers. The software breaks huge problems into smaller ones, processes each one on a distributed network of smaller computers, and then combines the results into a smaller data set that is easier to analyze. It uses non-relational database processing and structured, semi structured and unstructured data.

In-memory computing: rather than using disk-based database software platforms, this technology relies primarily on a computer’s main memory for data storage. It eliminates bottlenecks that result from retrieving and reading data in a traditional database and shortens query response times. Advances in contemporary computer hardware technology makes in-memory processing possible.

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Analytic platforms: Uses both relational and non-relations technology that is optimized for analyzing large datasets. They feature preconfigured hardware-software system designed for query processing and analytics. (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Application of knowledge.)

List and describe the components of a contemporary business intelligence technology infrastructure.

Business intelligence (BI) infrastructures include an array of tools for obtaining useful information from all the different types of data used by businesses today, including semi structured and unstructured big data in vast quantities. Data warehouses, data marts, Hadoop, in-memory processing, and analytical platforms are all included in BI infrastructures.

Powerful tools are available to analyze and access information that has been captured and organized in data warehouses and data marts. These tools enable users to analyze the data to see new patterns, relationships, and insights that are useful for guiding decision making. These tools for consolidating, analyzing, and providing access to vast amounts of data to help users make better business decisions are often referred to as business intelligence. Principal tools for business intelligence include software for database query and reporting tools for multidimensional data analysis and data mining. (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Application of knowledge.)

Describe the capabilities of online analytical processing (OLAP).

Data warehouses support multidimensional data analysis, also known as online analytical processing (OLAP), enables users to view the same data in different ways using multiple dimensions. Each aspect of information represents a different dimension.

OLAP represents relationships among data as a multidimensional structure, which can be visualized as cubes of data and cubes within cubes of data, enabling more sophisticated data analysis. OLAP enables users to obtain online answers to ad hoc questions in a fairly rapid amount of time, even when the data are stored in very large databases. Online analytical processing and data mining enable the manipulation and analysis of large volumes of data from many perspectives, for example, sales by item, by department, by store, by region, in order to find patterns in the data. Such patterns are difficult to find with normal database methods, which is why a data warehouse and data mining are usually parts of OLAP. (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Application of knowledge.)

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Define data mining, describing how it differs from OLAP and the types of information it provides.

Data mining provides insights into corporate data that cannot be obtained with OLAP by finding hidden patterns and relationships in large databases and inferring rules from them to predict future behavior. The patterns and rules are used to guide decision making and forecast the effect of those decisions. The types of information obtained from data mining include associations, sequences, classifications, clusters, and forecasts. (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Application of knowledge.)

Explain how text mining and web mining differ from conventional data mining.

Conventional data mining focuses on data that have been structured in databases and files. Text mining concentrates on finding patterns and trends in unstructured data contained in text files. The data may be in email, memos, call center transcripts, survey responses, legal cases, patent descriptions, and service reports. Text mining tools extract key elements from large unstructured data sets, discover patterns and relationships, and summarize the information.

Web mining helps businesses understand customer behavior, evaluate the effectiveness of a particular website, or quantify the success of a marketing campaign.

Web mining looks for patterns in data through: • Web content mining: Extracting knowledge from the content of web pages.

• Web structure mining: Examining data related to the structure of a particular website.

• Web usage mining: Examining user interaction data recorded by a web server whenever requests for a website’s resources are received. (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making?

AACSB: Analytical thinking.)

Describe how users can access information from a company’s internal databases through the web.

Conventional databases can be linked via middleware to the web or a web interface to facilitate user access to an organization’s internal data. Web browser software on a client PC is used to access a corporate website over the Internet. The web browser software requests data from the organization’s database, using HTML commands to communicate with the web server. Because many back-end databases cannot interpret commands written in HTML, the web server passes these requests for data to special middleware software that then translates HTML commands into SQL so that they can be processed by the DBMS working with the database. The DBMS receives the SQL requests and provides the required data. The middleware transfers information from 6-12 ..

the organization’s internal database back to the web server for delivery in the form of a web page to the user. The software working between the web server and the DBMS can be an application server, a custom program, or a series of software scripts.

(Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making?

AACSB: Application of knowledge.)

6-4 Why are data governance and data quality assurance essential for managing the firm’s data resources?

Define data governance and explain how it helps organizations manage their data.

Data governance encompasses policies and procedures through which data can be managed as an organizational resource. It establishes the organization’s rules for sharing, disseminating, acquiring, standardizing, classifying, and inventorying information. These include identifying which users and organizational units can share information, where information can be distributed, who is responsible for updating and maintaining the information, and how data resources should be secured. (Learning Objective 6-4: Why are data governance and data quality assurance essential for managing the firm’s data resources? AACSB: Application of knowledge.)

List and describe the most important data quality problems.

Most data problems are due to different codes or descriptions being used on multiple systems. Also, it is quite common to have user errrors in entering data resulting in misspelled names, transposed numbers, or incorrect or missing codes. (Learning Objective 6-4: Why are data governance and data quality assurance essential for managing the firm’s data resources? AACSB: Analytical thinking.)

List and describe the most important tools and techniques for assuring data quality.

Before a new database is in place, organizations need to identify and correct their faulty data and establish better routines for editing data once their database is in operation. Analysis of data quality often begins with a data quality audit, which is a structured survey of the accuracy and level of completeness of the data in an information system.

Data cleansing not only corrects errors but also enforces consistency among different sets of data that originated in separate information systems. Specialized datacleansing software is available to automatically survey data files, correct errors in the data, and integrate the data in a consistent companywide format.

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Discussion Questions 6-5 It has been said that there is no bad data, just bad management. Discuss the implications of this statement.

Student answers to this question will vary.

6-6 To what extent should end users be involved in the selection of a database management system and database design?

Student answers to this question will vary.

6-7 What are the consequences of an organization not having an information policy?

Student answers to this question will vary.

Hands-On MIS Projects Management Decision Problems 6-8 Emerson Process Management: The data warehouse was full of inaccurate and redundant data gathered from numerous transaction processing systems. The design team assumed all users would enter data the same way. Users entered data in multiple ways. Assess the potential business impact of these data quality problems.

What decisions have to be made and steps taken to reach a solution?

Managers and employees cannot make accurate and timely decisions about customer activity because of inaccurate and redundant data. The company could be wasting resources pursuing customers it should not and neglecting its best customers. The company could be experiencing financial losses resulting from the inaccurate data.

Managers, employees, and data administrators need to identify and correct the faulty data and then establish better routines for editing data when it’s entered. The company should perform a data quality audit by surveying entire data files, surveying samples from data files, or surveying end users for perceptions of data quality. The company needs to perform data cleansing operations to correct errors and enforce consistency among the different sets of data at their origin. (Learning Objective 6-4: Why are data governance and data quality assurance essential for managing the firm’s data resources? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

6-9 Industrial supply company: The company wants to create a single data warehouse by combining several different systems. The sample files from the two systems that would supply the data for the data warehouse contain different data sets.

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What business problems are created by not having these data in a single standard format?

Managers are unable to make good decisions about the company’s sales and products because of inconsistent data. Managers cannot determine which products are selling the best world-wide; they can only determine product sales by region.

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How easy would it be to create a database with a single standard format that could store the data from both systems? Identify the problems that would have to be addressed.

It may not be too hard to create a database with a single standard format if the company used middleware to pull both data sets into the consolidated database.

The company should use specialized data-cleansing software that would automatically survey data files, correct errors in the data, and integrate the data in a consistent company-wide format. Problems that may occur would stem from inconsistent data names like the Territory and Customer ID in the old sets and data element names like Division in the new set. Data administrators, managers, and employees may have to track the data conversion and manually convert some data.

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Should the problems be solved by database specialists or general business managers? Explain.

Both the database specialist and general business managers should help solve the problems. Data administrators are responsible for developing information policy, planning for data, overseeing logical database design and data dictionary development, and monitoring how information system specialists and end-user groups use data. However, end-users and business managers have the final decision-making authority and responsibility for the data.

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Who should have the authority to finalize a single company-wide format for this information in the data warehouse?

Owners and managers are the only ones who have the authority to finalize the format for the information in the data warehouse. They could develop an information policy that specifies the organization’s rules for sharing, disseminating, acquiring, standardizing, classifying, and inventorying information. (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Analytical thinking, Application of knowledge.)

Achieving Operational Excellence, Building a Relational Database for Inventory Management Software skills: Database design, querying, and reporting Business skills: Inventory management

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6-10 This exercise requires that students know how to create queries and reports using information from multiple tables. The solutions provided were created using the query wizard and report wizard capabilities of Access. Students can, of course, create more sophisticated reports if they wish.

The answers to the following questions can be found in the Microsoft Access File named: MIS17ch06solutionfile.mdb.

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Prepare a report that identifies the five most expensive bicycles. The report should list the bicycles in descending order from most expensive to lease expensive, the quantity on hand for each, and the markup percentage for each.

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Prepare a report that lists each supplier, its products, their quantities on hand, and associated reorder levels. The report should be sorted alphabetically by supplier.

Within each supplier category, the products should be sorted alphabetically.

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Prepare a report listing only the bicycles that are low in stock and need to be reordered. The report should provide supplier information for the items identified.

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Write a brief description of how the database could be enhanced to further improve management of the business. What tables or fields should be added?

What additional reports would be useful? (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Written and oral communication, Application of knowledge.)

Improving Decision Making: Searching Online Databases for Overseas Business Resources Software skills: Online databases Business skills: Researching services for overseas operations 6-11 List the companies you would contact to interview on your trip to determine whether they can help you with these and any other functions you think vital to establishing your office.

Student answers will vary based on the companies they choose to contact.

Rate the databases you used for accuracy of name, completeness, ease-of-use, and general helpfulness.

The U.S. Department of Commerce website contains a fair amount of economic information. You can do a web search for just about any economic or population data you are interested in. The website for the Nationwide Business Directory of Australia is www.nationwide.com.au.

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(Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making?

AACSB: Analytical thinking, Application of knowledge.)

Collaboration and Teamwork Project 6-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: Does Big Data Provide the Answer?

6-13 What business benefits did the organizations described in this case achieve by analyzing and using big data.

This case described how businesses like Amazon, YouTube, the UK National Health Service, and New York City all benefit from making sense of big data. For instance, according to the case, big data analysis helps customers find the lowest prices and services on autos, computers, airfare, and hotels.

The UK National Health Service estimates savings of nearly 734 million dollars by analyzing large amounts of data to determine the most cost-effective method of treating common illnesses and chronic diseases. This data has been modified to create digital dashboards to further help with decision processes to improve care and lower costs.

New York City also benefits from analyzing big data to help fight crime. The city currently uses a mapping program to better identify crime and arrest locations and provides this information to managers to that are responsible for assigning critical resources in the area. This practical strategy helps send officers where they are most needed at a given time. (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Application of knowledge.)

6-14 Identify two decisions at the organizations described in this case that were improved by using big data and two decisions that were not improved by using big data.

Improved: • Police organizations can quickly identify crime hot spots and crime and arrest locations to help precinct commanders know quickly where to deploy officers.

• UK National Health Services saves millions by analyzing data to determine the optimal treatment.

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Not Improved: • LEGO used data analyzes and determined they would move from smaller and more complex sets to larger and easier products. Visiting homes of customers and finding kids enjoyed LEGOs for the challenge, and not the instant gratification helped reverse this decision.

(Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Application of knowledge.)

6-15 Describe the limitations to using big data.

Several companies have rushed to start big data projects without first establishing a business goal for this new information. Swimming in numbers and other data does not necessarily mean that the right information is being collected or that people will make smarter decisions. Experts in big data analysis believe too many companies, seduced by the promise of big data, jump into big data projects with nothing to show for their efforts. They start amassing and analyzing mountains of data without no clear objective or understanding of exactly how analyzing big data will achieve their goal or what questions they are trying to answer. Companies do not know what they are looking for because they think big data alone will solve their problem.

It often takes a lot of work for a company to combine data stored in legacy systems with data stored in Hadoop. Although Hadoop can be much faster than traditional databases for some tasks, it often isn’t fast enough to respond to queries immediately or to process incoming data in real time (such as using smartphone location data to generate just-in-time offers).

It is difficult to find enough technical IT specialists with expertise in big data analytical tools, including Hive, Pig, Cassandra, MongoDB, or Hadoop. On top of that, many business managers lack numerical and statistical skills required for finding, manipulating, managing, and interpreting data. Even with big data expertise, data analysts need some business knowledge of the problem they are trying to solve with big data. (Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? AACSB: Analytical thinking, Application of knowledge.)

6-16 Should all organizations try to collect and analyze big data? Why or why not?

What management, organization, and technology issues should be addressed before a company decides to work with big data?

Just because an organization has data does not mean it has good information. There is a stark difference. Organizations must first determine a business goal for the information and then process the data towards that goal.

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Management: Many times, decisions made from data can be based on faulty context as was the case with Google’s analysis of the flu outbreak. Managers must first determine the questions they are trying to answer before they begin analyzing data.

Organization: Having a lot of data without the organizational structure to support it does not accomplish much. People must be trained in using big data tools like Hadoop. Big data analysis does not necessarily show causation or which correlations are meaningful.

Technology: It takes a lot of work and time for a company to combine data stored in legacy systems with data stored in big data tools and programs like Hadoop.

Sometimes the programs are not the right tool for the job. Big data poses challenges to information security and privacy.

(Learning Objective 6-3: What are the principal tools and technologies for accessing information from databases to improve business performance and decision making?

AACSB: Analytical thinking, Application of knowledge.)

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Chapter 7 Telecommunications, the Internet, and Wireless Technology Learning Objectives 7-1 What are the principal components of telecommunications networks and key networking technologies?

7-2 What are the different types of networks?

7-3 How do the Internet and Internet technology work, and how do they support communication and e-business?

7-4 What are the principal technologies and standards for wireless networking, communication, and Internet access?

7-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

3G networks, 277 4G networks, 277 5G, 277 Bandwidth, 259 Blog, 273 Bluetooth, 277 Broadband, 251 Cable Internet connections, 259 Chat, 263 Dark web, 269 Digital subscriber line (DSL), 259 Domain name, 260 Domain name systems (DNS), 260 Email, 263 File Transfer Protocol (FTP), 263 Hertz, 259 Hotspots, 278 Hubs, 252 Hypertext Transfer Protocol (HTTP), 268

Peer-to-peer, 258 Personal-area networks (PANs), 277 Predictive search, 271 Protocol, 255 Radio frequency identification (RFID), 280 Router, 252 RSS, 273 Search engine marketing, 271 Search engine optimization (SEO), 272 Search engines, 269 Semantic search, 270 Shopping bots, 271 Smartphones, 276 Social networking, 273 Software-defined networking (SDN), 253 Switch, 252 T1 lines, 260 Telnet, 263 Transmission Control Protocol/Internet Protocol (TCP/IP), 255 7-1 ..

Instant messaging, 263 Internet of Things (IoT), 274 Internet Protocol (IP) address, 260 Internet service provider (ISP), 259 Internet2, 262 IPv6, 262 Local area network (LAN), 257 Metropolitan area network (MAN), 258 Microblogging, 273 Modem, 257 Near field communication (NFC), 281 Network operating system (NOS), 252 Packet switching, 254

Unified communications, 265 Uniform resource locator (URL), 268 Virtual private network (VPN), 265 Visual web, 271 Voice over IP (VoIP), 264 Website, 267 Wide-area networks (WAN), 258 Wi-Fi, 277 Wiki, 273 Wireless sensor networks (WSNs), 281

Teaching Suggestions Chapter 7 presents crucial concepts and terminology since telecommunications, networks, and the Internet are now introducing fundamental changes in businesses. The opening case, “The National Hockey League Scores with Wireless Technology,” illustrates some of the new capabilities and opportunities provided by contemporary networking technology.

To remain competitive and relevant amid other powerful professional sports the NHL determined that digital technology had become essential for attracting fans, athletes, sponsors, and broadcasters.

The NHL is in the process of deploying a Puck and Player Tracking system for games in all 31 of its arenas. This system tracks every movement of the puck and each team’s players during a game. The system is able to track pucks in play 2,000 times per second, with inch-level accuracy, and will be equally accurate tracking players. It will detect player passes, shots, positioning, speed, and time on ice precisely and instantaneously. The flood of data about player speed and execution is changing how coaches, broadcasters, and fans interact with the game. All the new data and metrics will of course be used by coaches and team managers to improve team performance, but these numbers will also enhance the fan experience inside the arena and among those watching on television or on mobile devices, especially younger viewers.

The opening vignette provides an example of how businesses are adapting to new technologies based on the Internet. It shows how companies must continually evolve as technology improves.

Section 7-1, “What are the principal components of telecommunications networks and key networking technologies?” Telecommunications and networks are vital to the majority of businesses today, and this section explains why. Because telecommunications technology serves as the foundation for electronic commerce and the digital economy, the concepts and 7-2 ..

terminology in Chapter 7 are important for both MIS and business majors. This section explains the basic configuration of networks, regardless of their size.

You may want to contrast the origin and history of telephone networks and computer networks.

Then diagram how the two are converging into one pipeline for all types of communication transmissions. Convergence is leading to more efficient transmission traffic and ubiquitous communications thanks to the Internet.

A contemporary corporate network infrastructure relies on both public and private infrastructures to support the movement of information across diverse technological platforms. It includes the traditional telephone system, mobile cellular communications, wireless local area networks, videoconferencing systems, a corporate website, intranets, extranets, and an array of local and wide area networks, including the Internet.

Contemporary networks have been shaped by the rise of client/server computing, the use of packet switching, and the adoption of TCP/IP as a universal communications standard for linking disparate networks and computers. Client/server networks have distributed much of the organization’s computing power to the desktop and factory floor. Packet switching makes more efficient use of network communications capacity by breaking messages into small packets that are sent independently along different paths in a network and then reassembled at their destination. Protocols provide a common set of rules that enable communication among diverse components in a telecommunications network. TCP/IP is a suite of protocols that has become the dominant model of achieving connectivity among different networks and computers. It is the connectivity model used in the Internet.

One exercise you may try to demonstrate how much we rely on communications today is to ask students to count the number of text messages, phone calls, emails, and IM messages they either sent or received in the last 24 hours or the last week. You could even go so far as to ask them to not send or receive any of these communications for a day to prove how reliant we have become on telecommunications.

Section 7-2, “What are the different types of networks?” It may help for you to bring several props to show the different transmission media explained in this section. For example, bring twisted wire, coaxial cable, and fiber-optic cable to show to the class and discuss the advantages and disadvantages of each type of media. Students should note the different ranges (frequencies) of wireless media. Also, you should discuss bandwidth and its connection to frequencies, as this is a critical concept today. Table 7.1 compares the range of four different area networks.

This section describes the different network topologies and how they pass data across a network.

If you have students working in business, ask them to identify the network topologies used in their organizations.

Section 7-3, “How do the Internet and Internet technology work and how do they support communication and e-business?” Most students are familiar with the Internet and motivated to discuss it. You might begin this section by asking students how they spend their time on the Internet and how their online activities have changed since they started using the Internet. Also, 7-3 ..

ask them to identify which client platforms they currently use or have used. Ask your students to identify several of the many benefits that the Internet offers to organizations. Ask them to provide specific examples that they have read about in the text or have personally observed.

The principal Internet services and communication tools are email, chatting, instant messaging, newsgroups, telnet, file transfer protocol, and the web. Most students will probably be familiar with these services, having used them in their personal life. What they may not understand or relate to quite yet, is how effective the tools are in a business setting. These tools reduce time and cost when firms must manage organizational activities and communicate with many employees.

If you have students working in businesses, ask them to discuss the communications tools their organization uses. This section introduces a fairly new concept of unified communications.

Make students aware that while the new information technology infrastructure provides many benefits and capabilities, it does require careful management and planning. Challenges posed by networking and the Internet include loss of management control over information systems; the need for organizational change; and the difficulty of ensuring infrastructure scalability and reliability.

Interactive Session: Management: Monitoring Employees on Networks: Unethical or Good Business?

Case Study Questions 1. Should managers monitor employee email and Internet usage? Why or why not?

Answers will vary on this question. The case study statistics show that corporate misuse and abuse of email for personal reasons is exploding. Simply stated, employees who use company resources for work not related to the company are,in essence, engaged in “service theft.” They are being paid to work for the company, and this does not include abusing corporate resources for personal time.

Companies are in business to generate profits for their shareholders. Managers certainly should be concerned with the loss of time and employee productivity, the additional traffic it creates on their networks that inhibits the efficiency for real business purposes, lost revenue, or missed opportunities, as well as overcharging clients because of lost employee efficiencies. The company itself is responsible for the use of its resources and what employees do while using them. Adverse publicity can seriously affect a company and could even result in expensive lawsuits. Companies also fear email leakage of trade secrets. Other legal and regulatory problems involve the safe keeping of all emails that are generated on corporate equipment. This information must be retained for specific time periods and may be requested as evidence in a lawsuit.

2. Describe an effective email and web use policy for a company.

Like all policies, an effective email and web use policy must be carefully designed and clearly communicated to all persons who use these corporate resources. There are a number 7-4 ..

of different policies in existence. Some companies allow no personal use of corporate networks whereas others allow some degree of activity that is easily monitored. A good policy will detail exactly what type of activity is acceptable and what is not allowed. The policy should clearly articulate sanctions that will be followed for all offenses in relation to the policy. Most of all, rules for Internet usage should be tailored to specific business needs and organizational cultures.

3. Should managers inform employees that their web behavior is being monitored? Or should managers monitor secretly? Why or why not?

Opinions will vary according to personal values and workplace experiences. However, most students will probably answer that managers should inform employees that their web behavior is being monitored as a way to foster open communications and trust between both sides. Many consultants believe companies should write corporate policies on employee email and Internet use. The policies should include explicit ground rules that state, by position or level, under what circumstances employees can use company facilities for email, blogging, or web surfing. The policies should also inform employees whether these activities are monitored and explain why.

Interactive Session: Technology: The Internet of Things Aids Waste Management Case Study Questions: 1. Identify the problem described in this case study. Is it a management problem, an organizational problem, or a technology problem? Explain your answer.

The city of San Francisco is working towards its goal of zero waste. They have partnered with two companies, Recology and Compology, to utilize new technologies that use the Internet of Things in order to help them achieve this goal.

Managerial: San Francisco residents continue to send nearly 600,000 tons of waste to landfills each year. Recology provides outreach and educational services to help members of the community become more aware of their recycling habits.

Organizational: While there are clear benefits to the city that come along with improved waste management, the city must also consider the costs of the investments they are making (i.e. purchasing IoT sensors for all trucks, plastic sorting, landfill gas capture systems).

Technology: The two companies have developed technologies that allow for optical sorting of plastics, conversion of landfill methane to electricity, paperless and more efficient fleet maintenance, and more efficient monitoring of waste streams and trash bins.

2. What role has information technology and the IoT played in helping cities deal with their waste management problems? Describe the IT applications that are being used for this purpose.

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Information technology and the IoT has helped San Francisco to be more efficient in their waste management efforts in the following ways: • Optical sorting uses an infrared +sensor to sort plastics based on size, shape, and structure.

• Landfill gas capture systems convert the methane gas generated by landfills into electric power.

• Updated ERP systems allow for paperless fleet maintenance, along with more efficient tracking and management of truck fleets.

• IoT sensors at various points in waste stream help to monitor waste generation, recycling, and composting.

• IoT sensors attached to dumpsters allow for monitoring of trash containers for more efficient pickup schedules.

3. How successful are these IT applications as a solution? Explain your answer.

San Francisco has been able to divert 80 percent of its waste away from landfills with the use of the aforementioned technologies, but the remaining 20 percent will be more difficult.

New technology alone will not be sufficient in reaching Zero waste; city residents will need to become more vigilant about using recyclable products and curtailing wasteful habits.

Section 7-4, “What are the principal technologies and standards for wireless networking, communication, and Internet access?” Ask your students how many of them use cellular phones, smartphones, wireless laptops, tablet computers, or wireless e-book readers. Most students are excited to demonstrate their “latest devices,” and you may wish to ask one of them to discuss the capabilities of theirs. Ask them to discuss what they like or dislike about the features found on their device.

If you have the class time, you can ask the campus IT director to discuss the telecommunications technology used on your campus, take a tour of the campus facilities, or invite an IT director from a local company to discuss his company’s telecommunications technology. Ask your students to find out what their university does to support mobile wireless communications. Have them investigate applications where Bluetooth, Wi-Fi, or hotspot technology is used and how it benefits them. Are they able to use their own personal devices to connect and utilize these technologies on their campus?

Section 7-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an automotive digital advisor. Digital marketing employment is growing rapidly in most industries, from retail and finance, to manufacturing.

Review Questions 7-1 What are the principal components of telecommunications networks and key networking technologies?

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Describe the features of a simple network and the network infrastructure for a large company.

A simple network consists of two or more connected computers. Basic network components include computers, network interfaces, a connection medium, network operating system software, and either a hub or a switch. The networking infrastructure for a large company relies on both public and private infrastructures to support the movement of information across diverse technological platforms. It includes the traditional telephone system, mobile cellular communication, wireless local-area networks, videoconferencing systems, a corporate website, intranets, extranets, and an array of local and wide-area networks, including the Internet. This collection of networks evolved from two fundamentally different types of networks: telephone networks and computer networks. (Learning Objective 7-1: What are the principal components of telecommunications networks and key networking technologies? AACSB: Application of knowledge.)

Name and describe the principal technologies and trends that have shaped contemporary telecommunications systems.

Client/Server computing, the use of packet switching, and the development of widely used communications standards such as TCP/IP are the three technologies that have shaped contemporary telecommunications systems.

Client/Server computing has extended to networking departments, workgroups, factory floors, and other parts of the business that could not be served by a centralized architecture.

The Internet is based on client/server computing. Packet Switching technology allows nearly full use of almost all available lines and capacity. This was not possible with the traditional dedicated circuit-switching techniques that were used in the past. TCP/IP is a suite of protocols that has become the dominant standard of network communications. Having a set of protocols for connecting diverse hardware and software components has provided a universally agreed upon method for data transmission. (Learning Objective 7-1: What are the principal components of telecommunications networks and key networking technologies?

AACSB: Application of knowledge.)

7-2 What are the different types of networks?

Define an analog and a digital signal.

Analog: a continuous waveform that passes through a communications medium and has been used for voice communication. Traditionally used by telephone handsets, computer speakers, or earphones.

Digital: a discrete, binary waveform, rather than a continuous waveform, represented by strings of two states: one bit and zero bits, which are represented as on-off electrical pulses.

Computers use digital signals and require a modem to convert these digital signals into analog signals that are transmitted across telephone lines, cable lines, or wireless media.

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(Learning Objective 7-2: What are the different types of networks? AACSB: Application of knowledge.)

Distinguish between a LAN, MAN, and WAN. LAN (Local Area Network): a telecommunications network that is designed to connect personal computers and other digital devices within a half-mile or 500-meter radius. LANs typically connect a few computers in a small office, all the computers in one building, or all the computers in several buildings in close proximity. LANs require their own dedicated channels.

MAN (Metropolitan Area Network): a network that spans a metropolitan area, usually a city and its major suburbs. Its geographic scope falls between a WAN and a LAN. WAN (Wide Area Network): spans broad geographical distances – entire regions, states, continents, or the entire globe. The most universal and powerful WAN is the Internet.

Computers connect to a WAN through public networks, such as the telephone system or private cable systems, or through leased lines or satellites. (Learning Objective 7-2: What are the different types of networks? AACSB: Application of knowledge.)

7-3 How do the Internet and Internet technology work and how do they support communication and e-business?

Define the Internet, describe how it works, and explain how it provides business value.

The Internet is a vast network of computers that connects millions of people all over the world. The Internet uses the client/server model of computing and the TCP/IP network reference model. Every computer on the Internet is assigned a unique numeric IP address. No one owns the Internet, and it has no formal management organization. However, worldwide Internet policies are established by organizations and government bodies, such as the Internet Architecture Board and the World Wide Web Consortium. The Internet must also conform to the laws of the sovereign nation-states in which it operates, as well as the technical infrastructure that exist within the nation-state.

The Internet enables employees to gain remote access to the company’s internal systems through its website. They are able to better service customers and suppliers, improve operational efficiency, increase productivity, lower operational costs, have a broader market base, and reach more individual customers on a global scale by establishing a web presence.

The cost of email and other Internet services tend to be far lower than equivalent voice, postal, or overnight delivery costs, making the Internet a very inexpensive communication medium. It is also a very fast method of communication, with messages arriving anywhere in the world in a matter of seconds or minutes. (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business?

AACSB: Application of knowledge.)

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Explain how the Domain Name System (DNS) and IP addressing system work.

The Internet is based on the TCP/IP networking protocol suite. Every computer on the Internet is assigned a unique Internet Protocol (IP) address, which currently is a 32-bit number represented by four strings of numbers ranging from 0 to 255 separated by periods.

A domain name is the human language name that corresponds to the unique 32-bit numeric IP address for each computer connected to the Internet. The Domain Name System (DNS) converts IP addresses to domain names so that users only need to specify a domain name to access a computer on the Internet instead of typing the numeric IP address. DNS servers maintain a database containing IP addresses mapped to their corresponding domain names.

When a user sends a message to another user on the Internet, the message is first decomposed into packets using the TCP protocol. Each packet contains its destination address. The packets are then sent from the client to the network server and from there on to as many other servers as necessary to arrive at a specific computer with a known address. At the destination address, the packets are reassembled into the original message. (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business? AACSB: Analytical thinking.)

List and describe the principal Internet services.

Table 7-3 lists and describes the major Internet services: • • • • • •

Email—person-to-person messaging; document sharing.

Newsgroups—discussion groups on electronic bulletin boards.

Chatting and instant messaging—interactive conversations.

Telnet—logging on to one computer system and doing work on another.

File Transfer Protocol (FTP)—transferring files from computer to computer.

World Wide Web—retrieving, formatting, and displaying information (including text, audio, graphics, and video) using hypertext links. (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business? AACSB: Application of knowledge.)

Define and describe VoIP and virtual private networks and explain how they provide value to businesses.

•

Voice over Internet Protocol (VoIP) enables Internet technology to be used for telephone voice transmission over the Internet or private networks. VoIP offers the advantage of avoiding tolls charged by local and long-distance telephone networks.

VoIP provides businesses an opportunity to reduce costs because they no longer have to maintain separate networks or provide support services and personnel for each different type of network. It gives organizations flexibility because phones can be added or moved to different offices without rewiring or reconfiguring networks.

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•

Virtual private networks are secure, encrypted, private networks that have been configured within a public network to take advantage of the economies of scale and management facilities of large networks, such as the Internet. VPNs are low-cost alternatives to private WANs. VPNs give businesses a more efficient network infrastructure for combining voice and data networks. (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business? AACSB: Application of knowledge.)

List and describe alternative ways of locating information on the web.

• • • • • •

Search engines are a facility on the web that helps you find sites with the information and/or services you want. Examples: Google, Yahoo!, and MSN. Intelligent agent shopping bots use intelligent agent software for searching the Internet for shopping information. Examples: MySimon and Froogle.

Blogs are informal yet structured websites where subscribing individuals can publish stories, opinions, and links to other websites of interest.

Wikis are collaborative websites where visitors can add, delete, or modify content on the site, including the work of previous authors.

Mobile search uses smartphones and tablets to provide a way to search the web conveniently and quickly.

Semantic web reduces the amount of human involvement in searching for and processing web information. It establishes specific meanings for data on the web, categories for classifying the data, and relationships between classification categories.

(Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business? AACSB: Application of knowledge.)

Describe how online search technologies are used for marketing.

Search engine marketing monetizes the value of the search process. Searching is one of the web’s most popular activities with billions of queries performed each month. Search engines are the foundation for the most lucrative form of online marketing and advertising. When users enter a search term in a search engine, they receive two types of listings: sponsored links, for which advertisers have paid to be listed, and unsponsored organic search results.

Advertisers can also purchase small text boxes on the side of search results pages. Paid, sponsored advertisements are the fastest growing form of Internet advertising and are powerful new marketing tools that precisely match consumer interests with advertising messages at the right moment. (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business? AACSB: Application of knowledge.)

7-4 What are the principal technologies and standards for wireless networking, communications, and Internet access?

Define Bluetooth, Wi-Fi, WiMax, and 3G, 4G, and 5G networks.

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Standards for wireless computer networks include Bluetooth (802.15) for small personal-area networks (PANs), wi-fi (802.11) for local-area networks (LANs), and WiMax (802.16) for metropolitan-area networks (MANs). Bluetooth can link up to eight devices within a 10meter area using low-power, radio-based communication and can transmit up to 722 Kbps in the 2.4 GHz band. Wireless phones, keyboards, computers, printers, and PDAs using Bluetooth can communicate with each other and even operate each other without direct user intervention.

Wi-fi is useful for creating wireless LANs and for providing wireless Internet access. Its access range is limited to anywhere between 300 feet and three miles. Hotspots are public access points individuals use to obtain high speed Internet access.

WiMax has a wireless access range of up to 31 miles and a data transfer rate of up to 30-40 Mbps (and up to 1 Gbps for fixed stations), making it suitable for providing broadband Internet access in areas lacking DSL and cable lines. The 802.16 specification also has robust security and quality-of-service features to support voice and video.

3G is an abbreviation for third-generation wireless technology, especially mobile communications. Cellular networks have evolved from slow-speed (1G) analog networks to high-speed, high-bandwidth, digital packet-switched, third-generation (3G) networks with speeds ranging from 144 Kbps to more than 2 Mbps for data transmission.

4G is an abbreviation for fourth-generation wireless technology. It is entirely packet switched and capable of 100 Mbps transmission speed (which can reach 1 Gbps under optimal conditions), with premium quality and high security. Voice, data, and high-quality streaming video are available to users anywhere, anytime.

5G is the next generation of wireless technology that is still under development. It will support transmission of huge amounts of data in the gigabit range. (Learning Objective 7-4: What are the principal technologies and standards for wireless networking, communications, and Internet access? AACSB: Application of knowledge.)

Describe the capabilities of each and for which types of applications each is best suited.

• • • • •

Bluetooth: Access very limited; useful for creating small personal-area networks.

Wi-fi: Access is limited to 30–50 meters; useful for creating small local area networks WiMax: Access is limited to a range up to 31 miles: useful for creating wide area networks 3G networks: Access is available on major cellular telephone carriers that have configured their networks for 3G services.

4G networks: Provides premium quality for voice, data, and streaming video from cellular telephone carriers.

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5G networks: Because it will have fewer transmission delays and the ability to connect many more devices at once, it will be most helpful for self-driving vehicles, smart cities, and the expansion of the Internet of Things (IoT). (Learning Objective 7-4: What are the principal technologies and standards for wireless networking, communications, and Internet access? AACSB: Application of knowledge.)

Define RFID, explain how it works and describe how it provides value to businesses.

Mobile wireless technology facilitates supply chain management by capturing data on the movement of goods as these events take place and by providing detailed, immediate information as goods move among supply chain partners. Radio frequency identification (RFID) systems provide a microchip that contains data about an item and its location. The tags transmit radio signals over a short distance to special RFID readers. The RFID readers then pass the data over a network to a computer for processing.

RFID gives businesses an opportunity to further automate their supply chain networks. The technology allows more data on an RFID chip than typical barcodes. RFID systems track each pallet, lot, or unit item in a shipment. The technology helps companies improve receiving and storage operations by improving their ability to “see” exactly what stock is stored in warehouses or on retail store shelves. (Learning Objective 7-4: What are the principal technologies and standards for wireless networking, communications, and Internet access? AACSB: Application of knowledge.)

Define WSNs, explain how they work, and describe the kinds of applications that use them.

Wireless sensor networks (WSNs) are networks of interconnected wireless devices with some processing and radio-transmitting capability that are embedded into the physical environment to provide measurements of many points over large spaces.

Wireless sensor networks are valuable for monitoring environmental changes, traffic patterns, security incidents, or supply chain events. Wireless sensor networks can be placed in the field for years without any maintenance or human intervention. That reduces costs to businesses using them. (Learning Objective 7-4: What are the principal technologies and standards for wireless networking, communications, and Internet access? AACSB: Application of knowledge.)

Discussion Questions 7-5 It has been said that within the next few years, smartphones will become the single most important digital device we own. Discuss the implications of this statement.

Student answers to this question will vary.

7-6 Should all major retailing and manufacturing companies switch to RFID? Why or why not?

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Student answers to this question will vary.

7-7 What are some of the issues to consider in determining whether the Internet would provide your business with a competitive advantage?

Student answers to this question will vary.

Hands-On MIS Projects Management Decision Problems 7-8 Floor tile company: Is asked by major retailing customers to begin using RFID to improve management of products. Use the web to identify the cost of hardware, software, and networking components for an RFID system for your company. What factors should be considered? What are the key decisions that have to be made in determining whether your firm should adopt this technology?

(The following information was copied from www.zebra.com, Nov 2010) What is the estimated incremental cost for adopting RFID? If one is discussing incremental costs over and above what was invested in your bar code infrastructure, then you can say that you will be making an investment in tags, printer/encoders, readers, middleware, and professional services to integrate these components into your bar code legacy environment. If you are not working with bar codes already, obviously you will need to make an investment in back-office, manufacturing, or WMS systems to use RFID data.

What is a ballpark figure for implementing RFID in a warehouse and distribution process?

According to Forrester Research, a typical supplier that attempts to comply with a mandate can expect to spend as much as $9 million on RFID—depending on the size of its distribution network and Walmart volume. According to this research, the largest expenditures are tag costs and additional warehouse labor. Again, it is stressed that this figure is derived from studying one company seeking compliance with the Walmart mandate.

However, this study provides a good perspective on the areas from which costs will derive.

How do smart label costs compare to conventional thermal/thermal-transfer printed labels?

A smart label runs in the vicinity of about $0.50 per label vs. about $0.01 for a conventional label. This is mainly due to the addition of the tag. This cost is also variable based on the total volume printed and the economies of scale associated with large quantities.

What companies are currently developing RFID software? Is it all customized or are there off-the-shelf solutions?

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Numerous start-up and established software providers—including those who provide ERP software—have developed applications to deal with RFID reader and printer/encoder management, plus “tag data capture event” management. As with most business applications software, packages are typically customized to meet customers’ requirements rather than being ready to go “off the shelf.”

How will RFID integrate with EDI software?

EDI messages contain data about business transactions. While the format of an EDI message may change to accommodate “new data” (such as an EPC by comparison with a GTIN), fundamentally EDI message processors are unaware of the source of the data contained in messages. So, there should be no reason that RFID cannot integrate with EDI software, provided the data structures are fundamentally the same. However, one area of difference is that many EDI systems typically deliver data in periodic batch mode; in contrast, the strength of RFID is its ability to deliver real-time data, so systems are up-to-the-minute.

Key decisions that a company needs to make when considering adopting RFID include: • Hardware and software costs • Implementation costs • Return on investments • How technology fits into overall business strategy (Learning Objective 7-4: What are the principal technologies and standards for wireless networking, communications, and Internet access? AACSB: Analytical thinking, Application of knowledge.)

7-9 BestMed Medical Supplies Corporation: Sells products and equipment from over 700 different manufacturers to hospitals, health clinics, and medical offices. The company employs 500 people at seven different locations. Management is considering adopting a unified communications system. What factors should be considered? What are the key decisions that have to be made in determining whether to adopt this technology? Use the web, if necessary, to find out more about unified communications and its costs.

Because the costs of purchasing and implementing a unified communication system will vary based on the chosen system, so too will student answers.

(The following information was copied from www.networkworld.com, Nov 2010) From a broad perspective, Verizon Business suggests that organizations need to evaluate and measure how UC&C will benefit their organizations, determine whether the enterprise has adequate in-house technical resources, personnel, and network capacity; and define how to integrate UC&C into business processes to align the deployment with critical business initiatives.

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At a more detailed level, Verizon Business suggested that in preparation for UC&C, enterprises should: • Invest in advanced IP networks because “UC&C starts with a capabilities-rich IP infrastructure. . . [and] flexible and expansive IP networks serve as the foundation of a successful UC&C deployment.”

• Inventory technology and personnel resources to better understand the technological scope of UC&C deployments and “help identify potential network, equipment, and application gaps.” Verizon Business also recommends a skills-assessment of technical staff “to identify possible new hires and individuals requiring additional training.”

• Align technology with business objectives to “make purchasing decisions with a focus on meeting specific business goals.” Any deployment should be designed to maximize the impact of UC&C on business processes. The enterprise should also establish benchmarks for success to better understand its ultimate objectives.

• Create a comprehensive roadmap that is “far reaching and covers areas such as technology and finances, as well as detailed deployment and implementation plans.”

• Tackle security at the onset, with a design that integrates “seamlessly with a business’ current network and leverage existing technology investments.”

• Determine capabilities for ongoing management and decide “whether in-house staff has the skills and time required to effectively manage and troubleshoot performance issues.” As needed, enterprise should “select a managed services provider with the people, tools, and processes to help provide consistent performance of UC&C applications.”

• Develop support systems and processes so that the corporate IT staff is prepared to address end-user performance issues and questions.

• Train and educate end users “to help users adopt and embrace these new tools so they can work more efficiently and productively.”

• Measure and modify, with built-in milestones planned that “go beyond reliability and availability measurements to assess the impact of UC&C from a financial, customer service, business process and end-user satisfaction perspective.”

(Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

Improving Decision Making: Using Spreadsheet Software to Evaluate Wireless Services Software skills: Spreadsheet formulas, formatting Business skills: Analyzing telecommunications services and costs 7-10 You would like to equip your sales force of 35, based in St. Louis, Missouri with mobile phones that have capabilities for voice transmission, text messaging, Internet access, and taking and sending photos. Use the web to select two wireless providers that offer nationwide voice and data service as well as good service in your home area. Examine the 7-15 ..

features of the mobile handsets and wireless plans offered by each of these vendors. Assume that each of the 35 salespeople will need unlimited voice, text, and date service in the United States and the ability to take and send photos. Use your spreadsheet software to determine the wireless service and handset that will offer the best pricing per user over a two-year period. For the purposes of this exercise, you do not need to consider corporate discounts.

Answers will vary since plan rates and costs of mobile phones are constantly changing. The answer to the following question can be found in the sample solution found in the Microsoft Excel file named MIS16ch07solutionfile.xls. (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business?

AACSB: Analytical thinking, reflective thinking, application of knowledge.)

Achieving Operational Excellence: Using Web Search Engines for Business Research Software skills: Web search tools Business skills: Researching new technologies 7-11 Use Google and Bing to obtain information about ethanol as an alternative fuel for motor vehicles. If you wish, try some other search engines as well. Compare the volume and quality of information you find with each search tool. Which tool is the easiest to use?

Which produced the best results for your research? Why? Answers will vary according to the search phrases students enter in the search engines. The object of this question should be for students to explore new search engines and web services and not stick with “what they already know.” To that end, encourage students to use a different search engine than they normally use and explore how their search results are framed—sponsored links or organic listings. Also encourage them to search for audio and video files, blogs, wikis, and Web 2.0 services about the subject. Is the information more useful, less useful, pertinent, or trustworthy? Do they prefer simple text documents, or do they find the newer web services more helpful? (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and ebusiness? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

Collaboration and Teamwork Project 7-12. In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: Google, Apple, and Facebook Battle for Your Internet Experience 7-13 Compare the business models and core competencies of Google, Apple, and Facebook.

Google: Its business model has always focused on the Internet and the web. It began as one of many search engines. It quickly ran away from the pack with its copyrighted PageRank search algorithm which returns superior search results for web users. It also has developed 7-16 ..

extensive online advertising services for businesses of all sizes. Google provides value to the user by using an inexpensive, flexible infrastructure to speed up web searches and provide its users with a vast array of web-based services and software tools. About 90 percent of Google’s revenue comes from ads, with 84 percent of that on its search engine. Google dominates online advertising. However, Google is slipping in its position as the gateway to the Internet. New search start-ups focus on actions and apps instead of the web.

Apple: Its business model focuses on centralized control of almost all aspects of its hardware and software. It believes smartphones and tablets should have proprietary standards and be tightly controlled. It only allows apps from its App store that have been vetted by the company to be loaded to its products. Apple has a very loyal user base that has steadily grown and most likely will stay with Apple products in the future.

Facebook: Facebook has built its business around social networking better than any other company. It has more worldwide users than any other company. Facebook Platform enables developers to build applications and web sites that integrate with Facebook to reach its global network of users and to build pesonalized and social products. (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and ebusiness? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

7-14 Why is mobile computing so important to these three firms? Evaluate the mobile strategies of each firm.

This case demonstrates the fundamental paradigm shift from primarily desktop PC computing to mobile computing devices accessing services through the Internet that is currently taking place. In 2016, mobile smartphones and tablet computers became the major Internet access device. Each company is vying for the lead in a world of ubiquitous computing based on Internet access. The leader stands to make untold profits from advertising but in order to do that, the leader needs to claim the largest user base.

Apps greatly enrich the experience of using a mobile device. Whoever creates the most appealing set of devices and applications will derive a significant competitive advantage over rival companies.

Google aggressively follows eyeballs. It has introduced the Android mobile operating system for a host of non-Apple devices. The Droid system adds features that Apple devices don’t have – the ability to run multiple apps at the same time. It uses an open non-proprietary system that allows users to grab apps from any source. Command of the smartphone operating system market provides built-in channels for serving ads to mobile devices. Google has successfully tailored its search results to respond to mobile searchers needs and accommodate smartphone functionality. Android is deployed on 80 percent of smartphones worldwide, is the most common operating system for tablets, and runs on watches, car dashboards and TVs—more than 4,000 distinct devices. Google wants to extend Android to as many devices as possible Apple by far the current leader in the number of apps users can download – over one million.

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It unveiled Siri in 2011 that has the potential to serve as a market disruption technology by combining search, navigation, and personal assistant tools. Apple is not counting on hardware devices alone for future growth. Services have always played a large part in the Apple ecosystem, and they have emerged as a major revenue source. Apple has more than 1 billion active devices in circulation, creating a huge installed base of users willing to purchase services and a source of new revenue streams. Apple Pay, now available in more than 10 million locations around the world, has been adding 1 million new users per week.

Four months after the Apple Music service started collecting revenue, it had more than 10 million subscribers, adding $1.2 billion to Apple’s annual bottom line. Revenue from the App Store is skyrocketing. According to CEO Tim Cook, Apple has become one of the largest service businesses in the world.

Facebook realized that much of its advertising revenue will come from mobile device searches. It overhauled its home page to increase the size of both photos and links and allow users to create topical streams. It de-cluttered smartphone screens. It gave advertisers more opportunties and more interesting information with which to target markets. Facebook also introduced a mobile application suite to replace the typical smartphone home screen.

Facebook Home is an interface running on top of the Android operating system that replaces the smartphone’s typical cover screen with Facebook content, such as photos, messages, and status updates. Home still provides access to apps on the phone, but the experience is centered around Facebook. (Learning Objective 7-4: What are the principal technologies and standards for wireless networking, communication, and Internet access? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

7-15 Which company and business model do you think is most likely to dominate the Internet, and why?

Students should consider these principles in their answers: • The size, complexity, and bureaucracy of organizations affect the ability of any company to continue to innovate, grow, and expand its reach (see Chapter 3). As all three companies try to expand into mobile computing, their ability to “turn on a dime” in the face of other competitors may be in serious jeopardy.

• Google currently has the major share of the web-based advertising market, however Facebook and other market entrants will be a major threat to them. Apple has had a significant lead in mobile computing for several years. However, as more companies, Google, Facebook, and others, continue to expand into the arena, its lead will be threatened. Legal and regulatory compliance will be a major issue as this market grows and more concerns are expressed from external environments.

• History is not on anyone’s side. Every major company that’s been a force in technology in one era has lost its lead in the next era. For example, IBM was king of mainframe computing in the 1940s and 1950s. DEC was king in the mini-computer era during the 1970s. Microsoft was king in the 1980s and 1990s during the reign of desktop computers.

Google reigns in the 2000s with its web-based services. Apple began as king of mobile computing devices. Will it remain on top as technology continues to evolve? (Learning Objective 7-1: What are the principal components of telecommunications networks and 7-18 ..

key networking technologies? Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

7-16 What difference would it make to a business or to an individual consumer if Apple, Google, or Facebook dominated the Internet experience? Explain your answer.

Right now Apple leads Google in the number of apps available to users. That gap is closing quickly thanks to Google’s improvements of the Android operating system and its encouragement to app developers. Open, non-proprietary systems historically have beat closed, proprietary systems because developers and users have a wider range of choices.

Business managers must try to forecast which platform will provide the right choices for employees. Consumers must choose which platform will best fulfill their personal needs for the next two to three years. Switching costs play into both scenarios, not just in terms of phone purchases but the price of apps. Once a user purchases and adjusts to using a certain platform it’s difficult and expensive to switch to a whole different system.

Apps greatly enrich the experience of using a mobile device, and without them, the predictions for the future of mobile Internet would not be nearly as bright. Whoever creates the most appealing set of devices and applications will derive a significant competitive advantage over rival companies. (Learning Objective 7-3: How do the Internet and Internet technology work and how do they support communication and e-business? Learning Objective 7-4: What are the principal technologies and standards for wireless networking, communication, and Internet access? AACSB: Analytical thinking, reflective thinking, application of knowledge.)

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Chapter 8 Securing Information Systems Student Learning Objectives 8-1 Why are information systems vulnerable to destruction, error, and abuse?

8-2 What is the business value of security and control?

8-3 What are the components of an organizational framework for security and control?

8-4 What are the most important tools and technologies for safeguarding information resources 8-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Acceptable use policy (AUP), 312 Anti-malware software, 317 Application controls, 310 Authentication, 314 Biometric authentication, 315 Botnet, 301 Bugs, 306 Business continuity planning, 313 Click fraud, 303 Computer crime, 301 Computer forensics, 309 Computer virus, 298 Controls, 295 Cybervandalism, 300 Cyberwarfare, 304 Denial-of-service (DoS) attack, 300 Digital certificates, 319 Digital resiliency, 321 Disaster recovery planning, 313 Distributed denial-of-service (DDos) attack, 300 Downtime, 321

Information systems audit, 313 Intrusion detection systems, 317 Key loggers, 300 Malware, 298 Managed security service providers (MSSPs), 321 Online transaction processing, 321 Password, 314 Patches, 307 Pharming, 302 Phishing, 302 Public key encryption, 319 Public key infrastructure (PKI), 319 Ransomware, 299 Risk assessment, 311 Sarbanes-Oxley Act, 308 Secure Hypertext Transfer Protocol (S-HTTP), 318 Secure Sockets Layer (SSL), 318 Security, 295 Security policy, 311 Smart card, 315 Sniffer, 300 8-1 ..

Drive-by download, 298 Encryption, 318 Evil twin, 302 Fault tolerant computer systems, 321 Firewall, 316 General controls, 310 Gramm-Leach-Bliley Act, 308 Hacker, 300 HIPAA, 308 Identity management, 314 Identify theft, 302

Social engineering, 304 Spoofing, 300 Spyware, 300 SQL injection attack, 299 Token, 315 Trojan horse, 299 Two-factor authentication, 315 Unified threat management (UTM), 318 War driving, 297 Worms, 298 Zero-day vulnerabilities, 307

The opening case “The Electric Power Grid Becomes a Cyberwarfare Battleground” illustrates how the problem of securing information systems ranges from keeping viruses off a personal computer to protecting national interests and infrastructure. This case specifically describes how primarily Russian hackers are actively attempting to bring down the US electricity grid. The results would be catastrophic bringing down life support systems in hospitals, disruption of clean water supplies, and havoc on the financial and transportation systems.

The United States is diligently working to defend the grid and is ramping up defense efforts. The North American Reliability Corporation oversees the grid in the United States and Canada continues to issue standards on how electric companies can best protect their systems. Is particularly focusing on contractors and subcontractors that service the grid as a high-risk vulnerability.

Section 8-1, “Why are information systems vulnerable to destruction, error, and abuse?” With data concentrated in electronic form and many procedures invisible through automation, computerized information systems are vulnerable to destruction, misuse, error, fraud, and hardware or software failures. Corporate systems using the Internet are especially vulnerable because the Internet is designed to be an open system.

As wireless systems become more popular, security challenges associated with them increase exponentially. Internal corporate systems are just as vulnerable to malicious actions from insiders as they are from those outside the system.

Ask your students to research some of the latest virus threats. They can find information on viruses by visiting one of the following websites or simply using a search engine such as Google. www.symantec.com/index.htm www.mcafee.com www.pandasecurity.com

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Interactive Session: Technology: Capital One: A Big Bank Heist from the Cloud Case Study Questions: 1. What management, organization, and technology factors were responsible for the Capital One hack?

Management: Before the giant data breach, Capital One employees had raised concerns internally about high turnover in the company’s cybersecurity unit and tardiness in installing some software to help spot and defend against hacks. The cybersecurity unit is responsible for ensuring Capital One’s firewalls are properly configured and for scanning the Internet for evidence of a data breach. In recent years there have been many changes among senior leaders and staffers. About a third of Capital One’s cybersecurity employees left the company in 2018.

Organization: Thompson was able to access and steal this sensitive information only because Capital One had misconfigured its Amazon server. Thompson could then trick a system in the cloud to uncover the credentials she needed to access Capital One’s customer records. Thompson’s crime was considered an insider threat, since she had worked at Amazon years earlier. However, outsiders also try to search for and exploit this type of misconfiguration, and server misconfigurations are commonplace.

Misconfigurations are also easily fixed, so many do not consider them a breach.

Sometimes it’s difficult to determine whether tinkering with misconfigurations represents a criminal activity or security research.

Technology: Security professionals have known about misconfiguration problems and the ability to steal credentials from the metadata service since at least 2014.

Amazon believes it is the customer’s responsibility to solve them. Some customers have failed to do so. When security researcher Brenton Thomas conducted an Internet scan in February 2019, he found more than 800 Amazon accounts that allowed similar access to the metadata service.

2. Was this an insider hack? Explain your answer.

Thompson’s crime was considered an insider threat, since she had worked at Amazon years earlier.

3. What steps could have been taken to prevent the Capital One hack?

Capital One had a misconfiguration of the firewall on a web application. This allowed the individual to communicate with the server where Capital One was storing its data and customer files. Amazon claimed this configuration was the responsibility of the company and not Amazon.

4. Should companies handling sensitive data use cloud computing services? Explain your answer.

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Student answers might vary. With proper configuration, cloud computing is a perfectly acceptable way for companies to store sensitive data. However, the security elements need to be configured and regularly checked for misconfigurations and constantly updated as changes are required. This is the best way to avoid this type of breach.

Section 8-2, “What is the business value of security and control?” Security and control are important but often neglected areas for information systems investments. Most companies today are naïve about how vulnerable their assets are. When developing and managing information security systems, the organization’s primary concern is acquiring new weapons to fight and win the battle for system security. Remind your students that knowledge is the best first line of defense against the army of hackers, frauds, tricksters, saboteurs, and thieves who threaten the organization’s precious information resources.

Most students and professors alike have all been affected at one time or another with a software virus. Ask students what virus they may have had on their computer systems, what problems it created for them, and how they could solve it.

Section 8-3, “What are the components of an organizational framework for security and control?” Firms must use appropriate technologies to effectively protect their information resources. The best place to start is by establishing a well-defined set of general and application controls. Ask your students to research what types of security and control methods are employed by their university or workplace. In groups, ask them to present their findings in class.

Security policies and acceptable use policies are only as good as their enforcement. Many organizations, including universities, have acceptable use policies but unfortunately, not many people know they exist, read them, or abide by them. Have students research the acceptable use policy for your university and explain it to the other students. Discuss the implications of following or not following the policy.

Security audits, both internal and external, are more important than ever in helping to secure corporate information systems. The Enron/Anderson scandal, and the resultant federal laws, have resulted in positive changes in how executives and managers view security. Stress this throughout the chapter as you discuss it with the students.

Section 8-4, “What are the most important tools and technologies for safeguarding information resources?” Although students or their employers may say they want software quality or controls in information systems, few want to be bothered with the extra steps that quality assurance requires, or the limits on their freedom, funds, and extra time it takes to install controls and security.

Discuss with students how biometrics, such as the use of fingerprint imaging, retinal scans, or voice maps to authenticate users, can increase security. Ask your students to investigate the latest biometric systems and devices. Students can begin their searches with companies like Sense Technologies Inc., Ethentica Inc., and Siemens Inc. 8-4 ..

Establishing a good framework for security and control requires skillful balancing of risks, rewards, and the firm’s operational capabilities. Designing systems that are neither over-controlled nor under-controlled and implementing an effective security policy are major management challenges. Solutions include making security and control a higher management priority and installing security awareness throughout the firm. Key management decisions include determining an appropriate level of control for the organization and establishing standards for system accuracy and reliability.

Interactive Session: Management: PayPal Ups Its Digital Resiliency Case Study Questions 1. Why is digital resiliency so important for a company such as PayPal? Any data center downtime, whether from a company data center or colo, creates a loss to the business, in terms of number of transactions processed, customer service, and the time and resources required to solve the downtime problem.

2. How did PayPal benefit from measuring its digital resiliency? What issues did it address?

PayPal benefitted from seeing where the weaknesses were, so they could better target areas for improvement as it relates to technician training. New hires at PayPal’s Facility Operations Team are required to complete an initial training program before they are allowed to work on shift. PayPal also has a training program for vendors who will be performing on-site maintenance.

3. What is the role of management and organizational issues in making an organization’s IT infrastructure more resilient?

Management needs to identify where they are strong and where they have weaknesses similar to what PayPal had done. By identifying these areas, better focus and attention can be brought to those areas needing improvement and plans and procedures can be put in place to get those elements to where they need to be.

Section 8-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level identity access and management support specialist. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 8-1 Why are information systems vulnerable to destruction, error, and abuse?

List and describe the most common threats against contemporary information systems.

The most common threats against contemporary information systems include: 8-5 ..

technical, organizational, and environmental factors compounded by poor management decisions.

• Technical: Unauthorized access, introducing errors • Communications: Tapping, sniffing, message alternation, theft and fraud, radiation • Corporate servers: Hacking, viruses and worms, theft and fraud, vandalism, denial of service attacks • Corporate systems: Theft of data, copying data, alteration of data, hardware failure, and software failure; power failures, floods, fires, or other natural disasters • Poor management decisions: Poorly designed safeguards that protect valuable data from being lost, destroyed, or falling into the wrong hands (Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? AACSB: Application of knowledge.)

Define malware and distinguish between a virus, a worm, and a Trojan horse.

Malware (a blended term for malicious software) is any program or file that is harmful to a computer user. Thus, malware includes computer viruses, worms, Trojan horses, and also spyware programs that gather information about a computer user without permission.

• Virus: A program or programming code that replicates itself by being copied or initiating its copying to another program, computer boot sector, or document.

• Worm: A self-replicating virus that does not alter files but resides in active memory and duplicates itself without human intervention.

• Trojan horse: A program in which malicious or harmful code is contained inside apparently harmless programming or data. A Trojan horse is not itself a virus because it does not replicate but is often a way for viruses or other malicious code to be introduced into a computer system. (Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse?

AACSB: Application of knowledge.)

Define a hacker and explain how hackers create security problems and damage systems.

A hacker is an individual who gains unauthorized access to a computer system by finding weaknesses in security protections used by websites and computer systems.

Hackers not only threaten the security of computer systems, but they also steal goods and information, as well as damage systems and commit cybervandalism. They may intentionally disrupt, deface, or even destroy a website or corporate information system. (Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? AACSB: Application of knowledge.)

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Define computer crime. Provide two examples of crime in which computers are targets and two examples in which computers are used as instruments of crime.

The Department of Justice defines computer crime as “any violations of criminal law that involve a knowledge of computer technology for their perpetration, investigation, or prosecution.” Computer crime is defined as the commission of illegal acts through the use of a computer or against a computer system. Table 8-2 provides examples of computer crimes.

Computers as targets of crime: • Breaching the confidentiality of protected computerized data • Accessing a computer system without authority • Knowingly accessing a protected computer to commit fraud • Intentionally accessing a protected computer and causing damage, negligently or deliberately • Knowingly transmitting a program, program code, or command that intentionally causes damage to a protected computer • Threatening to cause damage to a protected computer Computers as instruments of crime: • Theft of trade secrets • Unauthorized copying of software or copyrighted intellectual property, such as articles, books, music, and video • Schemes to defraud • Using email for threats or harassment • Internationally attempting to intercept electronic communication • Illegally accessing stored electronic communications, including email and voice mail • Transmitting or processing child pornography using a computer (Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? AACSB: Application of knowledge.)

Define identity theft and phishing and explain why identity theft is such a big problem today.

Identity theft is a crime in which an imposter obtains key pieces of personal information, such as a social security identification number, driver’s license number, or credit card numbers, to impersonate someone else. The information may be used to obtain credit, merchandise, or services in the name of the victim or to provide the thief with false credentials.

It is a big problem today as the Internet has made it easy for identity thieves to use stolen information because goods can be purchased online without any personal interaction. Credit card files are a major target of website hackers. Moreover, 8-7 ..

e-commerce sites are wonderful sources of customer personal information that criminals can use to establish a new identity and credit for their own purposes.

Phishing involves setting up fake websites or sending email messages that look like those of legitimate businesses to ask users for confidential personal data. The email instructs recipients to update or confirm records by providing social security numbers, bank and credit card information, and other confidential data either by responding to the email message or by entering the information at a bogus website. New phishing techniques such as evil twins and pharming are very hard to detect. (Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? AACSB: Application of knowledge.)

Describe the security and system reliability problems employees create.

The largest financial threats to business institutions come from employees. Some of the largest disruptions to service, destruction of e-commerce sites, and diversion of customer credit data and personal information have come from insiders. Employees have access to privileged information, and in the presence of sloppy internal security procedures, they are often able to roam throughout an organization’s systems without leaving a trace.

Many employees forget their passwords to access computer systems or allow other coworkers to use them, which compromises the system. Malicious intruders seeking system access sometimes trick employees into revealing their passwords by pretending to be legitimate members of the company in need of information (social engineering). Employees can introduce errors by entering faulty data or by not following proper instructions for processing data and using computer equipment.

Information specialists can also create software errors as they design and develop new software or maintain existing programs. (Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? AACSB: Application of knowledge.)

Explain how software defects affect system reliability and security.

The software can fail to perform, perform erratically, or give erroneous results because of undetected bugs. A control system that fails to perform can mean medical equipment that fails or telephones that do not carry messages or allow access to the Internet. A business system that fails means customers are under- or over-billed. Or, it could mean that the business orders more inventory than it needs. Or an automobile’s braking system may fail.

Major quality problems are the bugs or defects caused by incorrect design. The other problem is maintenance of old programs caused by organizational changes, system design flaws, and software complexity. Bugs in even mildly complex programs can be impossible to find in testing, making them hidden bombs. (Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? AACSB: 8-8 ..

Analytical thinking.)

8-2 What is the business value of security and control?

Explain how security and control provide value for businesses.

Security refers to the policies, procedures, and technical measures used to prevent unauthorized access, alteration, theft, or physical damage to information systems.

Controls consist of all the methods, policies, and organizational procedures that ensure the safety of the organization’s assets; the accuracy and reliability of its account records; and operational adherence to management standards.

The business value of security and control: • Firms relying on computer systems for their core business functions can lose sales and productivity.

• Information assets, such as confidential employee records, trade secrets, or business plans, lose much of their value if they are revealed to outsiders or if they expose the firm to legal liability. (Learning Objective 8-2: What is the business value of security and control? AACSB: Analytical thinking.)

Describe the relationship between security and control and recent U.S. government regulatory requirements and computer forensics.

Legal actions requiring electronic evidence and computer forensics also require firms to pay more attention to security and electronic records management. Computer forensics is the scientific collection, examination, authentication, preservation, and analysis of data held on or retrieved from computer storage media in such a way that the information can be used as evidence in the court of law. It deals with the following problems: • Recovering data from computers while preserving evidential integrity.

• Securely storing and handling recovered electronic data.

• Finding significant information in a large volume of electronic data.

• Presenting the information to a court of law.

Recent U.S. government regulatory requirements include: • Health Insurance Portability and Accountability Act (HIPAA) • Gramm-Leach-Bliley Act • Sarbanes-Oxley Act These laws require companies to practice stringent electronic records management and adhere to strict standards for security, privacy, and control. (Learning Objective 8-2: What is the business value of security and control? AACSB: Application of knowledge.)

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8-3 What are the components of an organizational framework for security and control?

Define general controls and describe each type of general control.

General controls govern the design, security, and use of computer programs and the security of data files in general throughout the organization’s information technology infrastructure. They apply to all computerized applications and consist of a combination of hardware, software, and manual procedures that create an overall control environment.

General controls include software controls, physical hardware controls, computer operations controls, data security controls, controls over implementation of system processes, and administrative controls. Table 8-4 describes each type of general control. (Learning Objective 8-3: What are the components of an organizational framework for security and control? AACSB: Application of knowledge.)

Define application controls and describe each type of application control.

Application controls are specific controls unique to each computerized application.

They include both automated and manual procedures that ensure that only authorized data are completely and accurately processed by that application.

Application controls can be classified as: • Input controls: Check data for accuracy and completeness when they enter the system. There are specific input controls for input authorization, data conversion, data editing, and error handling.

• Processing controls: Establish that data are complete and accurate during updating.

• Output controls: Ensure that the results of computer processing are accurate, complete, and properly distributed. (Learning Objective 8-3: What are the components of an organizational framework for security and control?

AACSB: Application of knowledge.)

Describe the function of risk assessment and explain how it is conducted for information systems.

A risk assessment determines the level of risk to the firm if a specific activity or process is not properly controlled. Business managers working with information systems specialists can determine the value of information assets, points of vulnerability, the likely frequency of a problem, and the potential for damage.

Controls can be adjusted or added to focus on the areas of greatest risk. An organization does not want to over-control areas where risk is low and under-control areas where risk is high.

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Security risk analysis involves determining what you need to protect, what you need to protect it from, and how to protect it. It is the process of examining all of the firm’s risks and ranking those risks by level of severity. This process involves making costeffective decisions on what you want to protect. The old security adage says that you should not spend more to protect something than it is worth. Two elements of a risk analysis that should be considered are: (1) identifying the assets and (2) identifying the threats. For each asset, the basic goals of security are availability, confidentiality, and integrity. Each threat should be examined with an eye on how the threat could affect these areas. One step in a risk analysis is to identify all the things that need to be protected. Some things are obvious, like all the various pieces of hardware, but some are overlooked, such as the people who actually use the systems. The essential point is to list all things that could be affected by a security problem. (Learning Objective 8-3: What are the components of an organizational framework for security and control? AACSB: Application of knowledge.)

Define and describe the following: security policy, acceptable use policy, and identity management.

A security policy consists of statements ranking information risks, identifying acceptable security goals, and identifying the mechanisms for achieving these goals.

The security policy drives policies determining acceptable use of the firm’s information resources and which members of the company have access to its information assets.

An acceptable use policy (AUP) defines acceptable uses of the firm’s information resources and computing equipment, including desktop and laptop computers, wireless devices, telephones, and the Internet. The policy should clarify company policy regarding privacy, user responsibility, and personal use of company equipment and networks. A good AUP defines unacceptable and acceptable actions for each user and specifies consequences for noncompliance.

Identity management consists of business processes and software tools for identifying valid system users and controlling their access to system resources. It includes policies for identifying and authorizing different categories of system users, specifying what systems or portions of systems each user is allowed to access, and the processes and technologies for authenticating users and protecting their identities.

(Learning Objective 8-3: What are the components of an organizational framework for security and control? AACSB: Application of knowledge.)

Explain how information systems auditing promotes security and control.

Comprehensive and systematic MIS auditing organizations determine the effectiveness of security and controls for their information systems. An MIS audit identifies all of the controls that govern individual information systems and assesses their effectiveness. Control weaknesses and their probability of occurrence will be noted. The results of the audit can be used as guidelines for strengthening controls, if 8-11 ..

required. (Learning Objective 8-3: What are the components of an organizational framework for security and control? AACSB: Analytical thinking.)

8-4 What are the most important tools and technologies for safeguarding information resources?

Name and describe three authentication methods.

Authentication refers to the ability to know that a person is who he or she claims to be. Some methods are described below: • What you know: Passwords known only to the authorized users.

• What you have: o Token is a physical device that is designed to provide the identity of a single user. o Smart card is a device that contains a chip formatted with access permission and other data.

• What you are: Biometrics is based on the measurement of a physical or behavioral trait that makes each individual unique. (Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Application of knowledge.)

Describe the roles of firewalls, intrusion detection systems, and anti-malware software in promoting security.

A firewall is a combination of hardware and software that controls the flow of incoming and outgoing network traffic. Firewalls prevent unauthorized users from accessing internal networks. They protect internal systems by monitoring packets for the wrong source or destination, or by offering a proxy server with no access to the internal documents and systems, or by restricting the types of messages that get through, for example, email. Further, many authentication controls have been added for web pages as part of firewalls.

Intrusion detection systems monitor the most vulnerable points or “hot spots” in a network to detect and deter unauthorized intruders. These systems often also monitor events as they happen to look for security attacks in progress. Sometimes they can be programmed to shut down a particularly sensitive part of a network if it receives unauthorized traffic.

Anti-malware software is designed to check computer systems and drives for the presence of computer viruses and worms and often eliminates the malicious software, whereas antispyware software combats intrusive and harmful spyware programs.

Often the software can eliminate the virus from the infected area. To be effective, anti-malware software must be continually updated. (Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources?

AACSB: Application of knowledge.)

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Explain how encryption protects information.

Encryption, the coding and scrambling of messages, is a widely used technology for securing electronic transmissions over the Internet and over wi-fi networks.

Encryption offers protection by keeping messages or packets hidden from the view of unauthorized readers. Encryption is crucial for ensuring the success of electronic commerce between the organization and its customers and between the organization and its vendors. (Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Analytical thinking.)

Describe the role of encryption and digital certificates in a public key infrastructure.

Digital certificates combined with public key encryption provide further protection of electronic transactions by authenticating a user’s identify. Digital certificates are data fields used to establish the identity of the sender and to provide the receiver with the means to encode a reply. They use a trusted third party known as a certificate authority to validate a user’s identity. Both digital signatures and digital certificates play a role in authentication. Authentication refers to the ability of each party to know that the other parties are who they claim to be. (Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources?

AACSB: Application of knowledge.)

Distinguish between disaster recovery planning and business continuity planning.

Disaster recovery planning devises plans for the restoration of computing and communications services after they have been disrupted by an event such as an earthquake, flood, or terrorist attack. Disaster recovery plans focus primarily on the technical issues involved in keeping systems up and running, such as which files to back up and the maintenance of backup computer systems or disaster recovery services.

Business continuity planning focuses on how the company can restore business operations after a disaster strikes. The business continuity plan identifies critical business processes and determines action plans for handling mission-critical functions if systems go down. (Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Analytical thinking.)

Identify and describe the security problems cloud computing poses.

Accountability and responsibility for protection of sensitive data reside with the company owning that data even though it is stored offsite. The company needs to make sure its data are protected at a level that meets corporate requirements. The company should stipulate to the cloud provider how its data are stored and processed in specific jurisdictions according to the privacy rules of those jurisdictions. The 8-13 ..

company needs to verify with the cloud provider how its corporate data are segregated from data belonging to other companies and ask for proof that encryption mechanisms are sound. The company needs to verify how the cloud provider will respond if a disaster strikes. Will the cloud provider be able to completely restore the company’s data and how long will that take? Will the cloud provider submit to external audits and security certifications? (Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources?

AACSB: Application of knowledge.)

Describe measures for improving software quality and reliability.

Using software metrics and rigorous software testing are two measures for improving software quality and reliability.

Software metrics are objective assessments of the system in the form of quantified measurements. Metrics allow an information systems department and end users to jointly measure the performance of a system and identify problems as they occur.

Metrics must be carefully designed, formal, objective, and used consistently.

Examples of software metrics include: • Number of transactions that can be processed in a specified unit of time.

• Online response time.

• Number of known bugs per hundred lines of program code.

Early, regular, and thorough testing will contribute significantly to system quality.

Testing can prove the correctness of work but also uncover errors that always exist in software. Testing can be accomplished through the use of: • Walkthroughs: A review of a specification or design document by a small group of people.

• Coding walkthroughs: Once developers start writing software, these can be used to review program code.

• Debugging: When errors are discovered, the source is found and eliminated.

(Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Application of knowledge.)

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Discussion Questions 8-5 Security isn’t simply a technology issue, it’s a business issue. Discuss.

Student answers to this question will vary.

8-6 If you were developing a business continuity plan for your company, where would you start? What aspects of the business would the plan address?

Student answers to this question will vary.

8-7 Suppose your business had an e-commerce website where it sold goods and accepted credit card payments. Discuss the major security threats to this website and their potential impact. What can be done to minimize these threats?

Student answers to this question will vary.

Hands-On MIS Projects Management Decision Problems 8-8 Zynga: Zynga is a leading online gaming company, offering web and mobile versions of games such as Farmville, Zynga Poker, Hit it Rich!, and CSR Racing.

Zynga’s games are available on a number of global platforms, including Apple iOS, Google Android, Facebook, and Zynga.com, and have been played by over 1 billion people. Prepare a security analysis for this Internet-based business. What kinds of threats should it anticipate? What would be their impact on the business? What steps can it take to prevent damage to its websites and continuing operations?

Threats include: • Hackers and crackers • File sharing over peer-to-peer networks • Malware including worms and Trojan horses • Denial-of-service attacks • Botnet attacks on network servers The company should determine the impact on its business by performing a risk assessment. Business managers working with information systems specialists should determine the value of information assets, points of vulnerability, the likely frequency of a problem, and the potential for damage.

Steps the company can take to prevent damage include: • Access controls: prevent improper access to all of the organization’s systems by unauthorized insiders and outsiders.

• Firewalls: prevent unauthorized users from accessing private networks.

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•

Intrusion detection systems: full-time monitoring tools placed at the most vulnerable points or “hot spots” to detect and deter intruders.

• Anti-malware/antispyware: check computer systems and drives for the presence of computer viruses and spyware.

• Unified threat management systems: combines all these tools into a single appliance. A UTM system would make security management much easier.

• Recovery-oriented computing: design the system to recover quickly and implement capabilities and tools to help operators pinpoint the sources of faults in multi-component system.

(Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? Learning Objective 8-2: What is the business value of security and control? Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

8-9 Security analysis statistics: Analyze high risk, medium risk, and low risk vulnerabilities by type of computing platform.

SECURITY VULNERABILITIES BY TYPE OF COMPUTING PLATFORM PLATFORM

NUMBER OF COMPUTERS

Windows Server (corporate applications)

1

HIGH RISK 11

MEDIUM RISK 37

LOW RISK 19

TOTAL VULNERABILITIES 67

Windows 10 Enterprise (high-level administrators) Linux (email and printing services)

3

56

242

87

1155

1

3

154

98

255

Oracle Solaris (UNIX) (Ecommerce and Web servers)

2

12

299

78

778

Windows 10 Enterprise user desktops and laptops with office productivity tools that can also be linked to the corporate network running corporate applications and intranet

195

14

16

1,237

247,065

Calculate the total number of vulnerabilities for each platform. What is the potential impact of the security problems for each computing platform on the organization?

The total number of vulnerabilities for each platform is indicated in the far right column of the table.

Potential impact of the security problems for each computing platform • High risk vulnerabilities: Misuse of passwords allows hackers, crackers, and employees to access specific systems and files and steal data or change application programs; non-authorized users could change applications or enter corrupt or faulty data; unauthorized programs could corrupt data or programs.

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•

•

Medium risk vulnerabilities: Obviously it’s not a good thing for users to be able to shut down systems—that should be restricted to high-level administrators; passwords and screen savers could allow viruses, worms, and Trojan horses to enter the system; outdated software versions make it more difficult to keep current software programs up-to-date and provide holes in which unauthorized users could enter a system.

Low risk vulnerabilities: Users lack of knowledge is the single greatest cause of network security breaches. Password systems that are too easy or too difficult compromise system security and could create unintentional vulnerabilities from internal or external threats.

If you only have one information systems specialist in charge of security, which platforms should you address first in trying to eliminate these vulnerabilities?

Second? Third? Last? Why? •

•

•

•

•

First platform to protect: Windows (high-level administrators) — administrators usually have access to areas that no other users have. The tasks that administrators perform affect the core operations of a system.

Second platform to protect: Windows Server (corporate applications)—if the corporate applications are down or corrupted, the entire organization will be unable to conduct business Third platform to protect: Sun Solaris (UNIX) (e-commerce and web servers) —after ensuring that internal operations are safe and secure, the next area to protect focuses on the ability to reach customers and for them to reach the company Fourth platform to protect: Windows user desktops and laptops —this area probably has fewer critical applications, files, and data than the corporate applications area.

Last platform to protect: Linux (email and printing services)—while it may be critical to a few users, it’s not likely the organization will suffer huge damage or losses if email and print services are down for a while.

Identify the types of control problems illustrated by these vulnerabilities and explain the measures that should be taken to solve them.

•

General controls: Govern the design, security, and use of computer programs and the security of data files in general throughout the organization’s information technology infrastructure. General controls apply to all computerized applications and consist of a combination of hardware, software, and manual procedures that create an overall control environment. o Windows (high-level administrators) o Sun Solaris (UNIX) (e-commerce and web servers)

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•

Application controls: Specific controls unique to each computerized application, such as payroll or order processing. They include both automated and manual procedures that ensure that only authorized data are completely and accurately processed by that application. Application controls can be classified as input controls, processing controls, and output controls. o Windows Server (corporate applications) o Linux (email and printing services) o Sun Solaris (UNIX) (e-commerce and web servers) o Windows Vista Ultimate user desktops and laptops

•

Measures that should be taken to solve them include: o Create a security policy and an acceptable use policy. o Use authorization management systems. o Create a business continuity plan. o Complete an MIS audit that includes a security audit. o Apply access controls, firewalls, antivirus/antispyware to system. o Install an intrusion detection management system. o Determine if fault-tolerant or high availability computing is necessary.

What does your firm risk by ignoring the security vulnerabilities identified?

Information systems are vulnerable to technical, organizational, and environmental threats from internal and external sources. Managers at all levels must make system security and reliability their number one priority. They must also impress upon all employees how important security is throughout the system. There are several ways the business value of security and control can be measured: • The dollars a company spends to secure system.

• The amount of money spent to recover from system fraud and abuse.

• The lost revenue from system downtime.

• The amount of money spent on legal claims against a company if it experiences security breaches.

• The damage done to a company’s reputation.

(Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? Learning Objective 8-2: What is the business value of security and control? Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

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Improving Decision Making: Using Spreadsheet Software to Perform a Security Risk Assessment Software skills: Spreadsheet formulas and charts Business skills: Risk assessment 8-10 Remind students that setting security policies and procedures really means developing a plan for how to deal with computer security. One way to approach this task is to: • • • • •

Look at what you are trying to protect.

Look at what you need to protect it from.

Determine how likely the threats are.

Implement measures that will protect your assets in a cost-effective manner.

Review the process continuously and improve things every time a weakness is found.

Reports should focus most on the last two steps, but the first three are critically important to making effective decisions about security. One old truism in security is that the cost of protecting yourself against a threat should be less than the cost of recovering if the threat were to strike you. Without reasonable knowledge of what you are protecting and what the likely threats are, following this rule could be difficult.

(Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? Learning Objective 8-2: What is the business value of security and control? Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Written and oral communication, Analytical thinking, Reflective thinking, Application of knowledge.)

Improving Decision Making: Evaluating Security Outsourcing Services 8-11 Software skills: Web browser and presentation software Business skills: Evaluating business outsourcing services • • •

Present a brief summary of the arguments for and against outsourcing computer security for your company.

Select two firms that offer computer security outsourcing services, and compare them and their services.

Prepare an electronic presentation for management summarizing your findings.

Your presentation should make the case on whether or not your company should outsource computer security. If you believe your company should outsource, the presentation should identify which security outsourcing service should be selected and justify your selection.

Your students will provide several pros and cons to outsourcing. Most of them will conclude that the major pro would be a financial savings. As a con, they may say that 8-19 ..

finding a reliable contractor is not always an easy thing to do. Four companies that are proven business leaders are: Ansotech, Inc., Foundstone Enterprise, Counterpane Internet Security, and Panurgy. (Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? Learning Objective 8-2: What is the business value of security and control? Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Written and oral communication, Analytical thinking, Reflective thinking, Application of knowledge.)

Collaboration and Teamwork Project 8-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: Is the Equifax Hack the Worst Ever – and Why? 8-13 Identify and describe the security and control weaknesses discussed in this case.

On September 7, 2017 Equifax reported that from mid-May through July 2017 hackers gained access to some of its systems and potentially the personal information of about 143 million U.S. consumers, including Social Security numbers and driver’s license numbers. Credit card numbers for 209,000 consumers and personal information used in disputes for 182,000 people were also compromised.

Equifax reported the breach to law enforcement and also hired a cybersecurity firm to investigate. The size of the breach, importance, and quantity of personal information compromised by this breach are considered unprecedented.

The Equifax breach was especially damaging because of the amount of sensitive personal and financial data stored by Equifax that was stolen, and the role such data play in securing consumers’ bank accounts, medical histories, and access to financing. In one swoop the hackers gained access to several essential pieces of personal information that could help attackers commit fraud.

Analyses earlier in 2017 performed by four companies that rank the security status of companies based on publicly available information showed that Equifax was behind on basic maintenance of websites that could have been involved in transmitting sensitive consumer information. Cyberrisk analysis firm Cyence rated the danger of a data breach at Equifax during the next 12 months at 50 percent. It also found the company performed poorly when compared with other financial-services companies.

The other analyses gave Equifax a higher overall ranking, but the company fared poorly in overall web-services security, application security, and software patching.

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A security analysis by Fair Isaac Corporation (FICO), a data analytics company focusing on credit scoring services, found that by July 14 public-facing websites run

by Equifax had expired certificates, errors in the chain of certificates, or other websecurity issues.

(Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

8-14 What management, organization, and technology factors contributed to these problems?

Management: Competitors privately observed that Equifax did not upgrade its technological capabilities to keep pace with its aggressive growth. Equifax appeared to be more focused on growing data it could commercialize.

The findings of the outside security analyses appear to conflict with public declarations by Equifax executives that cybersecurity was a top priority. Senior executives had previously said cybersecurity was one of the fastest-growing areas of expense for the company. Equifax executives touted Equifax’s focus on security in an investor presentation that took place weeks after the company had discovered the attack.

Organization: Equifax bought companies with databases housing information about consumers’ employment histories, savings, and salaries, and expanded internationally. The company bought and sold pieces of data that enabled lenders, landlords, and insurance companies to make decisions about granting credit, hiring job seekers, and renting an apartment.

The data breach exposed Equifax to legal and financial challenges, although the regulatory environment is likely to become more lenient under the current presidential administration. It already is too lenient. Credit reporting bureaus such as Equifax are very lightly regulated. Given the scale of the data compromised, the punishment for breaches is close to nonexistent.

Technology: The hack involved a known vulnerability in Apache Struts, a type of open-source software Equifax and other companies use to build websites. This software vulnerability was publicly identified in March 2017, and a patch to fix it was released at that time. That means Equifax had the information to eliminate this vulnerability two months before the breach occurred. It did nothing.

Weaknesses in Equifax security systems were evident well before the big hack. A hacker was able to access credit-report data between April 2013 and January 2014.

The company discovered that it mistakenly exposed consumer data as a result of a “technical error” that occurred during a 2015 software change. Breaches in 2016 and 2017 compromised information on consumers’ W-2 forms that were stored by 8-21 ..

Equifax units. Additionally, Equifax disclosed in February 2017 that a “technical issue” compromised credit information of some consumers who used identity-theft protection services from LifeLock.

(Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? Learning Objective 8-2: What is the business value of security and control? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

8-15 Discuss the impact of the Equifax hack?

Hackers gained access to Equifax systems containing customer names, Social Security numbers, birth dates, and addresses. These four pieces of data are generally required for individuals to apply for various types of consumer credit, including credit cards and personal loans. Criminals who have access to such data could use it to obtain approval for credit using other people’s names. Credit specialist and former Equifax manager John Ulzheimer calls this is a “nightmare scenario” because all four critical pieces of information for identity theft are in one place.

Stolen personal data will be available to hackers on the Dark Web for years to come.

Governments involved in state-sponsored cyberwarfare are able to use the data to populate databases of detailed personal and medical information that can be used for blackmail or future attacks.

(Learning Objective 8-1: Why are information systems vulnerable to destruction, error, and abuse? Learning Objective 8-2: What is the business value of security and control? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

8-16 How can future data breaches like this one be prevented? Explain your answer.

There will be hacks—and afterward, there will be more. Companies need to be even more diligent about incorporating security into every aspect of their IT infrastructure and systems development activities. To prevent data breaches such as Equifax’s, organizations need many layers of security controls. They need to assume that prevention methods are going to fail.

As data breaches rise in significance and frequency, the government is proposing new legislation that would require firms to report data breaches within specific time frames and set standards for data security.

There are other measures every organization, public and private can and should take to secure their systems and information. In Section 8.4 What are the most important tools and technologies for safeguarding information resources, of this chapter provides a list:

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• • • • •

Use appropriate identity management and authentication procedures and processes.

Use adequate firewalls, intrusion detection systems, and antivirus software.

Secure wireless networks.

Use adequate encryption and public key infrastructures—this alone would have saved Sony a lot of grief and money.

Control Network Traffic with Deep Packet Inspection technology.

Many security experts believe that U.S. cybersecurity is not well-organized. The FBI and Department of Homeland Security released a “cyber alert” memo describing lessons learned from other hacks. The memo lists generally recommended security practices for companies to adopt, including encrypting data, activating a personal firewall at agency workstations, monitoring users’ online habits, and blocking potentially malicious sites.

(Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

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Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications Student Learning Objectives 9-1 How do enterprise systems help businesses achieve operational excellence?

9-2 How do supply chain management systems coordinate planning, production, and logistics with suppliers?

9-3 How do customer relationship management systems help firms achieve customer intimacy?

9-4 What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies?

9-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Analytical CRM, 353 Bullwhip effect, 344 Churn rate, 354 Cross-selling, 351 Customer lifetime value (CLTV), 354 Demand planning, 346 Employee relationship management (ERM), 350 Enterprise software, 340 Just-in-time strategy, 344 Operational CRM, 353

Partner relationship management (PRM), 350 Pull-based model, 347 Push-based model, 347 Sales force automation (SFA), 351 Social CRM, 358 Supply chain, 342 Supply chain execution systems, 346 Supply chain planning system, 345 Touch point, 349

Teaching Suggestions The opening case, “Lenzing Sustainably Balances Supply and Demand” illustrates why companies need to sometimes overhaul their Sales & Operations Planning processes to fully integrate business planning processes and eliminate manual work.

Lenzing selected JDA Sales & Operations Planning for this purpose. JDA Sales & Operations Planning supports six distinct enterprise processes and associated scenario planning: demand review, supply review, demand-supply balancing, financial review, continuous plan refinement, and business performance management. When risks, 9-1 ..

opportunities, or threats interfere with strategic execution, the entire organization can act swiftly and decisively to get back on track.

Lenzing was able to quickly launch its JDA Sales & Operations Planning system using the JDA Cloud software as a service (SaaS). Returns on investment were immediate, with a 50 percent reduction in planning and decision-making time. The company had better visibility into its supply chain, leading to greater forecast accuracy and better decisions.

Section 9-1, “How do enterprise systems help businesses achieve operational excellence?” This section introduces enterprise systems and explains the benefits and disadvantages of installing them. There have been success stories as well as horror stories about companies who have used enterprise systems. Figure 9-1 is a good way to diagram how enterprise systems work. Use Table 9-1 to discuss various business processes that enterprise systems support. This table shows students how an enterprise system permeates every functional area in a business.

Section 9-2, “How do supply chain management systems coordinate planning, production, and logistics with suppliers?” Section 9.2 goes into great depth about supply chain processes and how information can help managers control the supply chain better.

Have your students give you examples of following the supply chain with retail purchases that they make. It discusses the increased difficulties of managing global supply chains and how using the Internet can improve the flow of information. Be sure to point out the management challenges of effectively implementing a successful supply chain system.

Section 9-3, “How do customer relationship management systems help firms achieve customer intimacy?” A good example you can use to explain this concept is the increased amount of information available on the Internet about automobiles, their pricing, and availability of purchasing options. You can also point to the availability of online banking and loan merchants as a way to demonstrate the ability to comparison shop for monetary products. Because everyone has been a customer, you can discuss personal horror stories and how companies could have prevented them by having a good CRM system in place. This is a good time to actively engage Marketing majors in the class. They may have already taken a marketing class with CRM or may be planning to take one in the near future.

Interactive Session: Organizations: CRM Helps Adidas Know Its Customers One Shoe Buyer at a Time Case Study Questions 1. Analyze Adidas using the competitive forces and value chain model.

Adidas aims to attract and retain customers through the quality of their products and customer experience. There are many cheaper substitute products on the market, but Adidas chooses to compete by creating a personalized experience for their customers rather than lowering their prices. Their flexible, personalized, and convenient customer service platform strengthens

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their value chain, which is concentrated in its primary activities such as operations, sales and marketing, and service.

2. What is Adidas’s business strategy? What is the role of customer relationship management in that strategy?

Adidas focuses their business strategy heavily on the customer experience. They do this by ensuring that their products are available for customers to purchase regardless of the channel they interact with the company through, providing personalized and convenient customer support, and tailoring the experience to meet each customer’s needs. Customer relationship management allows them to gain insight into their customers and adapt what it presents to the customer to be as close to what the customer is looking for.

3. How do information systems support Adidas’s strategy?

To enhance the customer experience, Adidas partnered with Salesforce.com. Using their cloud-based customer relationship management tools, they have been able to better identify key customer segments, develop closer ties to customers, and design differentiated experiences tailored to each customer’s needs.

4. How did using Salesforce.com make Adidas more competitive? How did it change the way the company ran its business?

Using Salesforce Marketing Cloud, Adidas has been able to enhance customer interaction.

This software includes predictive analytics to help them make decisions such as what channel to communicate to customers through.

Salesforce Service Cloud has helped Adidas’s 1,100 customer service agents to automate service processes, streamline workflows, and respond to customers across a variety of social platforms. It has made it possible to deliver service that is more personalized and convenient.

Salesforce Commerce Cloud has enhanced the company’s business throughout the globe, helping them use the knowledge of their customers to create better products.

5. Give an example of two business decisions that were improved by using Salesforce.com.

Students may cite any of the following examples: • Adidas developed a mobile app to customize the customer experience.

• Adidas used Salesforce Marketing Cloud to better communicate with customers.

• Adidas used Salesforce Service Cloud to enhance the customer service experience.

• Adidas used Cloud services to unify the customer experience, preventing overlap between departments.

• Adidas used Salesforce Commerce Cloud to deploy its centralized e-commerce site globally.

Section 9-4, “What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies?” This section explains 9-3 ..

the difficulties of implementing CRM, SCM, and enterprise systems and integrating them with other systems. New business processes must be built on enterprise-wide service platforms. The trend toward next-generation enterprise applications includes open source and on-demand solutions—popular solutions with small and medium-size businesses that cannot afford expensive licensing fees.

Salesforce.com is a great example of a company with a social CRM platform. The website has an excellent demonstration of the product that you can direct students to at www.salesforce.com/products/ideas/.

Interactive Session: Technology: Versum’s ERP Transformation Case Study Questions 1. Define the problem in this case study. What management, organization, and technology factors contributed to the problem?

Versum continued to rely on its former parent company’s information systems after it was divested under a transition service agreement (TSA). This was only an interim solution, however, since Versum really needed its own IT infrastructure and enterprise system to support its new business model and plans for growth. The company was given a very ambitious deadline of 18–24 months to get off the TSA and have its own systems in place.

Management: The legacy ERP system had been heavily customized with various upgrades over the years, and most of those customizations were for the parent company’s industrial gas division, which had very different information requirements than the new Versum. Versum Materials management didn’t want to continue using that system when it was not really suited for the business.

Organization: Versum had a system in which a customer and the vendor could be the same thing, but they were two different entities. This could cause confusion when trying to use this system in the new separate operation.

Technology: As mentioned in the management section, the system had been designed for a different division, that the entire structure and coding needed to be addressed to be more applicable.

2. Was the SAP S/4 HANA SaaS solution a good one for Versum? Explain your answer.

Student answers will vary but should include some of the following: The new SAP S/4HANA system makes it easier for Versum to optimize operations, manage costs, and take advantage of real-time analytics. The company now has a 9-4 ..

solid foundation for operating as a standalone company specializing in specialty materials.

3. What challenges did Versum encounter implementing the new system?

Versum had to run through three cycles of data cleansing to obtain sufficiently accurate invoicing, address, and contact information. The data structure in the old SAP ERP system was not the same as that for the new SAP S/4HANA system, which had a new hierarchical Business Partner structure.

4. How did the new system change the way Versum ran its business?

When Versum went live with SAP S/4HANA release 1610, it also rolled out other SAP solutions, including modules for SAP Business Warehouse optimized for SAP HANA, SAP Business Planning and Consolidation, SAP Global Trade Services, the SAP Advanced Planning and Optimization component of SAP Supply Chain Management, SAP Solution Manager, SAP Process Integration, SAP Data Services, and SAP governance, risk, and compliance (GRC), as well as some non-SAP applications. The entire implementation took just 15 months.

Section 9-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job in manufacturing management. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 9-1 How do enterprise systems help businesses achieve operational excellence?

Define an enterprise system and explain how enterprise software works.

Enterprise software consists of a set of interdependent software modules that support basic internal business processes. The software allows data to be used by multiple functions and business processes for precise organizational coordination and control.

Organizations implementing this software would have to first select the functions of the system they wish to use and then map their business processes to the predefined business processes in the software. A particular firm would use configuration tables provided by the software to tailor a particular aspect of the system to the way it does business. Table 9.1 describes some of the major business processes supported by enterprise software. These include financial and accounting processes, human resources processes, manufacturing and production processes, and sales and marketing processes. (Learning Objective 9-1: How do enterprise systems help businesses achieve operational excellence? AACSB: Application of knowledge.)

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Describe how enterprise systems provide value for a business.

Enterprise systems provide value both by increasing operational efficiency and by providing firmwide information to help managers make better decisions. Large companies with many operating units in different locations have used enterprise systems to enforce standard practices and data so that everyone does buisness the same way. Enterprise systems helps firms respond rapidly to customer requests for information or products. Manufacturing is better informed about producing only what customers have ordered, procuring exactly the right amount of components or raw materials to fill actual orders, staging production, and minimizing the time that components or finished products are in inventory.

Enterprise software includes analytical tools for using data captured by the system to evaluate overall organizational performance. Enterprise system data have common standardized definitions and formats that are accepted by the entire organization.

Enterprise systems allow senior management to easily find out at any moment how a particular organizational unit is performing or to determine which products are most or least profitable.

Companies can use enterprise systems to support organizational structures that were not previously possible or to create a more disciplined organizational culture. They can also improve management reporting and decision making. Furthermore, enterprise systems promise to provide firms with a single, unified, and allencompassing information system technology platform and environment. Lastly, enterprise systems can help create the foundation for a customer-driven organization.

(Learning Objective 9-1: How do enterprise systems help businesses achieve operational excellence? AACSB: Application of knowledge.)

9-2 How do supply chain management systems coordinate planning, production, and logistics with suppliers?

Define a supply chain and identify each of its components.

A supply chain is defined as a network of organizations and business processes for procuring materials, transforming raw materials into intermediate and finished products, and distributing the finished products to customers. It links suppliers, manufacturing plants, distribution centers, retail outlets, and customers to supply goods and services from source through consumption. Supply chain management is the integration of supplier, distributor, and customer logistics requirements into one cohesive process. (Learning Objective 9-2: How do supply chain management systems coordinate planning, production, and logistics with suppliers? AACSB: Application of knowledge.)

Explain how supply chain management systems help reduce the bullwhip effect and how they provide value for a business.

The bullwhip effect occurs when information about the demand for a product gets 9-6 ..

distorted as it passes from one entity to the next across the supply chain. It can also result from “gaming,” as purchasers present manufacturers or suppliers with a false picture of consumer demand. It can be dealt with by reducing uncertainties about demand and supply when all the players in a supply chain have accurate and up-todate information. (Learning Objective 9-2: How do supply chain management systems coordinate planning, production, and logistics with suppliers? AACSB: Analytical thinking.)

Define and compare supply chain planning systems and supply chain execution systems.

Supply chain planning systems enable the firm to generate demand forecasts for a product and to develop sourcing and manufacturing plans for that product. They help companies make better operating decisions such as determining how much of a specific product to manufacture in a given time period; establishing inventory levels for raw materials, intermediate products, and finished goods; determining where to store finished goods; and identifying the transportation mode to use for product delivery. One of the most important functions is demand planning, which determines how much product a business needs to make to satisfy all of its customers’ demands.

These functions are referred to as order planning, advanced scheduling, demand planning, distribution planning, and transportation planning.

Supply chain execution systems manage the flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner. They track the physical status of goods, the management of materials, warehouse and transportation operations, and financial information involving all parties. These functions are referred to as order commitments, final production, replenishment, distribution management, and reverse distribution.

(Learning Objective 9-2: How do supply chain management systems coordinate planning, production, and logistics with suppliers? AACSB: Analytical thinking, application of knowledge.)

Describe the challenges of global supply chains and how Internet technology can help companies manage them better.

Firms use intranets to improve coordination among their internal supply chain processes, and they can use extranets to coordinate supply chain processes shared with their business partners. Using intranets and extranets (both based on Internet technology), all members of the supply chain can instantly communicate with each other, using up-to-date information to adjust purchasing, logistics, manufacturing, packaging, and schedules. A manager can use a web interface to tap into suppliers’ systems to determine whether inventory and production capabilities match demand for the firm’s products. Business partners can use web-based supply chain management tools to collaborate online with suppliers and customers. Sales representatives can access suppliers’ production schedules and logistics information to monitor customers’ order status. The Internet has introduced new ways of managing warehousing, shipping, and packaging based on access to supply chain 9-7 ..

information that can give companies an edge in delivering goods and services at a reasonable cost. (Learning Objective 9-2: How do supply chain management systems coordinate planning, production, and logistics with suppliers? AACSB: Application of knowledge.)

Distinguish between a push-based and pull-based model of supply chain management and explain how contemporary supply chain management systems facilitate a pull-based model.

In a push-based model, production master schedules are based on forecasts or best guesses of demand for products, and products are “pushed” to customers. In a pull-based model, actual customer orders or purchases trigger events in the supply chain.

In contemporary supply chain management systems, the Internet and Internet technology make it possible to move from sequential supply chains, where information and materials flow sequentially from company to company, to concurrent supply chains, where information flows in many directions simultaneously among members of a supply chain network. Members of the network immediately adjust to changes in schedules or orders. (Learning Objective 9-2: How do supply chain management systems coordinate planning, production, and logistics with suppliers?

AACSB: Analytical thinking.)

9-3 How do customer relationship management systems help firms achieve customer intimacy?

Define customer relationship management and explain why customer relationships are so important today.

Customer relationship management: A business and technology discipline that uses information systems to coordinate all business processes surrounding the firm’s interaction with its customers in sales, marketing, and service.

Importance of customer relationships: Globalization of business, the Internet, and electronic commerce have put more power in the hands of customers. Companies realize that their only enduring competitive strength may be their relationships with their customers. Some say that the basis of competition has switched from who sells the most products and services to who “owns” the customer, and that customer relationships represent the firm’s most valuable asset. (Learning Objective 9-3: How do customer relationship management systems help firms achieve customer intimacy?

AACSB: Analytical thinking, application of knowledge.)

Describe how partner relationship management (PRM) and employee relationship management (ERM) are related to customer relationship management (CRM)?

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CRM systems capture and integrate customer data from all over the organization, consolidate the data, analyze the data, and then distribute the results to various systems and customer touch points across the enterprise. Companies can use this customer knowledge when they interact with customers to provide them with better service or to sell new products and services. CRM systems integrate and automate many customer-facing processes in sales, marketing, and customer service, providing an enterprise-wide view of customers. These systems track the ways in which a company interacts with its customers and analyze these interactions to maximize customer lifetime value for the firm. CRM extends to a firm’s business partners who are responsible for selling to customers.

The more comprehensive CRM packages contain modules for partner relationship management (PRM) and employee relationship management (ERM).

PRM uses many of the same data, tools, and systems as CRM to enhance collaboration between a company and its selling partners. If a company does not sell directly to customers but rather works through distributors or retailers, PRM helps these channels sell to customers directly.

ERM software deals with employee issues that are closely related to CRM, such as setting objectives, employee performance management, performance-based compensation, and employee training. (Learning Objective 9-3: How do customer relationship management systems help firms achieve customer intimacy? AACSB: Application of knowledge.)

Describe the tools and capabilities of customer relationship management software for sales, marketing, and customer service.

Customer relationship management systems typically provide software and online tools for sales, customer service, and marketing. Refer to Figure 9-8 for a diagram of the business processes that CRM software supports for sales, marketing, and service.

Capabilities include the following: Sales: • Helps sales staff increase their productivity by focusing sales efforts on the most profitable customers, those who are good candidates for sales and services.

• Provides sales prospect and contact information, product information, product configuration capabilities, and sales quote generation capabilities.

• Enables sales, marketing, and delivery departments to easily share customer and prospect information.

• Increases salespeople’s efficiency in reducing the cost per sale as well as the cost of acquiring new customers and retaining old ones.

• Provides capabilities for sales, forecasting, territory management, and team selling.

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•

Supports direct-marketing campaigns by providing capabilities for capturing prospect and customer data, for providing product and service information, for qualifying leads for targeted marketing, and for scheduling and tracking directmarketing mailings or email.

Customer Service: • Provides information and tools to make call centers, help desks, and customer support staff more efficient.

• Includes capabilities for assigning and managing customer service requests.

• May also include web-based self-service capabilities.

Marketing: • Supports direct-marketing campaigns by providing capabilities for capturing prospects and customer data, for providing product and service information for qualifying leads for targeted marketing, and for scheduling and tracking directmarketing mailings or email.

• Includes tools for analyzing marketing and customer data. Identifies profitable and unprofitable customers, designs products and services to satisfy specific customer needs and interests, and identifies opportunities for cross-selling, upselling, and bundling. (Learning Objective 9-3: How do customer relationship management systems help firms achieve customer intimacy? AACSB: Application of knowledge.)

Distinguish between operational and analytical CRM. Operational CRM includes customer-facing applications such as tools for sales force automation, call center and customer service support, and marketing automation.

Analytical CRM includes applications that analyze customer data generated by operational CRM applications to provide information for improving business performance management. Applications are based on data warehouses that consolidate data from operational CRM systems and customer touch points. The database serves online analytical processing, data mining, and other data analysis techniques. Analytical CRM provides information related to customer lifetime values.

(Learning Objective 9-3: How do customer relationship management systems help firms achieve customer intimacy? AACSB: Analytical thinking.)

9-4 What are the challenges enterprise applications pose, and how are enterprise applications taking advantage of new technologies?

List and describe the challenges enterprise applications pose.

Enterprise applications are very difficult to implement successfully. They require extensive organizational change, expensive new software investments, and careful assessment of how these systems will enhance organizational performance. Enterprise 9-10 ..

applications require both deep-seated technological changes and fundamental changes in business operations. Employees must accept new job functions and responsibilities.

They must learn new work activities and understand how data they enter into the system can affect other parts of the company. Enterprise applications introduce switching costs that make it very expensive to switch vendors. Multiple organizations will share information and business processes. Management vision and foresight are required to take a firm- and industry-wide view of problems and to find solutions that realize strategic value from the investment. (Learning Objective 9-4: What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies? AACSB: Application of knowledge.)

Explain how these challenges can be addressed.

Enterprise applications create new interconnections among myriad business processes and data flows inside the firm (and in the case of supply chain management systems, between the firm and its external supply chain partners). Employees require training to prepare for new procedures and roles. Attention to data management is essential.

Management must understand the impact that implementing enterprise applications will have on every facet of the business. Executives must not underestimate the time and costs of implementation, not just on the organization but also on customers, suppliers, and business partners. (Learning Objective 9-4: What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies? AACSB: Analytical thinking.)

Describe how enterprise applications are taking advantage of cloud computing and business intelligence.

Enterprise application vendors are delivering more value by developing systems that are more flexible, web-enabled, and capable of integration with other systems. Nextgeneration enterprise applications include open source and on-demand solutions.

Small companies choose open source products because there are no software licensing fees even though support and customization for open-source products cost extra. Major enterprise application vendors offer portions of their products that work on mobile handheld computing devices. Salesforce.com and Oracle include some Web 2.0 capabilities and services that enable organizations to identify new ideas more rapidly, improve team productivity, and deepen interactions with customers.

(Learning Objective 9-4: What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies? AACSB: Analytical thinking.)

Define social CRM and explain how customer relationship managements systems are using social networking.

Social CRM tools enable a business to connect customer conversations and relationship from social networking sites to CRM processes rather than having them in separate “silos.” The tools help organizations identify new ideas more rapidly, 9-11 ..

improve team productivity, and deepen interactions with customers. When employees interact with customers via social networking sites, they are often able to provide customer service functions much faster and more cheaply than by using telephone conversations or email. Customers have come to expect rapid responses to their questions and complaints and aren’t willing to wait on slower, outdated technologies.

(Learning Objective 9-4: What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies? AACSB: Application of knowledge.)

Discussion Questions 9-5 Supply chain management is less about managing the physical movement of goods and more about managing information. Discuss the implications of this statement.

Student answers to this question will vary.

9-6 If a company wants to implement an enterprise application, it had better do its homework. Discuss the implications of this statement.

Student answers to this question will vary.

9-7 Which enterprise application should a business install first: ERP, SCM, or CRM? Explain your answer.

Student answers to this question will vary.

Hands-on MIS Projects Management Decision Problems 9-8 Toronto-based Mercedes-Benz Canada: Fifty-five car dealers provided customer data on an ad hoc basis. No real incentive for dealers to share information with the company. How could customer relationship management (CRM) and partner relationship management (PRM) systems help solve this problem?

Comprehensive CRM packages contain modules for partner relationship management (PRM) and employee relationship management (ERM). PRM uses many of the same data, tools, and systems as CRM to enhance collaboration between a company and its selling partners. If a company does not sell directly to customers but rather works through distributors or retailers, like Mercedes-Benz Canada does, PRM helps these channels sell to customers directly. It provides the ability to trade information and distribute leads and data about customers, integrating lead generation, pricing, promotions, order configurations, and availability. It also provides tools to assess its partners’ performances so it can make sure its best partners receive the support they need to close more business.

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PRM systems could provide dealers with information that Mercedes-Benz Canada gathers from other sources to help boost customer contacts and sales. In turn, Mercedes-Benz Canada could make it easier for dealers to report customer information to the home office and provide incentives for those that do so. The system could be set up to provide management with more timely information on dealers that do not provide information (perhaps via digital dashboards) and give the company an easier way to reach out to those dealers via a website, email, or online audio- and videoconferencing. (Learning Objective 9-3: How do customer relationship management systems help firms achieve customer intimacy? AACSB: Analytical thinking, Application of knowledge.)

9-9 Office Depot: The company tries to offer a wider range of office supplies at lower costs than other retailers by using just-in-time replenishment and tight inventory control systems. It uses information from a demand forecasting system and point-ofsale data to replenish its inventory in its 1,400 retail stores. Explain how these systems help Office Depot minimize costs and any other benefits they provide.

Identify and describe other supply chain management applications that would be especially helpful to Office Depot.

Supply chain management systems provide organizations with more information and tighter controls over the upstream and downstream portions of the supply chain. The information can alert managers and executives to those areas of the supply chain that may bog down the rest of the channels. Because Office Depot receives effective information through its supply chain management system and passes that to suppliers, it knows how many units of product customers want, when they want them, and when they can be produced. Components arrive at the moment they are needed for production (at suppliers), and finished goods are shipped as they leave the assembly line. Office Depot’s SCM system also helps it avert the bullwhip effect because information about product demand is less distorted. That reduces the chances of holding excess inventory, warehousing, and shipping costs.

SCM applications that would be especially helpful to Office Depot are: • Demand planning: Determines how much product Office Depot needs to have suppliers produce to satisfy all of its customers’ demands.

• Supply chain execution system: Manage the flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner. Information from this system can be shared with logistics and transportation partners to improve shipping and reduce costs.

(Learning Objective 9-2: How do supply chain management systems coordinate planning, production, and logistics with suppliers? AACSB: Application of knowledge.)

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Improving Decision Making: Using Database Software to Manage Customer Service Requests Software skills: Database design; querying and reporting Business skills: Customer service analysis 9-10 Instructors should inform students that City was left out of fields describing a particular account that should be included in the database.

The solution file represents one of many alternative database designs that would satisfy Prime Service’s requirements. There are three tables for Accounts, Requests, and Service Representatives (the Prime Service representative providing the requested service). One can determine which service requests on a specific date require the highest priority by creating a report that sorts service request data first by date (in ascending order) and then by size of account (in descending order).

A suggested answer can be found in the Microsoft Access File named: MIS17ch9solutionfile.mdb.

(Learning Objective 9-3: How do customer relationship management systems help firms achieve customer intimacy? AACSB: Analytical thinking, Application of knowledge.)

Achieving Operational Excellence: Evaluating Supply Chain Management Services Software skills: Web browser and presentation software Business skills: Evaluating supply chain management services 9-11 In addition to carrying goods from one place to another, some trucking companies provide supply chain management services and help their customers manage their information. In this project, you will use the web to research and evaluate two of these business services. Investigate the websites of two companies, UPS Logistics and Schneider National, to see how these companies’ services can be used for supply chain management. Then respond to the following questions: What supply chain processes can each of these companies support for their clients?

UPS Logistics Taken from the UPS Logistics website: No matter your product or your market, we have got the expertise to help make your business run better. Benefit from our established network of facilities and world-class technology and let our logistics team help you reduce costs and 9-14 ..

Schneider Taken from the Schneider website: You have a set of logistic challenges.

Schneider Logistics has the solutions.

Managing supply chains is a complicated business. You know it is not just about moving goods. It’s about replacing inventory with

increase your global reach.

information. It is about creating product-level visibility. It is about staying connected with your supply chain partners.

Success requires you to be in the right place, at the right time, with the right tools. Logistics puts you there.

Schneider Logistics helps you manage your supply chain to its maximum efficiency.

Services Offered: • Freight Management • Hosted Applications • Financial Services • Supply Chain Engineering • Business Intelligence • SUMIT CVA • SUMIT for Shippers • Schneider ExpressTrack

Services Offered: • Distribution • Transportation Management • Post Sales/Service Parts • Supplier Management • Finished Vehicle Transportation • Supply Chain Design and Planning Services

How can customers use the websites of each company to help them with supply chain management?

UPS Logistics Supply Chain Services: “Thriving in today's increasingly complex, global marketplace requires the integration of product, supply chain, and business strategies. Our supply chain design and planning services will help you create the supply chain you need to bring out the best in your company. Our designers and engineers will go beyond the abstract and produce a plan that will leverage the unmatched scope of UPS logistics capabilities to benefit your business.

“What We Can Do for You: • Streamline your distribution network, reducing costs and improving customer service • Provide insight into logistics design, re-engineering, and supply chain management • Implement leading-edge information systems • Implement benchmarking processes to measure productivity “From site analysis and selection to supply chain modeling, network optimization, and parts planning, our services can help you start the process of making your supply chain a more effective part of your business' operations. If you are looking to outsource your entire transportation network, we can provide the knowledge, experience, and relationships to help you design and manage your supply chain.”

Schneider Logistics: “At Schneider Logistics, you have a set of logistics challenges.

Schneider Logistics has the solutions. Schneider Logistics helps you manage your supply chain to its maximum efficiency. We do this by leveraging 60 years of 9-15 ..

transportation experience every time we tackle a tough logistics problem. We use our deep operating knowledge to create solutions as unique as your needs. We employ the brightest minds in the industry. We draw on our strong network of transportation providers. And we develop leading-edge technology to save you money and improve your customer service.”

Schneider promotes the idea that you do not need a one-size-fits-all template created for a “typical” supply chain. They view every customer and their needs as being unique.

Compare the supply chain management services provided by these companies.

Which company would you select to help your firm manage its supply chain?

Why? Responses to the question will vary. Perhaps those who do not possess an in-depth background with this type of technology will find the UPS Logistics site relatively easy to use. If they run into difficulties, they can easily access one of the many tutorials and determine what they need to do. The Schneider Logistics site might be more difficult to use at first but after exploring it, it is relatively straightforward. The site has a powerful presentation and points out that they are a company that has years of operating knowledge, a large provider network, and leading-edge technology that helps the customer gain control over their supply chain partners, develop global, product-level visibility, lower costs, and improve their service levels to their customers. (Learning Objective 9-2: How do supply chain management systems coordinate planning, production, and logistics with suppliers? AACSB: Analytical thinking, Application of knowledge.)

Collaboration and Teamwork Project 9-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: The Coronavirus Pandemic Disrupts Supply Chains Around the World 9-13 Define the problem described in this case study. What management, organization, and technology factors contributed to this problem?

Entire populations were isolating and quarantining, creating spikes in demand for certain products (such as hand sanitizer) and large drops in demand for others. Many businesses were shuttered for months, with small businesses, retail stores, and restaurants especially hard-hit. Large drops in demand, shortfalls in cash flow, worldwide port congestion, factory shutdowns, and disruptions to air cargo, trucking, and rail services paralyzed companies all over the world.

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Management: Most companies do not have supply chain visibility. The majority of enterprises have only 20 percent visibility into their supply chains. Experts believe 70 to 80 percent visibility is required to deal with major supply chain disruptions.

Organization: The modern supply chain is incredibly fragile. Companies have built global supply chains based on outsourcing to external suppliers and incredibly thin margins of safety stock. Auto parts, fashion, technology, medical gear, and drug components are especially vulnerable to supply chain disruptions in Asia.

Technology: A number of organizations don’t use a digital inventory management platform, and even many that do, such as Walmart, were not set up or fluid enough to react to this type of situation in a timely manner. More intelligence needs to be built in for such occurrences.

9-14 To what extent can information technology solve this problem? Explain your answer.

A contemporary supply chain management system increases transparency and responsiveness because all the activities in the supply chain are able to interact with one another in near real-time. There are new digital applications and platforms to help companies establish interconnected networks of what had been discrete, siloed supply chain processes and to manage their supply chains more flexibly. Gartner Inc, predicts that by 2023, at least 50 percent of global companies will be using artificial intelligence, advanced analytics, and the Internet of Things (IoT) in supply chain operations.

9-15 What management, organization, and technology issues should be addressed to redesign supply chains to deal with major disruptions as the coronavirus pandemic?

Management: Better awareness of what is happening with the willingness and ability to make changes on the fly need to be available to management. What has likely been learned from this pandemic is what many consumers might look to increase their spending on when a situation such as this comes about.

Organization: From an organizational standpoint, it is important that employees and those who work various elements of the business know the protocols that are in place should a shift be needed. Similar to the management element, they can learn from what has already happened.

Technology: A more robust and digital inventory management system is ideal.

Artificial intelligence is making a push in this area to help make decisions more in real time to adapt to what is happening as prior method in the digital space might not be used to handling sudden shifts.

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Chapter 10 E-Commerce: Digital Markets, Digital Goods Student Learning Objectives 10-1 What are the unique features of e-commerce, digital markets, and digital goods?

10-2 What are the principal e-commerce business and revenue models?

10-3 How has e-commerce transformed marketing?

10-4 How has e-commerce affected business-to-business transactions?

10-5 What is the role of m-commerce in business, and what are the most important m-commerce applications?

10-6 What issues must be addressed when building an e-commerce presence?

10-7 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Advertising revenue model, 386 Affiliate revenue model, 389 Behavioral marketing, 390 Business-to-business (B2B), 383 Business-to-consumer (B2C), 383 Community providers, 386 Consumer-to-consumer (C2C), 383 Cost transparency, 379 Crowdsourcing, 397 Customization, 379 Digital goods, 381 Direct goods, 400 Disintermediation, 380 Dynamic pricing, 380 Electronic data interchange (EDI), 398 E-tailer, 384 Exchanges, 400 FinTech, 389 Free/freemium revenue model, 387 Geoadvertising services, 402

Long tail marketing, 390 Market creator, 385 Market entry costs, 378 Marketspace, 377 Menu costs, 380 Micropayment systems, 387 Mobile commerce (m-commerce), 383 Native advertising, 393 Net marketplaces, 400 Personalization, 379 Podcasting, 385 Price discrimination, 379 Price transparency, 378 Private exchange, 399 Private industrial networks, 399 Revenue model, 386 Richness, 378 Sales revenue model, 387 Search costs, 378 Social graph, 394 10-1 ..

Geoinformation services, 402 Geosocial services, 402 Indirect goods, 400 Information asymmetry, 380 Information density, 378 Intellectual property, 385 Location-based services, 402

Social shopping, 395 Streaming, 385 Subscription revenue model, 387 Transaction costs, 377 Transaction fee revenue model, 389 Wisdom of crowds, 395

Teaching Suggestions The opening case, “E-commerce Comes to the Dashboard: The Battle for the “Fourth Screen,” illustrates the evolution of e-commerce from that of simply buying goods or services online to creating new marketing channels in areas that didn’t exist just a few years ago. After television, computers, and mobile phones, car dashboards are emerging as the “Fourth Screen” for future marketing opportunities. In fact, by 2030, dashboard-based products could generate $750 billion (yes, that’s with a b) in new revenue.

Future opportunities for car dashboards include advertisements based on a traveler’s location, ordering products like coffee or gasoline, and potentially saving money on car insurance by allowing companies to track driving habits.

Who will own this market? Currently auto makers and major technology companies like Google and Apple are battling for control of this market. Additional challenges such as driver distraction and privacy will need to be addressed before the revenue estimates possibly become a reality.

These new dashboards are nothing like your grandparents 8-track tape.

Students are probably very familiar with most of the ideas presented in this chapter from a user’s standpoint. The task is to look behind the scenes and analyze how businesses are using technology to gain a competitive advantage and expand their operations to incorporate new channels that e-commerce provides.

Section 10-1, “What are the unique features of e-commerce, digital markets, and digital goods?” This part of the text stresses the use of the Internet and the World Wide Web for electronic commerce and business. Ask your students to identify several of the many benefits that the Internet offers to organizations. Ask them to provide specific examples that they have read about in the text or have personally observed. If you have a student in your class who works for a company that participates in electronic business and electronic commerce, ask him/her to explain the company’s activities.

Section 10.1 discusses the importance of e-commerce in the business world today. It discusses the benefits of using Internet technology to lower transaction and agency costs, bypass intermediaries, allow trading partners to directly communicate with each other and connect disparate systems, reduce delivery time for goods and services, make e-commerce available 24 hours a day, and replace existing distribution channels.

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Table 10-3 provides a good way to compare digital markets with traditional markets. To help students understand the true impact of digital markets have them name companies or products/services for each line item in the table. For instance, information asymmetry exposes the difference in shopping for cars or insurance. A good example of delayed gratification can be found in shopping for clothes or toys. The difference in switching costs can be found with banks or stockbrokers who have all your assets and/or liabilities combined into one account.

Discuss with your students how the Internet has unbundled the information about products and services from the actual products and services. Ask the students to compare how they would shop for a car today, as opposed to how they might have shopped for a car ten years ago. Use this discussion to illustrate how the unbundling of information is disrupting traditional business models. If you have the time, ask your students to visit the Carmax.com website and determine how these kinds of sites reduce information asymmetry.

The most striking aspect of this section is that mobile phones are predicted to become the most common Internet access device vs. traditional desktop or laptop computers. Engage students in a discussion of the implications to both businesses and consumers of this trend.

Section 10-2, “What are the principal e-commerce business and revenue models?” Students are introduced to electronic commerce categories and related terminology. Even though millions of people use the web every day, many companies have found ways to personalize their interfaces with individual customers. That is a remarkable feat when you think about it. Have students visit websites that offer such personalization and report on the products or features they find. For instance, web portals like Yahoo! and Google let users customize the home page to fit their personal needs. Other e-commerce sites like Shutterfly (www.shutterfly.com) and Walgreen’s (www.walgreens.com) website specialize in customers ordering one-of-a-kind items that have been personalized just for them with their own photos. Ask students to investigate how retailers can afford to offer these kinds of services.

This section reviews business models and revenue models that have emerged on the web in the last ten years. Table 10-5 is especially useful for exploring Internet business models and gives excellent examples to help discern the ways businesses generate revenues.

Interactive Session: Technology: Technology Small Business Loans from a FinTech App Case Study Questions 1. What distinguishes the FinTech services described in this case from traditional banks?

Explain your answer.

Tech firms such as Square are innovating not only with online payment services, but also with the business of loans. These tech firms are able to take advantage of their vast troves of customer data.

Paypal, for instance has made more than $6 billion in small-business loans since 2013 by using data it collected while processing payments for Internet retailers.

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2. How do the financial services described here use information technology to innovate?

Square evaluates whether a business can qualify for a loan by analyzing its vast database of credit card transactions. It looks at data on whether a business is attracting repeat customers, the number of chargebacks, business history, and processing volume. The lending process is then animated and makes it easy for customers to obtain and repay a loan. Most customers are not required to fill out a formal application. It is also important to note that application only takes a few clicks, with no long forms.

3. What are the advantages and disadvantages of small businesses obtaining loans from FinTech services?

Advantages: FinTech services evaluate large amounts of data to evaluate whether a business can quality for a loan or not. Within this data, the company looks deeper to see whether a business is attracting repeat customers, business history, and processing volume. Additionally, the lending process is automated where it is easy for customers to obtain and repay a loan.

Customers are then able to save time because the application of filling out a loan only takes a couple of minutes. Upon approval, the business loan is deposited into the borrower’s bank account as soon as the next business day. Online venders are also more likely to grant loans, doing so at a quicker rate than traditional banks, and often without requiring collateral. This is especially appealing to first-time business owners.

Disadvantages: The price for the speed and convenience of online lenders is interest rates higher than those charged by the banks. For example, Getting Better Fitness in Chicago had to pay 25 percent interest on a short-term loan from Kabbage. The gym later switched to 11 percent financing from PayPal Working Capital.

4. If you were a small business, what factors would you consider in deciding whether to use a FinTech service?

A small business would have to consider what priorities the customer is likely to value over another. For first-time business owners, it is important to understand that using a FinTech service such as Square, would likely not require the borrower to put down collateral.

However, if there are customers who would rather have a lower interest rate, and a longer process time, it is important for the company to note that interest rates are typically lower when using a traditional bank. Additionally, companies need to take into consideration the vast amount of data mining that goes into FinTech Apps, which allow companies to better assess topics such as attracting repeat customers and looking into processing volume.

Section 10-3, “How has e-commerce transformed marketing?” The Internet and web have turned traditional marketing methods on their head. Because so much data are gathered on 10-4 ..

almost every Internet user, marketers can target potential customers much easier than ever before through behavioral targeting messages. Social networking and the wisdom of crowds helps students understand how businesses can use social media as an effective business tool. Rather than looking at social networking sites from a personal, user point of view, students should explore the business opportunities these kinds of web sites provide.

Interactive Session: Management: Engaging “Socially” with Customers Case Study Questions 1. Assess the management, organization, and technology issues for using social media to engage with customers.

Management: Social media platforms including Facebook, Instagram, Twitter, and Snapchat, allow companies to engage consumers, amplify product messages, and discover trends and influencers.

Organization: Some companies, such as Nike, use a mix of content which includes celebrity endorsed and lifestyle-based performance shots. Using still imagery, animated imagery, and video to define “moments” Nike has been very successful at adapting to the fact that followers are not just buying products, but they are buying the lifestyle that is associated with those products. However, companies should not just mimic what other companies have done in the past, but they should craft their content to be unique and aligned with their mission statement and target audience.

Technology: NBC Sports has found that different social media platforms attract different audiences, and that a piece of content might not work for every platform or every member of its audience. For example, Instagram appeals to a young audience, whereas Facebook appeals to an older following. To adapt content to different audiences, NBC Sports uses Facebook to post more in-depth stories about what’s trending in sports. NBC Sports has over 50 channels for connecting with viewers socially on Instagram, Facebook, Twitter, Vine, Snapchat, and Pinterest.

2. What are the advantages and disadvantages of using social media for advertising, brand building, market research, and customer service?

Advantages: Advertising: Instagram has developed new offerings, specifically for its business accounts. This innovation on the popular social media site, has allowed companies to get quick messages and photos to target audiences, engage with them, and build closer relationships.

Brand Building: Nike posts a mix of content, including celebrity-endorsed and lifestyle-based performance shots using still imagery, animated imagery, and video to define “moments.” Like many other companies, Nike has learned that its followers are not just buying their products, they are buying the lifestyle associated with those products. Nike continually promotes its products, but it does so via lifestyle-related storytelling.

Market Research: NBC Sports uses Oracle’s Customer Experience Social Cloud, a cloud-based software service that enables businesses to listen, track, analyze, and make decisions based on “consumer chatter.” If a topic is heavily discussed, NBC Sports includes it in more of the content it shares. If something does not generate much buzz, the company shies away from it.

Disadvantages: 10-5 ..

Although engaging with customers via social media has benefited many companies, not all have achieved the results they hoped for. Lush UK, noted for its vegan and animal cruelty– free, all-natural face, bath, and body products, environmentally friendly packaging, and captivating Instagram posts, decided in the spring of 2019 to close its social media accounts.

Lush claimed that social media was inhibiting its ability to engage with fans. Lush had massive followings on Instagram (570,000 followers), Twitter (200,000 followers), and Facebook (400,000 followers).

3. Give an example of a business decision in this case study that was facilitated by using social media to interact with customers.

NBC Sports has 20 million primetime viewers nightly. Instead of asking people to watch its games, as it had in the past, NBC Sports urged them to engage in conversations about games at the moment they were happening live when it covered the PyeongChang Winter Olympics in 2018. Rather than pushing news, NBC Sports wants to know how people feel about the news. When an ad or piece of news is released, NBC Sports wants viewers to engage in spirited social debates using its social platforms. Through social listening and analysis tools, NBC Sports can see in real time which ads resonated with customers.

4. Should all companies use social media technology for customer service and marketing?

Why or why not? What kinds of companies are best suited to use these platforms?

Before a company jumps into using Facebook and Twitter, it needs to make sure the “back room” mechanics are in place to process customer service requests. If the company’s employees are not available for the unanticipated response volume, the plan could backfire.

Social media can provide a platform for widespread negative backlash to companies or retailers. Starbucks coffee experienced a huge angry response from customers for a social issue promotion it began on Twitter and Facebook.

Companies who interface directly with consumers are probably more suited to using Facebook and Twitter promotions. However, all companies who create social media avenues with customers must realize that it is not a mirror image of offline, traditional contacts.

Relationships must be created and nurtured over time.

Section 10-4, “How has e-commerce affected business-to-business transactions?” Students should pay close attention to this section because most of them will probably use some form of it in their careers. From electronic data interchanges (EDI) to private industrial networks and net marketplaces, B2B e-commerce has changed the way businesses do business. Figure 10.8 is a great example of net marketplaces that connect thousands of buyers to thousands of sellers.

Section 10-5, “What is the role of m-commerce in business, and what are the most important m-commerce applications?” M-commerce consists of selling anything over a mobile wireless device or Net appliance. It is also a method used by marketers to target advertising more directly to consumers. Wireless mobile devices are turning up everywhere. The newer appliances integrate several features traditionally only found in specialized products. For example, cell 10-6 ..

phones are equipped with cameras, Internet options, text messaging, games, downloadable ring tones, etc. No doubt most students have used one or all of these m-commerce products or services.

M-commerce is the fastest growing form of e-commerce with six main areas of growth: locationbased services, software application sales, entertainment downloads, mobile display advertising, direct shopping services, and e-book sales. It might be interesting to take a vote of your students to see which one they think is the most popular service now and which one they think will be most popular two years from now.

Section 10-6 “What issues must be addressed when building an e-commerce presence?” This may be the first-time students are exposed to the mechanics of developing an e-commerce website. No doubt they all have used e-commerce websites before but probably have never thought about the challenges facing business managers who are responsible for building a successful online business. While this section doesn’t offer a step-by-step guide to building a website, it does outline some of the organizational and technological decisions that need to be made before the site goes live. The designers of successful e-commerce sites take into account business objectives and use the right technology to meet them. Table 10-8 is an excellent list of issues students will face if they are part of building an e-commerce site in the future. Figure 1010 provides alternatives to consider about building and hosting an e-commerce site in-house or outsourcing part or all the operation.

If you have time, divide students into teams and have them work through the decisions associated with developing business objectives for an e-commerce site and then choosing the right technology to meet the objectives. They don’t need to actually build the site—just complete all the preliminary work that must be done ahead of time.

Section 10-7, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as a junior e-commerce data analyst. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 10-1 What are the unique features of e-commerce, digital markets, and digital goods?

Name and describe four business trends and three technology trends shaping ecommerce today.

Students can answer this question by including information outlined in Table 10-1, which lists several business and technology trends shaping e-commerce today. (Learning Objective 10-1: What are the unique features of e-commerce, digital markets, and digital goods?

AACSB: Application of knowledge.)

List and describe the eight unique features of e-commerce.

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Table 10-2 outlines eight unique features of e-commerce which include: • E-commerce technology is ubiquitous, meaning that it is available just about everywhere a computer can connect to the Internet.

• It has global reach, permitting commercial transactions to cross cultural and national boundaries far more conveniently and cost effectively than is true in traditional commerce.

• It operates according to universal standards shared by all nations around the world, whereas most traditional commerce technologies differ from one nation to the next.

• It provides information richness, enabling an online merchant to deliver to an audience of millions complex and rich marketing messages with text, video, and audio in a way not possible with traditional commerce technologies, such as radio, television, or magazines.

• It is interactive, meaning it allows for two-way communication between merchant and consumer and enables the merchant to engage a consumer in ways similar to a face-to-face experience but on a much more massive, global scale.

• It increases information density (the total amount and quality of information available to all market participants).

• It permits personalization and customization—merchants can target their marketing messages to specific individuals by adjusting the message to a person’s name, interests, and past purchases.

• Social technology enables user content creation and distribution and supports social networks. (Learning Objective 10-1: What are the unique features of e-commerce, digital markets, and digital goods? AACSB: Application of knowledge.)

Define a digital market and digital goods and describe their distinguishing features.

Digital markets are said to be more “transparent” than traditional markets. Table 10-3 describes distinguishing features of digital markets. The Internet has created a digital marketplace where millions of people are able to exchange massive amounts of information directly, instantly, and for free. Information asymmetry is reduced. Digital markets are very flexible and efficient, with reduced search and transaction costs, lower menu prices, and the ability to change prices dynamically based on market conditions. Digital markets provide many opportunities to sell directly to the consumer, bypassing intermediaries, such as distributors or retail outlets. Other features include delayed gratification, price discrimination, market segmentation, switching costs, and network effects.

Digital goods are goods that can be delivered over a digital network and include music, video, software, newspapers, magazines, and books. Once a digital product has been produced, the cost of delivering that product digitally is extremely low. New business models based on delivering digital goods are challenging bookstores, publishers, music labels, and film studios that depend on delivery of traditional goods. (Learning Objective 10-1: What are the unique features of e-commerce, digital markets, and digital goods? AACSB: Application of knowledge.)

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10-2 What are the principal e-commerce business and revenue models?

Name and describe the principal e-commerce business models.

Table 10-5 identifies seven Internet business models.

• E-tailer: Sells physical products directly to consumers or individual businesses.

• Transaction broker: Saves users money and time by processing online sale transactions and generates a fee each time.

• Market creator: Provides a digital environment where buyers and sellers meet, search for and display products, and establishes prices for those products; it can provide online auctions and reverse auctions.

• Content provider: Creates revenue by providing digital content, such as digital news, music, photos, or video over the web.

• Community provider: Provides an online meeting place where people with similar interests can communicate and find useful information.

• Portal: Provides an initial point of entry to the web along with specialized content and other services.

• Service provider: Provides applications such as photo sharing, video sharing, and user-generated content as services. Provides other services such as online data storage and backup. (Learning Objective 10-2: What are the principal e-commerce business and revenue models? AACSB: Application of knowledge.)

Name and describe the e-commerce revenue models.

There are six e-commerce revenue models: • Advertising revenue: Generates revenue by attracting a large audience of visitors who can then be exposed to advertisements. It’s the most widely used revenue model in e-commerce.

• Sales revenue: Companies derive revenue by selling goods, information, or services to customers.

• Subscription revenue: A website offering content or services charges a subscription fee for access to some or all of its offerings on an ongoing basis.

• Free/freemium revenue: Basic services or content are free while advanced or special features cost extra.

• Transaction fee revenue: A company receives a fee for enabling or executing a transaction.

• Affiliate revenue: Sites that steer customers to an affiliate business receive a referral fee or percentage of the revenue from any resulting sales. (Learning Objective 10-2: What are the principal e-commerce business and revenue models? AACSB: Application of knowledge.)

10-3 How has e-commerce transformed marketing?

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Explain how social networking and the wisdom of crowds help companies improve their marketing.

Networking sites sell banner, video, and text ads; sell user preference information to marketers; and sell products such as music, videos, and e-books. Corporations set up their own social networking profiles to interact with potential customers and “listen” to what social networkers are saying about their products and obtain valuable feedback from consumers. At user-generated content sites, high-quality video content is used to display advertising. Online communities are ideal venues to employ viral marketing techniques.

Creating sites where thousands, even millions, of people can interact offers business firms new ways to market and advertise products and services, and to discover who likes or dislikes their products. In a phenomenon called “the wisdom of crowds” some argue that large numbers of people can make better decisions about a wide range of topics or products than a single person or even a small committee of experts. In marketing, the “wisdom of crowds” concept suggests that firms should consult with thousands of their customers first as a way of establishing a relationship with them, and second, to better understand how their products and services are used and appreciated. Actively soliciting customer comments builds trust and sends the message to customers that the company cares what they are thinking and that customer advice is valuable. (Learning Objective 10-3: How has e-commerce transformed marketing? AACSB: Analytical thinking.)

Define behavioral targeting and explain how it works at individual web sites and on advertising networks.

Behavioral targeting refers to tracking the clickstreams of individuals for the purpose of understanding their interests and intentions and exposing them to advertisements which are uniquely suited to their behavior. Ultimately, this more precise understanding of the customer leads to more efficient marketing and larger sales and revenues. Behavioral targeting of millions of web users also leads to the invasion of personal privacy without user consent.

Behavioral targeting takes place at two levels: at individual websites and on various advertising networks that track users across thousands of websites. Most e-commerce websites collect data on visitor browser activity and store it in a database. They have tools to record the site that users visited prior to coming to the website, where these users go when they leave that site, the type of operating system they use, browser information, and even some location data. They also record the specific pages visited on the particular site, the time spent on each page of the site, the types of pages visited, and what the visitors purchased.

Firms analyze this information about customer interests and behavior to develop precise profiles of existing and potential customers. (Learning Objective 10-3: How has e-commerce transformed marketing? AACSB: Application of knowledge.)

Define the social graph and explain how it is used in e-commerce marketing.

A social graph is a depiction of all the people you know and all the people they know. A digital social graph is a mapping of all significant online social relationships. It’s 10-10 ..

synonymous with the idea of a “social network” used to describe offline relationships. The small world theory believes any person is only six links away from any other person on earth.

The products and services you buy will influence the decisions of your friends, and their decisions will in turn influence you. It’s the “word of mouth is the best advertising” theory in digital format. A marketer’s target audience is not the one isolated individual but millions of connected people all talking to each other and swapping information. Marketers will spend over $44 billion on social network marketing in 2020.

Table 10-7 has six features of social commerce that include: social sign-on, collaborative shopping, network notification, newsfeeds, timelines, and social search recommendations.

(Learning Objective 10-3: How has e-commerce transformed marketing? AACSB: Application of knowledge.)

10-4 How has e-commerce affected business-to-business transactions?

Explain how Internet technology supports business-to-business electronic commerce.

Business-to-business transactions can occur via a company website, net marketplace, or private exchange. Websites make it easy to sell and buy direct and indirect goods over the Internet, compare suppliers, products, and prices, and even find out how others feel about the product. Further, supply chain linkages through intranets and extranets can support JIT, reduce cycle times, and other practices of continuous improvement. Because of the ease and efficiencies brought by the Internet, business-to-business participants can save a significant amount of money and time. (Learning Objective 10-4: How has e-commerce affected business-to-business transactions? AACSB: Analytical thinking.)

Define and describe Net marketplaces and explain how they differ from private industrial networks (private exchanges).

A net marketplace is a single digital marketplace based on Internet technology linking many buyers to many sellers. The net marketplace is an important business model for B2B e-commerce because some net marketplaces serve vertical markets for specific industries and other net marketplaces serve horizontal markets, selling goods that are available in many different industries. Also, net marketplaces can sell either direct goods or indirect goods. Net marketplaces are more transaction-oriented and less relationship-oriented than private industrial networks. (Learning Objective 10-4: How has e-commerce affected business-tobusiness transactions? AACSB: Application of knowledge.)

10-5 What is the role of m-commerce in business, and what are the most important m-commerce applications?

List and describe important types of m-commerce services and applications.

The most popular categories of m-commerce services and applications for mobile computing include: 10-11 ..

• • • • •

Location-based services: Users are able to locate restaurants, gasoline stations, local entertainment, or call a cab.

Banking and financial services: Users can manage their bank accounts, checking account balances, transfer funds, and pay bills using their cell phones.

Wireless advertising: Cell phones provide another avenue for advertisers to reach potential customers. Cell phone service providers can sell advertising on phones.

Games and entertainment: Users can download video clips, news clips, weather reports, live TV programs, and short films designed to play on mobile phones.

Personalized services: Services that anticipate what a customer wants based on that person’s location or data profile, such as updated airline flight information or beaming coupons for nearby restaurants. (Learning Objective 10-5: What is the role of m-commerce in business, and what are the most important m-commerce applications? AACSB: Application of knowledge.)

10-6 What issues must be addressed when building an e-commerce presence?

List and describe the four types of e-commerce presence and the platforms and activities associated with each.

Figure 10-10 lists the four types of e-commerce presence businesses should consider: • Websites: traditional, mobile, and/or tablet platforms with search, display, apps, affiliates, sponsorships as possible activities • Email: internal lists and/or purchased lists as a platform with newsletters, updates, and sales as possible activities • Social media: Facebook, Twitter, and/or blogs as a platform with conversation, engagement, sharing, and/or advice as possible activities • Offline media: print and or TV and radio as the platform with education, exposure, and/or branding as possible activities. (Learning Objective 10-6: What issues must be addressed when building an e-commerce presence? AACSB: Application of knowledge.)

Discussion Questions 10-7 How does the Internet change consumer and supplier relationships?

Student answers to this question will vary.

10-8 The Internet may not make corporations obsolete, but the corporations will have to change their business models. Do you agree? Why or why not?

Student answers to this question will vary.

10-9 How have social technologies changed e-commerce?

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Student answers to this question will vary.

Hands-On MIS Projects Management Decision Problems 10-10 Columbiana: A small, independent Caribbean island that wants to develop its tourist industry and attract more visitors. How can an e-commerce presence help? What Internet business model would be appropriate? What functions should the site-commerce presence perform?

A site-commerce presence has the potential to introduce thousands to millions of people to a little-known resort destination at a significantly lower cost than other forms of marketing.

The website can highlight the island’s accommodations and show off its attractions.

Webcams could be established around the island to give potential tourists and visitors insight into the island’s main attractions. A website makes it easier for potential visitors to contact hotels and book accommodations. The website can connect with airlines and provide information about flights with the ability to purchase airline tickets on partnering web sites.

Potential business models, depending on the features available on the site, include information broker, transaction broker, and even a social network where people with similar interests in these kinds of destinations can meet and discuss. (Learning Objective 10-2: What are the principal e-commerce business and revenue models? Learning Objective 10-3: How has e-commerce transformed marketing? Learning Objective 6: What issues must be addressed when building an e-commerce presence? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

10-11 Company-sponsored blog: Explore the websites of the following companies: Swatch, Lowe’s, and Priceline. Determine which of these websites would benefit most from adding a company-sponsored blog to the website. List the business benefits of the blog. Specify the intended audience for the blog. Decide who in the company should author the blog and select some topics for the blog.

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Swatch: The iconic watchmaker markets to upscale, urbanites who like the latest fashions. The marketing manager could write a blog that shows how the newest products fit with the latest clothing styles and fashions. She could also use a blog to solicit photos from customers showing them wearing their Swatch purchases.

Lowe’s: The site has a separate section titled “Lowe’s for Pros” that includes a business replenishment program, calculators to develop bid specifications, leverage worksheets to help contractors develop bids, and a special Pro Help desk. A blog written by a former construction contractor in this specialized area would help contractors get answers, find products, or become aware of specialty products.

Priceline.com: A blog written by a travel expert could review vacation destinations and provide travelers and tourists with tips and tricks of traveling to different locations. The site would sell more tickets to those destinations and increase profits for the site.

(Learning Objective 10-3: How has e-commerce transformed marketing? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.)

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Improving Decision Making: Using Spreadsheet Software to Analyze a Dot-com Business Software skills: Spreadsheet downloading, formatting, and formulas Business skills: Financial statement analysis 10-12 Answers will vary, depending on the company they select and the time period over which it is analyzed. The files provided here are merely for purposes of illustration and the income statement and balance sheet have been simplified. If students lack prior knowledge of financial statements, the instructor may have to devote extra time to explaining income statements, balance sheets, and financial ratios. Alternatively, students can find material on understanding financial statements on financial websites such as Ameritrade (www.ameritrade.com) or the Small Business Knowledge Base (www.bizmove.com/finance/m3b2.htm). (Learning Objective 10-2: What are the principal e-commerce business and revenue models? AACSB: Written and oral communication, Analytical thinking, Reflective thinking, Application of knowledge.)

Achieving Operational Excellence: Evaluating E-Commerce Hosting Services Software skills: Web browser software Business skills: Evaluating e-commerce hosting services 10-13 You would like to set up a website to sell towels, linens, pottery, and tableware from Portugal and are examining services for hosting small business Internet storefronts. Your website should be able to take secure credit card payments and calculate shipping costs and taxes. Initially, you would like to display photos and descriptions of 40 products. Visit Wix, GoDaddy, and iPage and compare the range of e-commerce hosting services they offer to small businesses, their capabilities, and their costs. Examine the tools they provide for creating an e-commerce site. Compare these services and decide which you would use if you were actually establishing a web store. Write a brief report indicating your choice and explaining the strengths and weaknesses of each service.

In addition to writing a report explaining the strengths and weaknesses, ask students to apply the concepts of this chapter to their reports or at least to discuss them. Some of the topics should be electronic payment systems, dynamic pricing, banner and pop-up ads, and Internet business models. (Learning Objective 10-1: What are the unique features of e-commerce, digital markets, and digital goods? Learning Objective 10-6: What issues must be addressed when building an e-commerce presence? AACSB: Written and oral communication, Analytical thinking, Reflective thinking, Application of knowledge.)

Collaboration and Teamwork Project

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10-14. In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Business Problem-Solving Case: Can Uber be the Uber of Everything?

10-15 Analyze Uber using the competitive forces and value chain models. What is its competitive advantage?

Uber can claim two competitive forces: it is both a substitute service for regular taxis and other public transportation services, and it’s a new market entrant.

Instead of trying to hail a cab, you pull out your smartphone and tap the Uber app. A Google map pops up displaying your nearby surroundings. You select a spot on the screen designating an available driver, and the app secures the ride, showing how long it will take for the ride to arrive and how much it will cost. Once you reach your destination, the fare is automatically charged to your credit card. No fumbling for money. That can also increase customer intimacy.

Uber runs much leaner than a traditional taxi company does. Uber does not own taxis and has no maintenance and financing costs. It does not have employees, so it claims, but instead calls the drivers independent contractors, who receive a cut of each fare. Uber is not encumbered with employee costs such as workers’ compensation, minimum wage requirements, background checks on drivers, driver training, health insurance, or commercial licensing costs. Uber has shifted the costs of running a taxi service entirely to the drivers and to the customers using their cell phones. Drivers pay for their own cars, fuel, and insurance. What Uber does is provide a smartphone-based platform that enables people who want a service—like a taxi—to find a provider who can meet that need.

(Learning Objective 2: What are the principal e-commerce business and revenue models?

Learning Objective 5: What is the role of m-commerce in business, and what are the most important m-commerce applications? AACSB: Analytical thinking, Reflective thinking, Application of knowledge) 10-16 What is the relationship between information technology and Uber’s business model?

Explain your answer.

Rates consider the typical factors of time and distance but also demand. Uber’s software predicts areas where rides are likely to be in high demand at different times of the day. This information appears on a driver’s smartphone so that the driver knows where to linger and, ideally, pick up customers within minutes of a request for a ride. Uber also offers a higher-priced town car service for business executives, as well as a ride-sharing service. Under certain conditions, if demand is high, Uber can be more expensive than taxis, but it still appeals to riders by offering a reliable, fast, convenient alternative to traditional taxi services.

10-17 How disruptive is Uber?

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More than 40 million people use Uber each month. However, Uber’s over-the-top success has created its own set of challenges. By digitally disrupting a traditional and highly regulated industry, Uber has ignited a firestorm of opposition from existing taxi services in the United States and around the world. Who can compete with an upstart firm offering a 40 percent price reduction when demand for taxis is low? (When demand is high, Uber prices surge.) What city or state wants to give up regulatory control over passenger safety, protection from criminals, driver training, and a healthy revenue stream generated by charging taxi firms for a taxi license?

Critics fear that Uber and other on-demand firms have the potential for creating a society of parttime, low-paid, temp work, displacing traditionally full-time, secure jobs—the so-called Uberization of work. Uber responds to this fear by saying it is lowering the cost of transportation, expanding the demand for ride services, and expanding opportunities for car drivers, whose pay is about the same as other taxi drivers.

(Learning Objective 1: What are the unique features of e-commerce, digital markets, and digital goods? Learning Objective 2: What are the principal e-commerce business and revenue models?

Learning Objective 3: How has e-commerce transformed marketing? Learning Objective 6: What issues must be addressed when building an e-commerce presence? AACSB: Analytical thinking, Reflective thinking, Application of knowledge)

10-18 Are any ethical and social issues raised by Uber and its business model? Explain your answer. Does Uber’s business model create an ethical dilemma?

According to this case, many Uber drivers are making less than the minimum wage. Drivers are independent contractors who do not receive health insurance or other benefits. In fact, drivers pay for their own cars, maintenance, and fuel. Further, to be profitable, many analysts believe Uber will need to take advantage of self-driving vehicles. This will reduce the number of available low paying jobs.

10-19 Is Uber a viable business? Explain your answer.

The company is still not profitable, although if Uber continues to triple revenue every year, the answer could be yes. But Uber has competitors, including Lyft in the United States and local firms in Asia and Europe. New, smaller competing firms offering app-based cab-hailing services are cropping up, such as Sidecar and Via. Established taxi firms in New York and other cities are launching their own hailing apps and trumpeting their fixed-rate prices. Uber is pressing on, with new services for same-day deliveries, business travel accounts, and experiments with self-driving cars, which management believes will be key to long-term profitability. It is still too early to tell whether Uber and other on-demand businesses will succeed.

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Chapter 11 Managing Knowledge and Artificial Intelligence Student Learning Objectives 11-1 What is the role of knowledge management systems in business?

11-2 What are artificial Intelligence (AI) and machine learning? How do businesses use AI? 11-3 What types of systems are used for enterprise-wide knowledge management and how do they provide value for businesses?

11-4 What are the major types of knowledge work systems, and how do they provide value for firms?

11-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

3-D printing, 443 Artificial intelligence (AI), 424 Augmented reality (AR), 44 Chatbox, 438 Communities of practice (COPs), 423 Computer-aided design (CAD), 442 Computer vision systems, 435 Data, 419 “Deep learning,” 433 Digital asset management systems, 441 Enterprise content management (ECM), 440 Enterprise-wide knowledge management systems, 423 Expert systems, 426 Explicit knowledge, 420 Genetic algorithms, 434 Inference engine, 426 Intelligent agents, 423 “Intelligent” techniques, 424

Knowledge, 419 Knowledge base, 426 Knowledge management, 421 Knowledge work systems (KWS), 424 Learning management system (LMS), 441 Machine learning, 427 Massive open online course (MOOC), 441 Natural language processing (NLP), 435 Neural networks, 429 Organizational learning, 421 Pattern detection program, 429 Robotics, 436 Structured knowledge, 440 Supervised learning, 428 Tacit knowledge, 420 Taxonomy, 440 Unsupervised learning, 429 Virtual reality (VR) systems, 443 Wisdom, 420

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Teaching Suggestions The opening case, “Artificial Intelligence Beats Radiologists in Reading Mammograms,” demonstrates how industry is trying to improve its business performance by using new tools and technology.

Within the health care industry, there are about 33 million screening mammograms performed each year. Manual tests miss 20 percent of breast cancers due to false negatives and also tags 7-12 percent as false positives. Researchers from Google Health, Northwestern University in Chicago, and Britain’s Cancer Research Imperial Centre and Royal Surrey County Hospital set out to develop an AI technology to improve the results of reading these scans.

The new AI system performed better than human radiologists. On scans from the United States, the system reduced false negatives by 9.4 percent and false positives by 5.7 percent. While it was not better in all situations, it showed great promise for future use and demonstrates the potential advantages of using AI to assist in so many parts of society.

Section 11-1, What is the role of knowledge management systems in business?

Most students do not think about the differences between data, information, knowledge, and wisdom. It may be helpful to follow pieces of sales data through each of the four entities. Data would be that five widgets sold. Information about the widget sales would be that all five widgets were sold in one month in the northwest region. Knowledge would extend the data and information to show that it is an extraordinary event to sell five widgets in the northwest region because the most that are ever sold in one month are two. Wisdom would tell managers and executives that the reason five widgets were sold in one month in the northwest region was because the newly-elected President of the United States once lived there. Students also need to understand the difference between tacit knowledge (residing in people’s minds) and explicit knowledge (documented). It becomes an important distinction throughout the chapter.

The knowledge management value chain helps businesses create, store, transfer, and apply knowledge across the organization. Value chains are aided by three types of knowledge management systems: enterprise-wide knowledge management system, knowledge work systems, and intelligent techniques. Figure 11-2 correlates information system activities with management and organizational activities in the knowledge management value chain.

Section 11-2, What are artificial intelligence (AI) and machine learning? How do businesses use AI? In this section, students are introduced to artificial intelligence, expert systems, neural networks, genetic algorithms, and intelligent agents. What is new and expanded is the

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information about natural language processing, computer vision systems, and robotics that are becoming more commonplace in many different devices and applications.

When discussing the material from this section, remind your students of the history of our discipline. In the early 1980s, expert systems were believed to represent the future of artificial intelligence and of computers in general. To date, however, they have not lived up to expectations. Many expert systems help human experts in such fields as medicine and engineering, but they are often very expensive to produce and are helpful only in special situations. Nonetheless, many are beneficial, and students must understand the limitations and the strengths. Ask your students to locate an expert system and evaluate its strengths and limitations. Expert system demonstrations and reviews are easily located on the web. If you have the class time, ask your students to present their findings to the class.

As a final note on artificial intelligence, you should mention to your students that it is applied in many programs with which they are familiar. For example, the intelligent help system of many application packages is a feature that students should know. The wizards, as the text shows, are examples of intelligent agents. Sometimes the level of intelligence of these agents does not need to be high, such as the agents or robots that look for specific pieces of information on the Internet.

Interactive Session: Technology: Do You Know Who Is Using Your Face?

Case Study Questions 1. Explain the key technologies used in facial recognition systems.

A facial recognition system uses biometrics to map facial features from a photograph or video. It compares the information with a database of known faces to find a match.

The face recognition system uses computer algorithms to highlight specific, distinctive details about a person’s face, such as the distance between the eyes or the shape of the chin. The system converts these details to a mathematical representation and compares them to data on other faces stored in a face recognition database. The data about a particular face is called a face template, and it can be compared to other templates on file. Facial recognition technology learns how to identify people by analyzing as many digital pictures as possible using neural networks, which are complex mathematical systems that require vast amounts of data to build pattern recognition.

2. What are the benefits of using facial recognition systems? How do they help organizations improve operations and decision making? What problems can they help solve?

Face recognition tools are now frequently used in routine policing. Police compare mugshots of arrestees to local, state, and federal face recognition databases. Facial recognition systems can make products safer and more secure. For example, face 11-3 ..

authentication can ensure that only the right person gets access to sensitive information meant just for them. It can also be used for social good; there are nonprofits using facial recognition to combat trafficking of minors.

3. Identify and describe the disadvantages of using facial recognition systems and facial databases.

People often have no idea that their faces are in databases. And although names are typically not attached to the photos, individuals can be recognized because each face is unique to a person. There is no oversight of these facial recognition data repositories. Moreover, facial recognition systems are not entirely accurate. Face recognition systems have varying ability to identify people under challenging conditions such as poor lighting, low-quality image resolution, and suboptimal angle of view, which might occur if a photograph was taken from above looking down on an unknown person.

Interactive Session: Organizations: Will Automation Steal Our Jobs?

Case Study Questions 1. How does automating jobs pose an ethical dilemma? Who are the stakeholders?

Identify the options that can be taken and the potential consequences of each.

The effects of automation are not equally distributed among the highly educated professionals earning high salaries and less educated workers performing low-paying service sector jobs in hotels, restaurants, and nursing homes. Much of this service work is difficult to automate, and employers have less incentive to replace low-wage workers with machines. Recent research has found that robots and other forms of automation are reducing the demand for workers, weighing down wages, and pushing workers into low-paying parts of the economy. Researchers have found that economic downturns actually bring about increased levels of automation because human workers in this environment are often more expensive than job-replacing technology.

2. Does automation cause job loss? Explain your answer.

A November 2015 McKinsey Global Institute report by Michael Chui, James Manyika, and Mehdi Miremadi examined 2,000 distinct types of work activities in 800 occupations. The authors found that 45 percent of these work activities could be automated by 2055 using technologies that currently exist. About 51 percent of the work activities Americans perform involve predictable and routine physical work, data collection, and data processing. All of these tasks are ripe for some degree of automation. No one knows exactly how many U.S. jobs will be lost or how soon, but the researchers estimate that from 9 to 47 percent of jobs could eventually be affected 11-4 ..

and perhaps 5 percent of jobs eliminated entirely. These changes should not lead to mass unemployment because automation could increase global productivity by 0.8 percent to 1.4 percent annually over the next 50 years and create many new jobs.

3. If you were the owner of a factory deciding on whether to acquire robots to perform certain tasks, what management, organization, and technology factors would you consider?

Management: A determination needs to be made if the tasks that are going to be replaced through automation can be done with the same level of accuracy and care or greater as with a human worker? Are there costs savings involved? If there is not, a significant cost savings involved in addition to an improvement to the actual task or process, automation might not be a good choice.

Organization: Will there a be a disruption in the way the change impacts existing employees and the way they have to be trained and adapt. If it makes sense to move to automation for specific tasks, how will the employees who will be staying on to work be trained to use and interact with the new technology? These all need to be considered.

Technology: Determining whether the replacement technology is sustainable and whether the hurdles to implement it are worth it to the business. There might be current technological limits in place at the business, that make implementing the intended automation a challenge or a hurdle too big to overcome under the current infrastructure.

Section 11-3 What types of systems are used for enterprise-wide knowledge management, and how do they provide value for businesses?

Enterprise-wide knowledge management systems help manage structured knowledge, semistructured knowledge, and tacit knowledge. Enterprise content management systems organize the first two—structured and semistructured. Taxonomies categorize information making it easier to access. Companies use digital asset management systems to classify, store, and distribute information contained in graphics, videos, and audio files. Knowledge network systems organize the third kind of knowledge—tacit knowledge.

Most students are familiar with and have used blogs, wikis, and social bookmarking technologies in their personal lives. However, students may be surprised to learn that they are becoming powerful tools for business collaboration. These tools are easy to install, often not requiring any IT staff support. They help capture, consolidate, and centralize knowledge throughout a firm. They make it extremely easy for employees, customers, suppliers, and business partners to share knowledge and information. Try accessing various blogs and wikis on corporate sites and use them to show students how much these tools have become a part of the business world. They are quickly replacing email as the 11-5 ..

primary choice of corporate communication. You might also have students practice with social bookmarking technologies like Delicious and Digg. Have them visit various websites, bookmark the sites, and then share the tags with other students.

Section 11-4, What are the major types of knowledge work systems, and how do they provide value for firms?

Spend a few minutes discussing knowledge assets and knowledge management. Ask your students to discuss how companies like Microsoft, Dell, Toyota, or Staples might manage their knowledge assets. Going over the examples of knowledge work systems listed in the text stimulates a fair amount of discussion and interest. Many students have knowledge of virtual reality systems by visiting expos or demonstrations. Students have grown up playing games on very powerful computers with high-end graphics. Ask them to discuss their experiences with these types of technologies. If class permits, you may wish to demonstrate a quick virtual reality project. There are several projects that you can download and run from this site: www-vrl.umich.edu/projects.html.

Section 11-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level sales assistant. Digital skills, along with a broad liberal arts background, are becoming much more important in sales organizations.

Review Questions 11-1 What is the role of knowledge management systems in business?

Define knowledge management and explain its value to businesses.

Knowledge management is the set of processes developed in an organization to create, gather, store, maintain, transfer, apply, and disseminate the firm’s knowledge.

Knowledge management promotes organizational learning and incorporates knowledge into its business processes and decision making. As the textbook points out, knowledge management enables the organization to learn from its environment and incorporate this new knowledge into its business processes. Knowledge management helps firms do things more effectively and efficiently that cannot be easily duplicated by other organizations. This “in-house” knowledge is a very valuable asset and is a major source of profit and competitive advantage. (Learning Objective 11-1: What is the role of knowledge management systems in business?

AACSB: Application of Knowledge.)

Describe the important dimensions of knowledge.

Table 11-1 describes the important dimensions of knowledge: • Knowledge is a firm asset: an intangible asset; requires organizational resources; experiences network effects as its value increases as more people share it.

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•

•

•

Knowledge has different forms: can be either tacit or explicit; involves know-how, craft, and skill; involves knowing how to follow procedures; involves knowing why, not simply when, things happen.

Knowledge has a location: it is a cognitive event involving mental models and maps of individuals; has both a social and an individual basis of knowledge; is “sticky, situated, and contextual.

Knowledge is situational: it is conditional; it is related to context.

(Learning Objective 11-1: What is the role of knowledge management systems in business? AACSB: Application of Knowledge.)

Distinguish between data, knowledge, and wisdom and between tacit knowledge and explicit knowledge.

Data by itself has no meaning but is the first step in the creation of knowledge.

Knowledge includes concepts, experience, and insight that provide a framework for creating, evaluating, and using information. Wisdom is the collective and individual experience of applying knowledge to the solution of problems. Explicit knowledge is knowledge that has been documented whereas tacit knowledge is the expertise and experience of organizational members that has not been formally documented. ((Learning Objective 11-1: What is the role of knowledge management systems in business? AACSB: Analytical thinking.)

Describe the stages in the knowledge management value chain.

Refer to Figure 11–2 for the knowledge management value chain. These steps include: • Acquire: knowledge discovery, data mining, neural networks, genetic algorithms, knowledge workstations, expert knowledge networks • Store: document management systems, knowledge databases, expert systems • Disseminate: intranet portals, push email reports, search engines, collaboration • Apply: decision support systems, enterprise applications.

(Learning Objective 11-1: What is the role of knowledge management systems in business? AACSB: Application of Knowledge.)

11-2 What are artificial intelligence (AI) and machine learning? How do businesses use AI? Define artificial intelligence (AI) and the major AI techniques.

In the most ambitious vision, AI involves the attempt to build computer systems that think and act like humans. There are no computer programs that have demonstrated generalized human intelligence or common sense. Human intelligence is vastly more complex than the most sophisticated computer programs and covers a broader range of activities than is currently possible with “intelligent” computer systems and 11-7 ..

devices. A narrow definition of artificial intelligence is far more realistic and useful.

Stripped of all the hyperbole, artificial intelligence programs are like all computer programs: They take data input from the environment, process that data, and produce outputs. AI programs differ from traditional software programs in the techniques and technologies they use to input and process data. AI systems today can perform many tasks that would be impossible for humans to accomplish and can equal or come close to humans in tasks such as interpreting CT scans, recognizing faces and voices, playing games like chess or Go, or besting human experts in certain well-defined tasks.

Table 11.2 describe the major types of AI techniques that include expert systems, machine learning, neural networks and deep learning, genetic algorithms, natural language processing, computer vision systems, robotics, and intelligent agents.

(Learning Objective 11-2: What are artificial intelligence (AI) and machine learning?

How do businesses use AI? AACSB: Application of Knowledge.)

Define an expert system, describe how it works, and explain its value to business.

Expert systems are an intelligent technique for capturing tacit knowledge in a very specific and limited domain of human expertise. These systems capture the knowledge of skilled employees in the form of a set of rules in a software system that can be used by others in the organization.

Expert systems model human knowledge as a set of rules that collectively are called the knowledge base. The strategy used to search through the collection of rules and formulate conclusions is called the inference engine. The inference engine works by searching through the rules and “firing” those rules that are triggered by facts gathered and entered by the user.

Expert systems help organizations make high-quality decisions with fewer people.

They are used in discrete, highly structured, decision-making situations where expertise is expensive or in short supply. (Learning Objective 11-2: What are artificial intelligence (AI) and machine learning? How do businesses use AI? AACSB: Analytical thinking; Application of Knowledge.)

Define machine learning, explain how it works, and give some examples of the kinds of problems it can solve.

Machine learning is the study of how computer programs can improve their performance without explicit programming. A machine that learns is a machine that, like a human being, can recognize patterns in data and change its behavior based on its recognition of patterns, experience, or prior knowledge.

Two examples are the Google search engine that incorporates current search requests into its algorithms and “remembers” it for the next search. The recommender engine 11-8 ..

on Amazon suggests other items you might be interested in based on patterns in prior consumption, behavior on other websites, and the purchases of others who are “similar.” (Learning Objective 11-2: What are artificial intelligence (AI) and machine learning? How do businesses use AI? AACSB: Reflective thinking; Application of Knowledge.)

Define neural networks and deep learning neural networks, describing how they work and how they benefit organizations.

Neural networks are usually physical devices (although they can be simulated with software) that emulate the physiology of animal brains. Neural networks are used for solving complex, poorly understood problems for which large amounts of data have been collected. They find patterns and relationships in massive amounts of data that would be too complicated and difficult for a human being to analyze. Neural networks “learn” patterns from large quantities of data by sifting through data, searching for relationships, building models, and correcting over and over again the model’s own mistakes.

In a neural network, the resistors in the circuits are variable, and can be used to teach the network. When the network makes a mistake, i.e., chooses the wrong pathway through the network and arrives at a false conclusion, resistance can be raised on some circuits, forcing other neurons to fire. Used after a false conclusion, intervention teaches the machine the correct response. If this learning process continues for thousands of cycles, the machine learns the correct response. The simple neurons or switches are highly interconnected and operate in parallel so they can all work simultaneously on parts of a problem. Neural networks are very different from expert systems where human expertise has to be modeled with rules and frames. In neural networks, the physical machine emulates a human brain and can be taught from experience.

“Deep learning” neural networks are more complex, with many layers of transformation of the input data to produce a target output. Collections of neurons are called nodes or layers. Deep learning networks are in their infancy and are used almost exclusively for pattern detection on unlabeled data where the system is not told what to look for specifically but to simply discover patterns in the data. The system is expected to be self-taught. (Learning Objective 11-2: What are artificial intelligence (AI) and machine learning? How do businesses use AI? AACSB: Analytical thinking; Application of Knowledge.)

Define and describe genetic algorithms and intelligent agents. Explain how each works and the kinds of problems for which each is suited.

Genetic algorithms (adaptive computation) are a variety of problem-solving methods that are conceptually based on the method that living organisms use to adapt to their environment (process of evolution.) Genetic algorithms control the generation, variation, adaptation, and selection of possible problem solutions using genetically 11-9 ..

based processes. As solutions alter and combine, the worst ones are discarded, and the better ones survive to go on and produce even better solutions. Genetic algorithms are particularly suited to the areas of optimization, product design, and the monitoring of industrial systems. Organizations can use genetic algorithms to minimize costs and maximize profits and schedule and use resources efficiently. Genetic algorithms are ideal when problems are dynamic and complex and involve hundreds of variables or formulas. For example, General Electric used a genetic algorithm to help them design a jet turbine aircraft engine that required the use of about 100 variables and 50 constraint equations.

Intelligent agents are software programs that use a built-in or learned knowledge base to carry out specific, repetitive tasks for an individual user, business process, or software application. By watching the user of a program or system, an intelligent agent may customize the software system to meet the user’s needs, reducing software support costs. Intelligent agents can be used as wizards to help users do or learn how to perform a given task. Intelligent agents can be used to carry out “smart” searches of the database, data warehouse, or the Internet, reducing search costs and avoiding the problems of misdirected searches. Agent-based modeling applications model consumer, stock market, and supply chain behavior. (Learning Objective 11-2: What are artificial intelligence (AI) and machine learning? How do businesses use AI? AACSB: Analytical thinking; Application of Knowledge.)

Define and describe computer vision systems, natural language processing systems, and robotics and give examples of their applications in organizations.

Computer vision systems: deal with how computers can emulate the human visual system to view and extract information from real-world images. Such systems incorporate image processing, pattern recognition, and image understanding. An example is Facebook’s facial recognition tool called DeepFace, which is nearly as accurate as the human brain in recognizing a face. DeepFace will help Facebook improve the accuracy of Facebook’s existing facial recognition capabilities to ensure that every photo of a Facebook user is connected to that person’s Facebook account.

Computer vision systems are also used in autonomous vehicles such as drones and self-driving cars, industrial machine vision systems (e.g., inspecting bottles), military applications, and robotic tools.

Natural language processing systems: make it possible for a computer to understand and analyze natural language—language that human beings instinctively use, not language specially formatted to be understood by computers. NLP algorithms are typically based on machine learning, including deep learning, which can learn how to identify a speaker’s intent from many examples. Google search engines, spam filtering systems, and text mining sentiment analysis use natural language processing.

Robotics: deals with the design, construction, operation, and use of movable machines that can substitute for humans along with computer systems for their control, sensory feedback, and information processing. Robots cannot substitute 11-10 ..

entirely for people but are programmed to perform a specific series of actions automatically. They are often are used in dangerous environments (such as bomb detection and deactivation), manufacturing processes, military operations (drones), and medical procedures (surgical robots). (Learning Objective 11-2: What are artificial intelligence (AI) and machine learning? How do businesses use AI? AACSB: Analytical thinking; Application of Knowledge.)

11-3 What types of systems are used for enterprise-wide knowledge management and how do they provide value for businesses?

Define and describe the various types of enterprise-wide knowledge management systems and explain how they provide value for businesses.

There are three types of knowledge management systems: • Enterprise-wide knowledge management systems are general-purpose, firmwide efforts that collect, store, distribute, and apply digital content and knowledge.

These systems include capabilities for searching for information, storing both structured and unstructured data, and locating employee expertise within the firm.

They also include supporting technologies such as portals, search engines, collaboration tools, and learning management systems. Structured knowledge systems provide databases and tools for organizing and storing structured documents, whereas semistructured knowledge systems provide databases and tools for organizing and storing semistructured knowledge, such as email or rich media.

• Knowledge network systems provide an online directory of corporate experts in well-defined knowledge domains and use communication technologies to make it easy for employees to find the appropriate expert in a company. Some knowledge network systems go further by systematizing the solutions developed by experts and then storing the solutions in a knowledge database as a best-practices or frequently asked questions (FAQ) repository. Often these systems include group collaboration tools, portals to simplify information access, search tools, and tools for classifying information based on a taxonomy that is appropriate for the organization.

• Intelligent techniques help discover patterns and apply knowledge to discrete decisions and knowledge domains. It uses tools like data mining, neural networks, expert systems, case-based reasoning, fuzzy logic, genetic algorithms, and intelligent agents (bots) to capture individual and collective knowledge and to extend their knowledge base. (Learning Objective 11-3 What types of systems are used for enterprise-wide knowledge management and how do they provide value for businesses?

• AACSB: Application of Knowledge.)

Describe the role of the following in facilitating knowledge management: taxonomies, MOOCs, and learning management systems.

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•

•

•

Taxonomies are classification schemes used to organize information into meaningful categories so that it can easily be accessed. They are especially helpful in enterprise content management systems that have large amounts of information and data.

MOOCs are online educational courses available via the web to very large numbers of participants. Companies view them as a new way to design and deliver online learning where people can collaborate with each other, watch short videos, and participate in threaded discussion groups.

Learning management systems provide tools for the management, delivery, tracking, and assessment of various types of employee learning. These systems provide value to the business by reducing the time and cost to acquire and utilize knowledge and by providing knowledge for higher-quality decisions.

(Learning Objective 11-3 What types of systems are used for enterprise-wide knowledge management and how do they provide value for businesses? AACSB: Application of Knowledge.)

11-4 What are the major types of knowledge work systems and how do they provide value for firms?

Define knowledge work systems and describe the generic requirements of knowledge work systems.

Knowledge work systems (KWS) are specialized systems for engineers, scientists, and other knowledge workers that are designed to promote the creation of knowledge and to ensure that new knowledge and technical expertise are properly integrated into the business. These systems reflect the special needs of knowledge workers. In this day and age, knowledge work is critical to most organizations, and in some organizations knowledge work systems produce strategic advantage or the knowledge that enables their company to keep up with others who are trying for strategic advantages.

KWS must have adequate computing power to handle the specialized tasks and complex calculations, provide easy access to external databases to support research, and present a user-friendly interface. KWS software uses intensive graphics, analysis, document management, and communications capabilities. These capabilities can increase the productivity of highly paid knowledge workers. KWS often run on workstations that are customized for the work they must perform. Computer-aided design (CAD) systems and virtual reality systems, which create interactive simulations that behave like the real world, require graphics and powerful modeling capabilities. KWS for financial professionals provide access to external databases and the ability to analyze massive amounts of financial data very quickly. (Learning Objective 11-4: What are the major types of knowledge work systems and how do they provide value for firms? AACSB: Application of Knowledge.)

Describe how the following systems support knowledge work: CAD, virtual reality, and augmented reality.

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•

•

•

CAD systems automate the creation and revision of designs using computers and sophisticated graphics software. Benefits include the production of more sophisticated and functional designs, reducing the time required to produce designs, reducing expensive engineering changes, preparing fewer prototypes, and facilitating the tooling and manufacturing process.

Virtual reality systems have visualization, rendering, and simulation capabilities. This type of system uses interactive graphics software to create computer-generated simulations that are so close to reality that users believe they are participating in a real world. The users feel immersed in the computer-generated world. Virtual reality provides educational, scientific, and business benefits.

Augmented reality is related to virtual reality and enhances visualization by providing a live direct or indirect view of a physical real-world environment whose elements are augmented by virtual computer-generated imagery. The user remains grounded in the real physical world, and the virtual images are merged with the real view to create an augmented display. (Learning Objective 11-4: What are the major types of knowledge work systems and how do they provide value for firms? AACSB: Application of Knowledge.)

Discussion Questions 11-5 Knowledge management is a business process, not a technology. Discuss.

Student answers to this question will vary.

11-6 Describe various ways that knowledge management systems could help firms with sales and marketing or with manufacturing and production.

Student answers to this question will vary.

11-7 Compare artificial intelligence to human intelligence. How “intelligent” is artificial intelligence today?

Student answers to this question will vary.

Hands-on MIS Projects Management Decision Problems 11-8 U.S. Pharma Corporation: Headquartered in New Jersey, the company has research sites in Germany, France, the United Kingdom, Switzerland, and Australia.

R&D is key to its ongoing profits. Researchers need to share information with others within and outside the company. Design a knowledge portal with design specifications relevant to internal systems and databases, external sources of

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information, and internal and external communication and collaboration tools.

Design a home page for your portal.

Students will vary in their designs. Elements and principles they should address in the knowledge portal are ways to acquire, store, disseminate, and apply knowledge.

The design should include capabilities for email, chat/instant messaging, discussion groups, and videoconferencing. Web technologies like blogs, wikis, and social bookmarking/folksonomies should also be addressed. Security, access, and privacy might be included if you desire. (Learning Objective 11-3: What types of systems are used for enterprise-wide knowledge management and how do they provide value for businesses? AACSB: Written and oral communication; Information technology.)

11-9 Canadian Tire: One of Canada’s largest companies, the company sells a wide range of goods and services. The retail outlets are independently owned and operated. The company was using daily mailings and thick product catalogs to inform its dealers about new products, merchandise setups, best practices, product ordering, and problem resolution. It is looking for a better way to provide employees with human resources and administrative documents. Describe the problems created by doing business this way and how knowledge management systems might help.

First, the company is wasting dollars and time by using offline mailings and paper catalogs to pass information and knowledge to its dealers. All that should be made available online. By keeping it out of the information system, it cannot be incorporated into the knowledge management base. The headquarters can use a daily or weekly email newsletter to disseminate a “heads up” to its retail outlet dealers that encourages them to review the website for new products and services, best practices, and problem resolution. A section of the website can be established for social interaction between dealers and retail outlets and the headquarters staff to share information and best practices. The knowledge management information system can capture input on the social network and incorporate it into other information in the knowledge management system. (Learning Objective 11-4: What are the major types of knowledge work systems and how do they provide value for firms? AACSB: Application of knowledge.)

Improving Decision Making: Building a Simple Expert System for Retirement Planning Software skills: Spreadsheet formulas and IF function or expert system tool Business skills: Benefits eligibility determination 11-10 Using the information provided, build a simple expert system. Find a demonstration copy of an expert system software tool on the web that you can download. Alternatively, use your spreadsheet software to build the expert system.

Students will need to find an expert system tool that provides a mechanism, called the 11-14 ..

inference engine, which automatically matches facts against patterns and determines which rules are applicable.

Remind them about what “rules” the expert system is looking for: The “if” portion of a rule can actually be thought of as the “whenever” portion of a rule because pattern matching always occurs whenever changes are made to facts. The “then” portion of a rule is the set of actions to be executed when the rule is applicable. The actions of applicable rules are executed when the inference engine is instructed to begin execution. The inference engine selects a rule and then the actions of the selected rule are executed (which may affect the list of applicable rules by adding or removing facts). The inference engine then selects another rule and executes its actions. This process continues until no applicable rules remain.

A good resource for their PDA, is www.bitsys.demon.co.uk/download.htm. This expert system for the palm is a trial version of the ZEN Expert System. The trial version is free to use but will only operate with the demonstration knowledge base.

Another site to direct students to is PC AI—Expert systems resources— www.pcai.com/pcai/New_Home_Page/ai_info/expert_systems.html. This site hosts a brief introduction to expert systems and an extensive collection of links to expert system websites, vendors, articles, and references.

The solution requires a very simple system with a limited number of rules. If students cannot find expert system software to work with, they can build a primitive system using spreadsheet software and the =IF function of Excel. Although Excel allows for a limited number of nested IF statements, the conditions tested are complex. The spreadsheet solution provided here implements each IF statement in a separate worksheet cell. The instructor may want to implement these rules in another way.

A simple formula page to calculate retirement planning can be found in the Microsoft Excel file named: laudon_mis17_ch11_solution_file.xls.

(Learning Objective 11-2: What are artificial intelligence (AI) and machine learning?

How do businesses use AI? Learning Objective 11-4: What are the major types of knowledge work systems, and how do they provide value for firms? AACSB: Application of knowledge.)

Improving Decision Making: Using Intelligent Agents for Comparison Shopping Software skills: Web browser and shopping bot software Business skills: Product evaluation and selection 11-11 This project will give you experience using shopping bots to search online for products, find product information, and find the best prices and vendors. Select a digital camera you might want to purchase, such as the Canon PowerShot SX540HS or the Olympus Tough TG-6. Visit MySimon, BizRate, and Google Shopping to do price comparisons for you. Evaluate these shopping sites in terms of their ease of 11-15 ..

use, number of offerings, speed in obtaining information, thoroughness of information offered about the product and seller, and price selection. Which site or sites would you use and why? Which camera would you select, and why? How helpful were these sites for making your decision?

Answers will vary on which camera to purchase. The point of the question is for students to explore the idea of using bots to help them navigate all the various sites and gather as much information as possible, as quickly and easily as possible. It does not matter which camera they choose, or even which shopping bot they like best.

The idea is to critically examine the technology and determine how it helps them make better decisions. (Learning Objective 11-4: What are the major types of knowledge work systems and how do they provide value for firms? AACSB: Analytical thinking.)

Collaboration and Teamwork Project 11-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: Are Self-Driving Cars Ready for the Road?

Case Study Questions 11-13 What are the management, organizational, and technology challenges posed by self-driving car technology?

Management: Autonomous vehicle technology has reached a point where no automaker can ignore it. Every major auto maker is racing to develop and perfect autonomous vehicles, believing that the market for them could one day reach trillions of dollars.

Organizational: There is still plenty that needs to be improved before self-driving vehicles could safely take to the road. Autonomous vehicles are not yet able to operate safely in all weather conditions. Heavy rain or snow can confuse current car radar and lidar systems-autonomous vehicles cannot operate on their own in such weather conditions. These vehicles also have trouble when tree branches hang too low or bridges and roads have faint lane markings. On some roads, self-driving vehicles will have to make guidance decisions without the benefit of white lines or clear demarcations at the edge of the road, including Botts’ Dots (small plastic markers that define lanes). Botts’ Dots are not believed to be effective lane-marking for autonomous vehicles.

Technology: A car that is supposed to take over driving from a human requires a very powerful computer system that must process and analyze large amounts of data 11-16 ..

generated by myriad sensors, cameras, and other devices to control and adjust steering, accelerating, and braking in response to real-time conditions. Key technologies include: sensors, cameras, lidars, GPS, radar, computer, machine learning, deep learning, computer vision technology and maps.

(Learning Objective 11-2: What are artificial intelligence (AI) and machine learning?

How do businesses use AI? Learning Objective 11-4: What are the major types of knowledge work systems, and how do they provide value for firms? AACSB: Information technology; Application of knowledge.)

11-14 Are self-driving cars good business investments? Explain your answer.

Self-driving car companies are notorious for overhyping their progress. Should we believe them? At this point, the outlook for them is clouded.

A self-driving car is essentially a collection of networked computers and sensors linked wirelessly to the outside world, and it is no more secure than other networked systems. Keeping systems safe from intruders who want to crash or weaponize cars may prove to be the greatest challenge confronting autonomous vehicles in the future.

Self-driving cars require new ecosystems to support them, much as today’s cars are dependent on garages, gasoline stations, and highway systems. New roads, highways, and automotive supply chains will have to be rebuilt for self-driving cars. The big auto makers that build millions of cars a year rely on complex, precise interaction among hundreds of companies, including automotive component suppliers and the services to keep cars running. They need dealers to sell the cars, gas pumps or charging stations to fuel them, body shops to fix them, and parking lots to store them.

Manufacturers of autonomous vehicles need to rethink interactions and processes built up over a century. The highway infrastructure will need to change over time to support autonomous vehicles. Waymo has partnered with Avis to take care of its fleet of driverless minivans in Arizona, and it is working with a startup called Trov to insure their passengers. GM is retooling one of its plants to produce Chevrolet Bolts without steering wheels or pedals.

(Learning Objective 11-2: What are artificial intelligence (AI) and machine learning?

How do businesses use AI? Learning Objective 11-4: What are the major types of knowledge work systems, and how do they provide value for firms? AACSB: Analytical thinking.)

11-15 What ethical and social issues are raised by self-driving car technology?

In March 2018, a self-driving Uber Volvo XC90 operating in autonomous mode struck and killed a woman in Tempe, Arizona. Since the crash, Arizona has suspended autonomous vehicle testing in the state, and Uber is not renewing its permit to test self-driving cars in California. The company has also stopped testing autonomous cars in Pittsburgh and Toronto and it’s unclear when it will be revived.

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Even before the accident, Uber’s self-driving cars were having trouble driving through construction zones and next to tall vehicles like big truck rigs. Uber’s drivers had to intervene far more frequently than drivers in other autonomous car projects.

The Uber accident raised questions about whether autonomous vehicles were even ready to be tested on public roads and how regulators should deal with this.

While proponents of self-driving cars like Tesla’s Elon Musk envision a self-driving world where almost all traffic accidents would be eliminated, and older adults and people with disabilities could travel freely, most Americans think otherwise. A Pew Research Center survey found that most people did not want to ride in self-driving cars and were unsure if they would make roads more dangerous or safer. Eightyseven percent wanted a person always behind the wheel, ready to take over if something went wrong.

Some pundits predict that in the next few decades, driverless technology will add $7 trillion to the global economy and save hundreds of thousands of lives. At the same time, it could devastate the auto industry along with gas stations, taxi drivers, and truckers. People might stop buying cars because services like Uber using self-driving cars would be cheaper.

This could cause mass unemployment of taxi drivers and large reductions in auto sales. It would also cut down the need for many parking garages and parking spaces, freeing up valuable real estate for other purposes. More people might decide to live further from their workplaces because autonomous vehicles linked to traffic systems would make traffic flow more smoothly and free riders to work, nap, or watch video while commuting.

Some people will prosper. Most will probably benefit, but many will be left behind.

Driverless technology is estimated to change one in every nine U.S. jobs, although it will also create new jobs. Another consideration is that the tremendous investment in autonomous vehicles, estimated to be around $32 billion annually, might be better spent on improving public transportation systems like trains and subways. Does America need more cars in sprawling urban areas where highways are already jammed?

(Learning Objective 11-2: What are artificial intelligence (AI) and machine learning?

How do businesses use AI? Learning Objective 11-4: What are the major types of knowledge work systems, and how do they provide value for firms? AACSB: Information technology; Application of knowledge.)

11-16 Will cars really be able to drive themselves without human operators? Should they?

How can autonomous vehicles communicate with humans and other machines to let them know what they want to do? Researchers are investigating whether electronic signs and car-to-car communication systems would solve this problem. There’s also 11-18 ..

what’s called the “trolley problem”: In a situation where a crash is unavoidable, how does a robot car decide whom or what to hit? Should it hit the car coming up on its left or a tree on the side of the road?

A computer-driven car that can handle any situation as well as a human under all conditions is decades away at best.

(Learning Objective 11-2: What are artificial intelligence (AI) and machine learning?

How do businesses use AI? Learning Objective 11-4: What are the major types of knowledge work systems, and how do they provide value for firms? AACSB: Reflective thinking.)

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Chapter 12 Enhancing Decision Making Student Learning Objectives 12-1 What are the different types of decisions and how does the decision-making process work?

12-2 How do information systems support the activities of managers and management decision making?

12-3 How do business intelligence and business analytics support decision making?

12-4 How do different decision-making constituencies in an organization use business intelligence?

12-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Balanced scorecard method, 476 Behavioral models, 461 Business performance management (BPM), 477 Choice, 459 Classical model of management, 461 Data visualization, 466 Decisional role, 462 Design, 459 Geographic information systems (GIS), 471 Implementation, 459 Informational role, 461 Intelligence, 459

Interpersonal role, 461 Key performance indicators (KPIs), 476 Location analytics, 470 Managerial roles, 461 Operational intelligence, 468 Pivot table, 475 Predictive analytics, 467 Semistructured decisions, 458 Sensitivity analysis, 474 Structured decisions, 458 Unstructured decisions, 458

Teaching Suggestions The opening case, “Big Data and the Internet of Things Drive Precision Agriculture,” illustrates how the effective use of data analytics can help employees and managers at all levels and in many different industries make better decisions.

Purdue University’s College of Agriculture is one of the organizations leading the way toward more data-driven farming. The College has developed an agriculture-oriented network with advanced IoT sensors and devices that will allow researchers to study and improve plant growth 12-1 ..

and food production processes. Every process from farm to table has potential for improvement through better use of information technology.

In fall 2016, the university began installing an Internet of Things (IoT) network on its 1,408-acre research farm, the Agronomy Center for Research and Education (ACRE). The system captures terabytes of data daily from sensors, cameras, and human inputs. To collect, aggregate, process, and transmit such large volumes of data back to Purdue’s HPE supercomputer, the university is deploying a combination of wireless and edge computing technologies. They include solarpowered mobile Wi-Fi hotspots, an adaptive weather tower providing high-speed connectivity across the entire ACRE facility, and the PhenoRover, a semi-automated mobile vehicle that roams throughout ACRE research plots capturing real-time data from plant-based sensors.

Purdue is also experimenting with drones for plant-growth data collection. ACRE researchers can enter data into a mobile device on-site and transmit them via the wireless network to an HPE data center for analysis.

The Purdue project is an example of “precision agriculture,” in which data collected and analyzed with digital tools drive decisions about fertilizer levels, planting depth, and irrigation requirements for small sections of fields or individual plants, and automated equipment can apply the ideal treatment for specific weeds. In addition to producing higher crop yields, farmers using fertilizer, water, and energy to run equipment more precisely are less wasteful, and this also promotes the health of the planet.

The vignette shows how executives, managers, and employees have to continually upgrade and enhance their decision-making skills to keep up with the competition and the marketplace in virtually every industry.

Section 12-1, “What are the different types of decisions and how does the decision-making process work? This section of the text focuses on the management aspects of information systems, and how the main contribution of information systems has been to improve decision making, both for individuals and groups. As an exercise, randomly ask your students to classify different types of decisions and at what management level they would expect those decisions to be made. For example, the location of a new plant would be an unstructured type of decision and made at the senior management level, whereas, the daily production of pea soup would be a structured decision and made at the operational management level. Ask students to determine the various management levels of their school, and give examples of structured, semistructured, and unstructured decisions.

Section 12-2, How do information systems support the activities of managers and management decision making?” Using Figure 12.1, introduce students to the different managerial roles, and combine that discussion with Figure 12.2 to tie together the relationship between management levels and the stages in the decision-making process. Again, use an example at the school to illustrate how these two models are used in the process of decision making. Students may be very familiar with the classical model of management. However, students may not be as familiar with the behavioral model of management, which more closely describes what managers actually do, including how they make decisions. By understanding the three types of managerial roles—

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interpersonal, informational, and decisional—students can more easily identify the type of information system managers need.

Section 12-3, “How do business intelligence and business analytics support decision making” This section explores the emerging business intelligence and business analytics industries that are one of the fastest growing and largest segments in the U.S. software market. It builds on information presented in previous chapters and lets students begin putting the pieces together of the material presented so far. You might have students critically analyze how they may take information about a situation they are in (or have been in) from the environment, understand its meaning, and then attempt to act on the information. Then have them correlate the process to how a business would do the same.

Students should be encouraged to do web searches on BI and BA vendors and compare the various products available to businesses. What makes one stand out more than the others? Which would work well for small- or medium-size businesses and, which would work better for largesized businesses? What decisions do managers have to make when selecting one vendor over another? Discuss with the students the pros and cons of selecting a one-stop integrated solution for BI and BA capabilities versus multiple best-of-breed vendor solutions.

To help students discern among the five analytic functionalities that BI systems deliver have them describe or create mockups of each of them. They may need to research the different functionalities on the web.

Interactive Session: Organizations: Predictive Maintenance in the Oil and Gas Industry Case Study Questions 1. Why is predictive maintenance so important in the oil and gas industry? What problems does it solve?

It is deeply affected by unplanned downtime when equipment cannot operate because of a malfunction. A single unproductive day on a platform can cost a liquefied natural gas (LNG) facility as much as $25 million, and an average midsized LNG facility experiences about five down days a year. That is $125 to $150 million lost. Minimizing downtime is critical, especially considering declining revenues from lower energy prices. The insights gained from predictive maintenance programs enable decision makers to schedule maintenance activities without disrupting routine production operations and to determine which repairs are the highest priority.

2. What is the role of the Internet of Things (IoT) and Big Data analytics in predictive maintenance?

Sensors in oil fields and in oil and natural gas pipelines produce a vast amount of data that can be

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analyzed for predictive maintenance. McKinsey & Company estimates that a typical offshore production platform can have more than 40,000 data tags. Energy companies have been using oil field sensors to monitor real-time operations status, and now they are starting to use IoT data to predict equipment failure and address issues before they become costly problems.

Physical inspection of equipment in remote locations is typically an expensive process. This lack of visibility can lead to equipment failure and costly unscheduled maintenance and nonproductive time, as well as oil spills, leakages, or accidents resulting from failing equipment.

3. How did BP and Royal Dutch Shell’s predictive maintenance applications change business operations and decision making?

The BP partnership with GE recently produced an application called Plant Operations Advisor (POA) that will further improve the efficiency, reliability, and safety of BP’s oil and gas production operations. Plant Operations Advisor will prevent unplanned downtime by helping engineering teams respond quickly to problems as they occur in real time. BP first used Plant Operations Advisor to help manage the performance of one of its platforms in the Gulf of Mexico and will soon deploy this tool to other BP facilities around the world.

Royal Dutch Shell PLC is using the Microsoft Azure cloud platform and the C3 IoT platform-as-a-service (PaaS) application development platform to monitor and predict where and when maintenance is needed for compressors, valves, and other equipment. Predictive maintenance applications built with these tools are moving into production. One handles equipment performing coal seam gas (gas collected from unmined coal seams) production in Australia, while another helps detect anomalies in downstream valves.

4. Give an example of how predictive maintenance systems could be used in another industry.

Student answers will vary but should touch on the benefits of being able to use these predictive maintenance tools to find the best times to schedule maintenance.

Section 12-4, “How do different decision-making constituencies in an organization use business intelligence?” When discussing these systems, you should stress that some are often so well integrated into business processes that students may not have heard much about them. When presenting this material, you should demonstrate the value of the systems to each constituency group. For example, the value of TPS and MIS might be easy to understand and already known by many. That is usually not the case with decision-support systems for semistructured decisions.

You want to stress how DSS, ESS, and GDSS support business intelligence.

Students will clearly recognize the importance of decisions on what the selling price of an item will be or the decision on where a production facility or retail outlet should be located. However, students are not likely to recognize the importance of the data that go into the decision, the source of that data, the complexity of each decision, the side-effects of the decision, or how the decision is really made. Decisions can be very complex, and students need to understand the

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ways decision-support systems help managers handle the complexities and better understand all that goes into the decisions.

Remind students that decision-support systems cover a wide variety of systems, tools, and technologies such as sensitivity analysis models, pivot tables, balanced scorecards, and key performance indicators. When covering this material in class, pose and discuss the following questions with your students. Exactly how do the systems support decisions? Do DSS make decisions? Do DSS help make decisions? Do DSS just provide the data for decisions?

Executive support systems (ESS) help managers and executives focus on performance information that maximizes resources within the organization to improve the profitability and success of the company. There are two parts to developing an ESS: understand exactly what the most important performance information is and develop systems capable of delivering that information to the right people in an easy-to-use format. To help students understand the first component, begin a discussion by asking students what they think key performance indicators (KPIs) should be for their university or school. Obvious suggestions are enrollment numbers and the number of students in each academic discipline. Less obvious KPIs might be drop-out rates or the number of students switching majors. The point of the discussion is to show that before you can develop an ESS, you need to understand exactly what data you should track.

The web has numerous online demonstrations of ESS applications that allow users to drill down to specific data. You may want to have students access some of them and critique them based on how easy they are to use. Discuss how ESS allow managers to increase their span of control by pushing decisions further down the management chain and decentralize many decisions.

Conversely, ESS can centralize decision making even more because managers have a wider range of information readily available.

Interactive Session: Management: GIS Help Land O’Lakes Manage Assets Strategically Case Study Questions 1. Why is geographic location data so important to Land O’Lakes? What categories of geographic information does Land O’Lakes use?

In the agricultural industry, efficiencies and profits are deeply affected by the distance between a farm and various assets, such as feed lots, grain elevators, or crop nutrient facilities. Existing storage facilities may be located in suboptimal areas for serving farms’ current customers, and new facilities are not always built in the most strategic locations.

They can see locational information about the trade areas for a project—where the trade area is located, where members’ facilities are situated within the trade area, and where competitors are based.

2. How did using GIS improve operations and decision making at Land O’Lakes?

The SAM team’s market analyses help to examine the demand trends for Land O’Lakes products: Where is this demand coming from? How is that demand changing? What is driving the demand? How much growth has happened in the market historically? Where are 12-5 ..

the growth opportunities in the future? Who are the competitors and what is their impact on the market? The SAM team’s work has benefited both day-to-day operations as well as longterm planning.

3. Give examples of three decisions at Land O’Lakes that were improved by using GIS. If Land O’Lakes has multiple facilities that are close together, the SAM team analyzes where the trade areas overlap. It also performs transportation analysis to determine how products are currently being delivered to Land O’Lakes customers and if there is a way to do so more efficiently. The SAM team can analyze the facilities customers are currently using compared to ones that are believed to be more appropriate for their use based on distance, functionality, and future growth. Sometimes GIS will be used for analyzing drive-time routes within specific trade territories as well as for route planning.

Section 12-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level data analyst. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 12-1. What are the different types of decisions, and how does the decision-making process work?

List and describe the different levels of decision making and decision-making constituencies in organizations. Explain how their decision-making requirements differ.

Figure 12.1 illustrates the answer to this question. Each of these levels has different information requirements for decision support and responsibility for different types of decisions.

• Senior management deals mainly with unstructured decisions.

• Middle management deals with semistructured decisions.

• Operational management deals with structured decisions.

(Learning Objective 12.1: What are the different types of decisions, and how does the decision-making process work? How do information systems support the activities of managers and management decision making? AACSB: Application of knowledge.)

Distinguish between an unstructured, semistructured, and structured decisions.

Decisions are classified as structured, semistructured, and unstructured.

• Unstructured decisions are those in which the decision maker must provide judgment, evaluation, and insight to solve the problem. Each of these decisions is novel, important, and nonroutine, and there is no well-understood or agreed-on procedure for making them.

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•

Structured decisions are repetitive and routine, and they involve a definite procedure for handling them so that they do not have to be treated each time as if they were new.

• Semistructured decisions have elements of both unstructured and structured decisions. Only part of the problem has a clear-cut answer provided by an accepted procedure.

(Learning Objective 12.1: What are the different types of decisions, and how does the decision-making process work? How do information systems support the activities of managers and management decision making? AACSB: Analytical thinking.)

List and describe the stages in decision making.

Stages in the decision-making process include: • Intelligence consists of discovering, identifying, and understanding the problems occurring in the organization. Why is there a problem, where, and what effect it is having on the firm?

• Design involves identifying and exploring various solutions to the problem.

• Choice consists of choosing among solution alternatives.

• Implementation involves making the chosen alternative work and continuing to monitor how well the solution is working.

(Learning Objective 12.1: What are the different types of decisions, and how does the decision-making process work? How do information systems support the activities of managers and management decision making? AACSB: Application of knowledge.)

12-2 How do information systems support the activities of managers and management decision making?

Compare the descriptions of managerial behavior in the classical and behavioral models.

The classical model suggests that managers perform five classical functions. These functions are planning, organizing, coordinating, deciding, and controlling. Although the classical model describes formal managerial functions, it does not provide a description of what managers actually do. The behavioral models suggest that managerial behavior is less systematic, more informal, less reflective, more reactive, less well-organized, and somewhat frivolous. The behavioral models differ from the classical model in that managers perform a great deal of work at an unrelenting pace, managerial activities are fragmented, managers prefer speculation, managers prefer oral forms of communication, and managers give the highest priority to maintaining a diverse and complex web of contacts. (Learning Objective 12.2: How do information systems support the activities of managers and management decision making? AACSB: Analytical thinking, Reflective thinking.)

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Identify the specific managerial roles that can be supported by information systems.

Table 12.2 compares managerial roles with the support systems. Information systems support the liaison, nerve center, disseminator, spokesperson, and resource allocator roles. Currently, information systems do not support the figurehead, leader, entrepreneur, disturbance handler, and negotiator roles. Information systems are the strongest at the informational role and the weakest at the interpersonal and decisional roles. (Learning Objective 12.2: How do information systems support the activities of managers and management decision making??

AACSB: Analytical thinking.)

12-3 How do business intelligence and business analytics support decision making?

Define and describe business intelligence and business analytics.

Business intelligence: The infrastructure for warehousing, integrating, reporting, and analyzing data from the business environment. It collects, stores, cleans, and makes relevant information available to managers. It includes databases, data warehouses, and data marts.

Business analytics: Focuses on the tools and techniques for analyzing and understanding data and information. It includes online analytical processing (OLAP), statistics, models, and data mining. (Learning Objective 12.3: How do business intelligence and business analytics support decision making? AACSB: Application of knowledge.)

List and describe the elements of a business intelligence environment.

•

•

•

•

•

Data from the business environment: Structured and unstructured data from many different sources, including mobile devices and the Internet that are integrated and organized so that they can be analyzed and used by human decision makers.

Business intelligence infrastructure: Powerful database systems that capture relevant data stored in transactional databases or are integrated into an enterprise-data warehouse or interrelated data marts.

Business analytics toolset: Software tools used to analyze data and produce reports, respond to managers’ questions, and use key indicators of performance to track a business’s progress.

Managerial users and methods: Business performance management and balanced scorecard approaches that focus on key performance indicators; industry strategic analyses that focus on changes in the general business environment with special attention to competitors. Managerial oversight ensures that business analytics focus on the right issues for the organization.

Delivery platform—MIS, DSS, ESS: One suite of hardware and software tools in the form of a business intelligence and analytics package that integrate information from MIS, DSS, and ESS and disseminate it to the appropriate manager’s desktop or mobile computing device.

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•

User interface: Business analytics software suites emphasize visual techniques such as dashboards and scorecards that can be viewed on mobile computing devices, desktop computers, or web portals.

(Learning Objective 12.3: How do business intelligence and business analytics support decision making? AACSB: Application of knowledge.)

List and describe the analytic functionalities provided by BI systems.

• • • • • •

Production reports: Predefined reports based on industry-specific requirements.

Parameterized reports: Users enter several parameters in a pivot table to filter data and isolate impacts of the parameters.

Dashboards/scorecards: Visual tools for presenting performance data as defined by users.

Ad hoc query/search/report creation: Users create their own reports based on queries and searches.

Drill down: The ability to move from a high-level summary to a more detailed view.

Forecasts, scenarios, models: Include the ability to perform linear forecasting, whatif scenario analysis, and analyze data using standard statistical tools.

(Learning Objective 12.3: How do business intelligence and business analytics support decision making? AACSB: Application of knowledge.)

Define predictive analytics, location analytics, and operational intelligence and give an example of each.

•

•

•

Predictive analytics: uses statistical analysis, data mining techniques, historical data, and assumptions about future conditions to predict future trends and behavior patterns. Example: an insurance company use age, gender, and driving record as predictors of driving safety.

Location analytics: uses the location component of data, including location data from mobile phones, output from sensors or scanning devices, and data from maps to help a marketer determine which people to target with mobile ads about nearby restaurants and stores.

Operational intelligence: a type of business activity monitoring that uses data from web activities, smartphones, sensors, gauges, and monitoring devices about activities inside and outside the organization. Data generated by sensors on trucks, trailers, and other containers can be used to improve operational decisions in an organization.

(Learning Objective 12.3: How do business intelligence and business analytics support decision making? AACSB: Analytical thinking, Reflective thinking.)

12-4 How do different decision-making constituencies in an organization use business intelligence?

List each of the major decision-making constituencies in an organization and describe the types of decisions each makes.

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• Operational management: Generally, makes structured decisions based on day-to-day operations in the organization; receives most information from transaction reporting systems and some information from MIS systems.

• Middle management: Generally, makes structured decisions and semistructured decisions based on routine products reports from TPS and MIS; use exception reports to determine exceptional conditions upon which they act.

• Super users/business analysts: Generally, make semistructured decisions based on information from MIS, DSS, and more sophisticated analytics and models; try to find patterns in data, model alternative business scenarios, or test specific hypotheses.

• Executive management: Generally, make unstructured decisions based on information from MIS and DSS but more importantly from ESS; use balanced scorecard methods based on key performance indicators that include data on four dimensions of the firm’s performance: financial, business process, customer, and learning and growth.

(Learning Objective 12.4: How do different decision-making constituencies in an organization use business intelligence? AACSB: Application of knowledge.)

Describe how MIS, DSS, or ESS provides decision support for each of these groups.

Management information systems (MIS) provide routine reports and summaries of transaction-level data to middle and operational level managers to provide answers to structured and semistructured decision problems. MIS provide information on the firm’s performance to help managers monitor and control the business. They typically produce fixed, regularly scheduled reports based on data extracted and summarized from the firm’s underlying transaction processing systems. The formats for these reports are often specified in advance.

Decision-support systems (DSS) provide analytical models or tools for analyzing large quantities of data and supportive interactive queries for middle managers who face semistructured situations. DSSs emphasize change, flexibility, and rapid responses. With a DSS there is less of an effort to link users to structured information flows and a correspondingly greater emphasis on models, assumptions, ad-hoc queries, and display graphics.

Executive support systems (ESS) help senior managers with unstructured problems that occur at the strategic level of the firm. ESS provide data from both internal and external sources, including data from the web and provide a generalized computing and communications environment that can be focused and applied to a changing array of problems. ESS provide easy-to-use analytical tools and online displays to help users select and tailor the data as needed.

ESS help senior executives monitor firm performance, spot problems, identify opportunities, and forecast trends. These systems can filter out extraneous details for high-level overviews or drill down to provide senior managers with detailed transaction data if required. Some display a high-level view of firm performance in the form of a digital dashboard. ESS help executives monitor key performance indicators and to measure performance against external 12-10 ..

environmental changes. ESS expand executives’ span of control because information is readily available and easy to access. (Learning Objective 12.4: How do different decisionmaking constituencies in an organization use business intelligence? AACSB: Application of knowledge.)

Define and describe the balanced scorecard method and business performance management.

A balanced scorecard focuses on measurable outcomes on four dimensions of a business’s performance: financial, business process, customer, and learning and growth. Each dimension uses key performance indicators (KPIs) to understand how well an organization is performing on any of the dimensions at any time. The framework of a balanced scorecard requires managers to focus on more than just financial performance. They must focus on things they are able to influence at the present time such as customer satisfaction, business process efficiency, or employee training. The KPIs are developed by senior executives and are automatically provided to users through executive support systems.

Business performance management systematically translates a firm’s strategies into operational targets. Once the strategies and targets are identified, KPIs are developed that measure progress toward the targets. The firm’s performance is then measured with information drawn from the firm’s enterprise database systems. BPM uses the same ideas as the balanced scorecard method but with a stronger strategy flavor. (Learning Objective 12.4: How do different decision-making constituencies in an organization use business intelligence? AACSB: Application of knowledge.)

Discussion Questions 12-5 As a manager or user of information systems, what would you need to know to participate in the design and use of a DSS or an ESS? Why? Student answers to this question will vary.

12-6 If businesses used DSS, GDSS, and ESS more widely, would managers and employees make better decisions? Why or why not?

Student answers to this question will vary.

12-7 How much can business intelligence and business analytics help companies refine their business strategy? Explain your answer.

Student answers to this question will vary.

Hands-On MIS Projects Management Decision Problems

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12-8 Subaru: Dealerships keep records of the mileage of cars they sell and service. Mileage data are used to remind customers of when they need to schedule service appointments and other purposes. What kinds of decisions does this piece of data support at the local level and at the corporate level? What would happen if this piece of data were erroneous, for example, showing mileage of 130,000 instead of 30,000? How would it affect decision making?

Assess its business impact.

At certain miles or years, sending sales pitches increases the potential for maintenance sales on which dealerships realize significant profits. Dealerships can also send customers sales pitches for new cars. Dealerships can monitor the number of times customers respond to sales pitches and refine the marketing materials if necessary. Erroneous data could cause sales offers to go out at the wrong time, resulting in lost sales and wasted marketing dollars.

Corporate management can determine which dealerships have the best response to the sales pitches and use that information to improve the performance of other dealerships. (Learning Objective 12.4: How do different decision-making constituencies in an organization use business intelligence? AACSB: Analytical thinking.)

12-9 Applebee’s: The largest casual dining chain in the world wants to develop menus that are tastier and contain more items that customers want and are willing to pay for. How might information systems help management implement this strategy? What pieces of data would Applebee’s need to collect? What kinds of reports would be useful to help management make decisions on how to improve menus and profitability?

Applebee’s can use data from transaction processing systems and point-of-sale systems to track which menu items sell the best. The company can use external demographic data to understand potential customers by accessing data about ages, income levels, and the number of children per family. The company can also use external weather data to track which menu items should be advertised. For instance, if the weather prediction calls for a snowstorm, the company can feature hot soups and sandwiches. Managers can use trend reports to determine which menu items are selling the best at any time. Reports broken into regions may be helpful because tastes differ based on geographic location. Grits sell well in the South but poorly in the Northwest. Reports on how well individual items sell during specific times of the day or week may be helpful to adjust marketing campaigns. (Learning Objective 12.1: What are the different types of decisions, and how does the decision-making process work?

How do information systems support the activities of managers and management decision making? AACSB: Analytical thinking.)

Improving Decision Making: Using Pivot Tables to Analyze Sales Data Software skills: Pivot tables Business skills: Analyzing sales data 12-10 This project gives you an opportunity to learn how to use Excel’s PivotTable functionality to analyze a database or data list.

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Use the data file for Online Management Training Inc. described earlier in the chapter. This is a list of the sales transactions at OMT for one day. You can find this spreadsheet file at MyLab MIS. Use Excel’s PivotTable to help you answer the following questions: •

Where are the average purchases higher? The answer might tell managers where to focus marketing and sales resources, or pitch different messages to different regions.

•

What form of payment is the most common? The answer could be used to emphasize in advertising the most preferred means of payment.

•

Are there any times of day when purchases are most common? Do people buy more products while at work (likely during the day) or at home (likely in the evening)?

•

What is the relationship between region, type of product purchased, and average sales price?

•

We provide instructions on how to use Excel PivotTables in our Learning Tracks.

See the solution file MIS17ch12_solutionfile.

(Learning Objective 12.3: How do business intelligence and business analytics support decision making? AACSB: Analytical thinking, Application of knowledge.)

Improving Decision Making: Using a Web-Based DSS for Retirement Planning Software skills: Internet-based software Business skills: Financial planning

12-11 This project will help develop your skills in using web-based DSS for financial planning.

The web sites for CNN Money and Kiplinger feature web-based DSS for financial planning and decision making. Select either site to plan for retirement. Use your chosen site to determine how much you need to save to have enough income for your retirement. Assume that you are 50 years old, single, and plan to retire in 17 years. You have $100,000 in savings. Your current annual income is $85,000. Your goal is to be able to generate an annual retirement income of $60,000, including Social Security payments.

Use the website you have selected to determine how much money you need to save to help you achieve your retirement goal. If you need to calculate your estimated Social Security payments, use the Quick Calculator at the Social Security Administration website.

Critique the site—its ease of use, its clarity, the value of any conclusions reached, and the extent to which the site helps investors understand their financial needs and the financial markets.

An additional savings of $214,000 is required to generate an annual retirement income of $60,000 from the ages of 66–90 with a projected interest rate of 6 percent.

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Opinions will vary about each site’s ease of use, clarity, and the value of any conclusions reached. The point of this exercise is to understand how web-based DSS fulfill a variety of needs for making decisions. Students should also understand that many DSS are not necessarily complicated or difficult to use. (Learning Objective 12.3: How do business intelligence and business analytics support decision making? AACSB: Analytical thinking, Application of knowledge.)

Collaboration and Teamwork Project 12-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: Should an Algorithm Make Our Decisions?

12-13 What are the problems in using algorithms and automated systems for decision making?

Studies of algorithms in credit scoring, hiring, policing, and health care have found that poorly designed algorithms can reinforce racial and gender biases. According to Solon Barocas, an assistant professor at Cornell University and principal researcher at Microsoft Research, algorithms can appear to be very data-driven, but there are subjective decisions that go into setting up the problem in the first place.

12-14 What management, organizational, and technology factors have contributed to the problem?

Management: It can be complicated with management for businesses and systems that are using algorithms because they want to be able to leverage the technology on one hand, but they also need to be careful that the outputs are not skewed on bad or incomplete data. The human element of managing the process needs to be effective.

Organizational: Concerns about biases have always been present whenever people make important decisions. What is new is the larger scale at which we rely on algorithms in automated systems to help us decide, and even to take over the decision making for us.

Algorithms are helpful in making predictions that will help guide decision makers, but decision making requires much more. Good decision making requires bringing together and reconciling multiple points of view and the ability to explain why a particular path was chosen.

Technology: The technology can produce inaccurate results due to inputs that are skewing those results in predictable ways. This is why the human element is so important in reviewing and evaluating the results to ensure they are reflective of reality.

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12-15 Should automated systems be used to make decisions? Explain your answer.

There is not a yes/no answer to suit all situations here. Automated systems can be plenty useful in many different applications, and also can be relied upon more for decisions that will not potentially adversely affect certain groups of people. In situations where this is a possibility, any automated solutions need to be monitored directly by individuals before results are taken as fact and acted on.

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Chapter 13 Building Information Systems Student Learning Objectives 13-1 How does building new systems produce organizational change?

13-2 What are the core activities in the systems development process?

13-3 What are the principal methodologies for modeling and designing systems?

13-4 What are the alternative methods for building information systems?

13-5 What are new approaches for system building in the digital firm era?

13-6 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Acceptance testing, 501 Agile development, 512 Automation, 491 Business process management (BPM), 494 Business process redesign, 492 Conversion, 501 Customization, 510 Data flow diagram (DFD), 503 DevOps, 513 Direct cutover strategy, 502 Documentation, 502 End-user interface, 508 Feasibility study, 498 Information requirements, 499 Iterative, 508 Joint application design (JAD), 512 Low-code development, 513 Maintenance, 503 Mobile web app, 515 Mobile website, 515 Native app, 515

Parallel strategy, 501 Phased approach strategy, 502 Pilot study strategy, 502 Postimplementation audit, 503 Process specifications, 504 Production, 502 Programming, 500 Prototype, 508 Prototyping, 508 Rapid application development (RAD), 512 Rationalization of procedures, 491 Request for proposal (RFP), 510 Responsive web design, 516 Six Sigma, 492 Structure chart, 504 Structured, 503 System testing, 501 Systems analysis, 498 Systems design, 499 Systems development, 498 Systems life cycle, 507

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No-code development, 513 Object, 505 Object-oriented development, 505 Offshore outsourcing, 510 Paradigm shift, 492

Test plan, 501 Testing, 500 Total quality management (TQM), 492 Unit testing, 501

Teaching Suggestions The opening case, “Vinci Energies Builds a New Mobile Employee Time Sheet App” highlights the importance of an organization continually assessing its business processes and striving to improve them.

Vinci had pursued a strong acquisition strategy, tripling in size between 2009 and 2019. Vinci moved all of its companies worldwide to a single instance of SAP S/4HANA, SAP’s next generation of ERP software, so that the entire enterprise would operate on a common set of business processes.

Vinci’s existing systems, which were heavily manual, made it very difficult and timeconsuming to keep track of all these project costs. Employees working in the field (many of whom traveled to perform construction and maintenance at remote sites) would have to return to the office to enter project and time sheet data online into the SAP system. The company needed a new employee time sheet application that could capture worker time sheets as well as project costs and activities for multiple projects from any location. The time sheet and project data would be able to be viewed by other authorized users online.

Vinci undertook a pilot project using SAP Cloud Platform for this purpose. SAP Cloud Platform is an enterprise Platform-as-a-Service (PaaS), which lets organizations build, extend, and integrate business applications in the cloud. MOBITIME is only available online, but employees can easily access it on tablets and mobile phones when they are in the field. They are able to enter time sheet data or other project costs using a single application, which transmits the data to update the new SAP S/4HANA system.

Section 13-1, “How does building new systems produce organizational change?” This section discusses different ways to manage organizational change. It begins with Figure 13-1 that illustrates four common forms of organizational change and the risk/reward of each one. From simple automation to the more drastic paradigm shift, each one requires careful management of the effects these changes have on people. Business process redesign (BPR) has taken on a negative reputation over the years, mostly because it usually results in job losses. Massive projects for both BPR and paradigm shifts are often less successful than originally planned because the organizational changes are so difficult to manage.

You may want to try using Figures 13-2 and 13-3 that show how the processes for purchasing a book from a physical bookstore were redesigned into one for purchasing a book online. Have students redesign the process they use for student loan applications or 13-2 ..

applications for admission to your school. While they probably will not know every step currently used in the processes, they may come up with a more streamlined approach.

The exercise will demonstrate how difficult it is to diagram every step in a seemingly simple process.

Interactive Session: Organizations: Tommy Hilfiger Transforms Its Wholesale Sales Process with Digital Showrooms Case Study Questions 1. How did Tommy Hilger’s previous wholesale sales process affect its business performance?

In the past, several times per year, buyers of Hilfiger merchandise for retail stores and department store chains would have to personally visit a Hilfiger wholesale showroom, which displayed physical samples of each item in the Hilfiger product line for the upcoming sales season. The buyers would inspect physical samples from a new collection and write down orders on paper order forms. The entire process of viewing and ordering items to stock retail stores might take three days. This created an unnecessary delay given the technology tools available.

2. What management, organization, and technology factors contributed to Tommy Hilfiger’s problems with its wholesale sales business process?

Management: Hilfiger’s management would have to arrange for in person visits with clients which would cause delays in selling and rolling out new product to these customers and created some logistical challenges with travel.

Organization: The organization’s size and reach made this an inefficient process given that it built in delays throughout their production process.

Technology: Technology did not necessarily contribute to the problem, rather the lack of the use of available remote technologies made the entire process and effort take longer.

3. Diagram Tommy Hilfiger’s old and redesigned business process for ordering merchandise for a retail department store.

Student answers will vary but should focus on a manual system versus an automated system that speeds up the processes and makes the company more efficient.

4. Describe the role of technology and digital showrooms in Tommy Hilfiger’s business process changes.

The digital showrooms feature interactive touchscreen workstations with ultra-highdefinition display screens where buyers can view every single item in the Tommy 13-3 ..

Hilfiger collection. They can zoom in to see design details and textures, and click every garment to display prices, color options, and size ranges, and place orders. At the end of the process, buyers receive an email with an attached PDF document containing their final order. The system arranges for order delivery.

5. How did Tommy Hilfiger’s redesigned business process change the way the company worked? What was their business impact? Explain.

The digital showroom system has minimized production and transport of showroom samples because there is much less need to create, examine, and deliver samples to showroom locations around the world for every new collection. Using the digital showroom, Tommy Hilfiger was able to cut sample production by 80 percent in European headquarters, and it is doing the same with its digital showrooms all over the world. Costs to transport physical samples have also been reduced.

When Hilfiger’s Asia-Pacific team went on a buying trip to Europe, the visit only took a single day, as opposed to three days in the past. Pre-Fall sales increases were noted for the Netherlands, Africa, and Middle East. Shifting from showrooms full of physical samples to digital showrooms has reduced the amount of time required to provide new products to a retail outlet for sale to the public by six weeks.

“Section 13-2, What are the core activities in the systems development process?” This section breaks down the systems development process into six separate activities: system analysis, system design, programming, testing, conversion, and production and maintenance. Specific information requirements must be established at the beginning of the system analysis phase. Otherwise, you may be building a system that doesn’t solve an organization’s problem. Faulty requirements analysis is a leading cause of systems failure and high systems development costs. Another major cause of system failure is attributed to insufficient user involvement in the design effort. Too many times system analysis and design are left up to the IT staff instead of involving users throughout the system development process. What is most important to remember is that the changes introduced into the organization will be the most problematic to manage. People don’t like change and will sometimes do what they can to prevent it.

Section 13-3, “What are the principal methodologies for modeling and designing systems?” If you used the exercise in Section 13.1 that had students redesign a process, continue it here by working through the system development process shown in Figure 134 in the previous section. Have them explain how they would test the new system before implementation. You could have them draw data flow diagrams similar to the one in Figure 13-6. It may also be helpful to work through a simple object-oriented development process using the same activity to show the difference between the two. Again, it is not necessarily important that students include every step of the actual process but rather use what they know or perceive to work through the different development processes.

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Section 13-4, “What are the alternative methods for building information systems?”

The traditional systems lifecycle methodology is usually only used for very large, complex systems. The SDLC is the oldest method for building information systems. It is inflexible and does not easily allow changes at any step along the way. However, it can be effective for highly structured systems such as accounting, payroll, or complex manufacturing systems. Government defense or space systems often are mandated to use the system life cycle methodology because of the rigorous milestones generated by the method.

On the other hand, prototyping is much quicker and should involve users in a more direct way than SDLC. End-user interfaces are more closely aligned with actual user requests and requirements because the system designer must work with end users in the development process. Following up on the exercise in the earlier sections, have students develop a prototype of a user interface they could use for the student loan application.

End-user development is a hot area. You may want to note that the original attraction of using spreadsheets on personal computers were attempts by end users to provide their own end-user tools to get around application backlogs in the IT department. End-user computing is difficult to manage and support. However, if managed correctly it can be an effective way to meet end-user needs. And, as usual, make sure you emphasize that whether the organization uses end-user development or some other approach, the purpose of the system is to serve the strategies of the company and the end users.

Section 13.5 “What are new approaches for system building in the digital firm era?”

Businesses today are often required to build e-commerce and e-business applications very rapidly to remain competitive. New systems are likely to have more interorganizational requirements and processes than in the past.

Companies are turning to rapid application design, joint application design (JAD), and agile development to improve the systems development process. Rapid application development (RAD) uses object-oriented software, visual programming, prototyping, and fourth-generation tools for very rapid creation of systems.

Agile development breaks down a large project into smaller subprojects that teams work on and then submit back to the large project. Testing occurs early and often, and the method emphasizes face-to-face communications with all team members. DevOps builds on those methods and emphasizes close collaboration between the software developers who create applications and the IT operational staff who run and maintain the applications.

Component-based development expedites application development by grouping objects into suites of software components that can be combined to create large-scale business applications. In today’s collaborative environment, agile development is well-suited for a team approach for projects. Large projects are broken down into small sub-projects, each with its own planning, requirements analysis, design, coding, testing, and documentation.

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Because tablets and smartphones are becoming the most popular computing devices, companies need to develop mobile websites, Internet-enabled mobile web apps, and native apps designed to run on a specific platform and device like the Apple iPhone.

Companies need to design websites specifically for mobile interfaces and create multiple mobile sites to meet the needs of smartphones, tablets, and desktop browsers. This equates to at least three sites with separate content, maintenance, and costs. One way around that is to use responsive web design that enables websites to automatically change layouts according to the visitor’s screen resolution.

Interactive Session: Technology: McAfee Turns to Automated Software Testing Case Study Questions 1. Why would a company such as McAfee benefit from automated software testing?

McAfee had traditionally used manual processes for software testing, which could not easily handle an increased amount of testing. Whenever a system was changed or enhanced with a new feature, McAfee’s IT staff had to ensure that the updated systems performed as expected and fix any problems before the system went into production.

It was very difficult to use manual processes to keep up with the testing because so many changes had to be made within a very short period of time. Manually creating test scenarios for end-to-end processes, such as order-to-cash, took a long time and was very costly.

2. What management, organization, and technology factors did McAfee address in moving to automated software testing?

Management: Since McAfee was dealing with approximately 40 systems for handling lead-to-order, order-to-cash, and source-to-pay processes that were actively worked on and enhanced, and doing so using agile development, the decision was logical to move to an automated approach.

Organization: It was very difficult to use manual processes to keep up with the testing because so many changes had to be made within a very short period of time.

Manually creating test scenarios for end-to-end processes, such as order-to-cash, took a long time and was very costly.

McAfee created a 13-member automation team consisting of automation engineers and business analysts, who were charged with selecting the automated testing product for the company. Automated testing software vendors had to use hands-on demonstrations to show that their tool could handle SAP testing and business process automation and that it was easy to use.

Technology: McAfee adopted Worksoft Certify because it was the framework for SAP testing that came prebuilt within the software and its testing framework could be 13-6 ..

applied to areas beyond the company’s on-premises SAP system, including new custom applications. It is designed to test complex business processes that span multiple applications, and it is code-free. The tool models an application under test as a series of pages containing GUI (graphical user interface) objects and test steps, performing actions against those objects. It creates and stores automated test steps in a relational database without a single software script or program. People who lack software coding skills can use the tool.

3. Was Worksoft Certify a good solution for McAfee? Why or why not?

Yes. Manual tasks such as performing regular checks on the health of the SAP system are automated, as is the testing of changes to the system. That includes performance testing to test heavy processing loads. For example, McAfee was able to test how the SAP system processed a volume of 60,000 orders with 250,000 line items. McAfee saved nearly 2,500 hours of manual effort through testing and business process automation, equivalent to $200,000, and the need for application maintenance is at an all-time low.

4. How did automated software testing change the way McAfee ran its business?

McAfee replaced its custom developed system for configure, price, and quote (CPQ) processes (for configuring product pricing and generating quotes) with a third-party non-SAP system. The company needed to test the end-to-end scenario to ensure that quotes created for sales were properly converted into orders in the SAP ERP system and then fulfilled seamlessly. The testing had to create and test end-of-quarter volumes of 60,000 orders and validate the loads in the supporting non-SAP applications, such as for invoicing, licensing, and analytics. The testing had to show that everything in that chain of events could handle that transaction volume and the systems behaved as they should. This automated software testing process accomplished this.

Section 13-6, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level junior business systems analyst. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 13-1 How does building new systems produce organizational change?

Describe each of the four kinds of organizational change that can be promoted with information technology.

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Figure 13-1 shows four kinds of organizational change and the risks and rewards of each: • Automation: low risk, low reward. Employees perform tasks more efficiently and effectively.

• Rationalization: medium risk, medium reward. Involves streamlining standard operating procedures, redesigning business processes, workflows, and user interfaces.

• Business process redesign: higher risk, higher reward. Organizations rethink and streamline business processes to improve speed, service, and quality. BPR reorganizes workflows, combining steps to cut waste and eliminate repetitive, paper-intensive tasks. May eliminate jobs also.

• Paradigm shift: highest risk, highest reward. Transforms how an organization carries out its business or even the nature of the business.

(Learning Objective 1: How does building new systems produce organizational change? AACSB: Application of knowledge.)

Define business process management and describe the steps required to carry it out.

Business process management: Companies manage incremental process changes that are required simultaneously in many areas. Organizations need to revise and optimize numerous internal business processes and BPM provides the methodologies and tools necessary to be successful. BPM is more about continual improvements to business processes and using processes as building blocks in information systems.

Steps required for effective BPM: • Identify processes for change: A business first needs to understand what business processes need improvement. Improving the wrong processes simply allows a business to continue doing what it shouldn’t do in the first place.

• Analyze existing processes: An organization must understand and measure the performance of existing processes as a baseline including inputs, outputs, resources, and the sequence of activities. The process design team identifies redundant steps, paper-intensive tasks, bottlenecks, and other inefficiencies.

Otherwise, the effectiveness of the changes can’t be determined.

• Design the new process: The process design team tries to improve the process by designing a new one that can be documented and modeled for comparison with the old process. The new process design needs to be justified by showing how much it reduces time and costs or enhances customer service and value.

• Implement the new process: Translate the new process into a new set of procedures and work rules. As employees begin using the new process problems are uncovered and addressed and employees may recommend improvements.

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Continuous measurements: The new process must be continually measured because it may deteriorate over time as employees fall back on old methods or the business experiences other changes. (Learning Objective 1: How does building new systems produce organizational change? AACSB: Application of knowledge.)

13-2 What are the core activities in the systems development process?

Distinguish between systems analysis and systems design. Describe the activities for each.

Systems analysis: Requires an organization to analyze problems it will try to solve with information systems. It includes defining a problem, identifying its causes, specifying the solution, and identifying information requirements that the system solution must meet. Systems analysis requires determining if the solution is feasible from a financial, technical, and organizational standpoint.

Systems design: Shows how the system will fulfill the objective of the system analysis. It is the overall plan or model for the system that serves as a blueprint and consists of all the specifications that give the system its form and structure. The specifications outline managerial, organizational, and technological components of the system solution. (Learning Objective 2: What are the core activities in the systems development process? AACSB: Analytical thinking.)

Define information requirements and explain why they are difficult to determine correctly.

Information requirements involve identifying who needs what information, where, when, and how. They define the objectives of the new or modified system and contain a detailed description of the functions the new system must perform. Gathering information requirements is perhaps the most difficult task of the systems analyst, and faulty requirements analysis is a leading cause of systems failure and high systems development costs. Some problems require adjustments in management, additional training, or refinement of existing organizational procedures rather than an information system solution. (Learning Objective 2: What are the core activities in the systems development process? AACSB: Application of knowledge.)

Explain why the testing stage of systems development is so important. Name and describe the three stages of testing for an information system.

Testing is critical to the success of a system because it is the only way to ascertain whether the system will produce the right results. Three stages of information system testing are: • Unit testing: Individual programs are separately tested or checked.

• System testing: The entire system is tested to determine whether program modules are interacting as planned.

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Acceptance testing: The system undergoes final certification by end users to ensure it meets established requirements and that it is ready for installation.

(Learning Objective 2: What are the core activities in the systems development process? AACSB: Analytical thinking.)

Describe the role of programming, conversion, production, and maintenance in systems development.

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Programming: The process of translating the specifications that were prepared during the design stage into software program code.

Conversion: The process of changing from the old system to the new system.

Production: The operation of the system once it has been installed and conversion is complete. The system will be reviewed during production by both users and technical specialists to determine how well it has met its original objectives and to decide whether any revisions or modifications are needed.

Maintenance: The process of modifying hardware, software, documentation, or procedures to a production system to correct errors, meet new requirements, and improve processing efficiency. (Learning Objective 2: What are the core activities in the systems development process? AACSB: Application of knowledge.)

13-3 What are the principal methodologies for modeling and designing systems?

Compare object-oriented and traditional structured approaches for modeling and designing systems.

Structured methods for designing systems separate processes from data in the modeling process. System analysis is separated from system design. Object-oriented development (OOD) combines processes and data into an object that becomes the basic unit of system analysis and design. Data encapsulated in an object is accessed and modified only by the operations or methods associated with that object.

Processing logic resides within the objects. Object-oriented development is more iterative and incremental than traditional structured development. The analysis phase of OOD requires system builders to document the functional requirements of a system and specify its most important properties. During the design phases, system builders describe how the objects will behave and how they will interact with each other.

Similar objects are grouped together to form a class. Classes are further grouped into hierarchies in which a subclass inherits the attributes and methods from its superclass.

(Learning Objective 3: What are the principal methodologies for modeling and designing systems? AACSB: Analytical thinking.)

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13-4 What are the alternative methods for building information systems?

Define the traditional systems lifecycle. Describe its advantages and disadvantages for systems building.

The traditional systems lifecycle is a formal methodology for managing the development of systems and is still the principal methodology for large projects. The overall development process is partitioned into distinct stages, each of which consists of activities that must be performed in a certain order. The stages are usually sequential with formal “sign-off” agreements among end users and data processing specialists to validate that each stage has been completed. Users, managers, and data processing staff have specific responsibilities in each stage. The approach is slow, expensive, inflexible, and is not appropriate for many small desktop systems.

The systems lifecycle consists of systems analysis, systems design, programming, testing, conversion, and production and maintenance. Systems analysis requires an organization to define a problem that needs solving. Technical specialists identify the problem, gather information requirements, develop alternative solutions, and establish a project management plan. Business users provide information requirements, establish financial or operational constraints, and select the solution. During systems design, technical specialists model and document design specifications and select the hardware and software technologies for the solution. Business users approve the specifications.

Technical specialists translate the design specifications into software during the programming phase. After that, technical specialists develop test plans and conduct unit, system, and acceptance tests. Business users provide test data and scenarios and validate test results.

During the conversion phase, technical specialists prepare a conversion plan and supervise conversion. Business users evaluate the new system and decide when the new system can be put into production. During the production and maintenance phase, technical specialists evaluate the technical performance and perform maintenance. Business users use the system and evaluate its functional performance.

The main advantages of using this method for building information systems are: • it is highly structured.

• it has a rigorous and formal approach to requirements and specifications and tight controls over the system building process.

• it is appropriate for building large transaction processing and management information systems and for building complex technical systems.

Disadvantages are: • it is very costly and time-consuming.

• it is inflexible and discourages change even though requirements will change 13-11 ..

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during the project due to the long time this method requires. it is ill-suited to decision-oriented applications that can be rather unstructured and for which requirements are difficult to define. (Learning Objective 4: What are the alternative methods for building information systems? AACSB: Application of knowledge.)

Define information system prototyping. Describe its benefits and limitations. List and describe the steps in the prototyping process.

Information system prototyping is an explicitly interactive system design methodology that builds an experimental model of a system as a means of determining information requirements. Prototyping builds an experimental system quickly and inexpensively for demonstration and evaluation so that users can better determine information requirements. A preliminary model of a system or important parts of the system are built rapidly for users to experiment with. The prototype is modified and refined until it conforms precisely to what users want. Information requirements and design are determined dynamically as users interact with and evaluate the prototype.

Prototyping is most valuable when requirements are uncertain and cannot be entirely pre-specified or when the appropriate design solution is unclear. Prototyping is especially helpful for designing end-user interfaces (screens and reports) and for determining elusive requirements of decision-support type applications. Prototyping can help reduce implementation costs by capturing requirements more accurately at an earlier point in the implementation process. It is not so useful for very structured, well-understood, or routine problems.

It is best suited for smaller applications oriented toward simple data manipulation.

Large systems with complex processing may only be able to have limited features prototyped. The prototype may be built so rapidly that design is not well thought out or must be reworked for a production environment. The problem arises when the prototype is adopted as the production version of the system without careful analysis and validation. Prototypes are built so rapidly that documentation and testing are glossed over. The system is so easily changed that documentation may not be kept up-to-date.

The steps in prototyping include identifying the user’s basic requirements; developing a working prototype of the system outlined in the basic requirements, using the prototype, and revising and enhancing the prototype based on the user’s reaction. The third and fourth steps are repeated until users are satisfied with the prototype.

(Learning Objective 4: What are the alternative methods for building information systems? AACSB: Application of knowledge.)

Define an application software package. Explain the advantages and disadvantages of developing information systems based on software packages.

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Application software packages are common to all business organizations and are built around universal functions with standard processes that don’t change a great deal over time. Examples include payroll, accounts receivable, general ledger, or inventory control.

Software packages provide several advantages: • the vendor has already established most of the design that may easily consume up to 50 percent of development time.

• programs are pretested, reducing testing time and technical problems.

• the vendor often installs or assists in the installation of the package.

• periodic enhancement or updates are supplied by the vendor.

• vendors also maintain a permanent support staff well versed in the package, reducing the need for individual organizations to maintain such expertise inhouse.

• the vendor supplies documentation.

The disadvantages of application software packages are: • there are high conversion costs for systems that are sophisticated and already automated • they may require extensive customization or reprogramming if they cannot easily meet unique requirements • a system may not be able to perform many functions well in one package alone. (Learning Objective 4: What are the alternative methods for building information systems? AACSB: Analytical thinking, Application of knowledge.)

Describe the advantages and disadvantages of using outsourcing for building information systems.

Outsourcing is the process of turning over an organization’s computer center operations, telecommunications networks, or applications development to external vendors who provide these services. Outsourcing is seen as a way to control costs or to develop applications rather than try to use in-house staff.

Advantages of outsourcing are: • Outsourcing firms possess skills, resources, and assets that clients do not.

• It may be less costly than hiring, training, and maintaining in-house staff.

• The Internet and networking technologies have drastically reduced costs associated with using offshore outsourcing firms.

The main disadvantage is that firms hiring outsourcers tend to underestimate costs of: • Identifying and evaluating vendors.

• Transitioning to a new vendor.

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• • •

Improving internal software development methods to match those of vendors.

Monitoring vendors to make sure they are meeting contract requirements.

Coping with cultural differences. (Learning Objective 4: What are the alternative methods for building information systems? AACSB: Application of knowledge.)

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13-5 What are new approaches for system-building in the digital firm era?

Define rapid application development (RAD), agile development, and DevOps and explain how they can speed up system-building?

RAD is a process for developing systems in a very short time by using prototyping, fourth-generation tools, and close teamwork among users and systems specialists.

RAD allows the creation of working software in a very short time by using objects and by automating much of the code generation.

Agile development rapidly creates working software by breaking a large project into smaller sub-projects. Each sub-project requires a team to plan the project development, analyze requirements, design, code, test, and document it. The overall risk of producing bad software is minimized and projects can adapt to changes more quickly. Agile development emphasizes face-to-face communications rather than written documents. People collaborate more and make decisions more quickly and effectively using this method of software development.

DevOps builds on agile development principles as an organizational strategy to create a culture and environment that further promote rapid and agile development practices.

DevOps stands for “development and operations” and emphasizes close collaboration between the software developers who create applications and the IT operational staff who run and maintain the applications. (Learning Objective 5: What are new approaches for system-building in the digital firm era? AACSB: Analytical thinking, Application of knowledge.)

Explain the features of mobile application development and responsive web design.

Because mobile devices have a much smaller screen size, it is easier to use fingers and multi-touch gestures rather than a keyboard to maneuver through websites and applications. Mobile apps must be optimized for specific tasks but not too many.

Saving resources like bandwidth, screen space, memory, processing, data entry, and user gestures is a top priority.

Website designers must design the sites specifically for mobile interfaces and create multiple mobile sites to meet the needs of smartphones, tablets, and desktop browsers. Responsive web design enables websites to automatically change layouts according to the visitor’s screen resolution, whether on a desktop, tablet, or smartphone. A mix of flexible grids and layouts, flexible images, and media queries that optimize the design for different viewing contexts is necessary. Users across a broad range of devices and browsers will have access to a single source of content, laid out to be easy to read and navigate with a minimum of resizing, panning, and scrolling. (Learning Objective 5: What are new approaches for system-building in the digital firm era? AACSB: Analytical thinking.)

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Discussion Questions 13-6 Why is selecting a systems development approach an important business decision? Who should participate in the selection process?

Student answers to this question will vary.

13-7 Some have said that the best way to reduce system development costs is to use application software packages, SaaS, or user-friendly tools. Do you agree? Why or why not?

Student answers to this question will vary.

13-8 Why is it so important to understand how a business process works when trying to develop a new information system?

Student answers to this question will vary.

Hands-on MIS Projects Management Decision Problems 13-9 Sears Repair Service: Customers purchasing appliances can purchase a three-year service contract that provides free repair service and parts. When a customer needs Sears’ appliance repair service they call for an appointment that make take up to two weeks. The repair technician arrives and diagnoses the problem. If the repair requires a new part, the repair technician will replace it if he or she is carrying it on their truck.

If they do not have the part on hand, they must order it. If the part is not in stock at Sears, it is ordered and sent to the customer. After the part arrives, the customer must make another appointment to have the repair technician replace the part. It may take two weeks to schedule the first repair visit, another two weeks to order and receive the part, and another week to schedule a second repair visit after the part has been received.

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Diagram the existing process: Students should use Figure 13-2 as an example of how to diagram this process. It is important to remember the “if-then” rules that apply when the technician diagnoses the problem. If the technician has the faulty part on their truck, then they fix it immediately. If they do not, then they must order it.

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What is the impact of the existing process on Sears’ operational efficiency and customer relationships? Customers can be inconvenienced and without the use of their appliances for up to five weeks. Customers may have to take off work twice or make other arrangements to accommodate the repair technician instead of just once. Sears has to schedule a repair technician’s visit twice which is an 13-16 ..

expensive process.

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What changes could be made to make this process more efficient? How could information systems support these changes? Diagram the improved process.

Sears should analyze the most frequent reasons why appliances break, and which parts fail most often. They can gather the information from their transaction processing system that manages parts ordering and gather information from repair technicians. Those parts that fail most often should be stocked on the repair trucks or in the Sears stores. Then only one repair visit is required to fix the most common problems. (Learning Objective 1: How does building new systems produce organizational change? Learning Objective 3: What are the principal methodologies for modeling and designing systems? AACSB: Analytical thinking, Application of knowledge.)

13-10 Agricultural chemicals corporation: Management at your agricultural chemicals corporation has been dissatisfied with production planning. Production plans are created using best guesses of demand for each product, which are based on how much of each product has been ordered in the past. If a customer places an unexpected order or requests a change to an existing order after it has been placed, there is no way to adjust production plans. The company may have to tell customers it can’t fill their orders, or it may run up extra costs maintaining additional inventory to prevent stockouts.

At the end of each month, orders are totaled and manually keyed into the company’s production planning system. Data from the past month’s production and inventory systems are manually entered into the firm’s order management system. Analysts from the sales department and from the production department analyze the data from their respective systems to determine what the sales targets and production targets should be for the next month. These estimates are usually different. The analysts then get together at a high-level planning meeting to revise the production and sales targets to take into account senior management’s goals for market share, revenues, and profits. The outcome of the meeting is a finalized production master schedule.

The entire production planning process takes 17 business days to complete. Nine of these days are required to enter and validate the data. The remaining days are spent developing and reconciling the production and sales targets and finalizing the production master schedule.

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Draw a diagram of the existing production planning process. Students should use Figure 13-2 as a guide for diagramming the existing production planning process.

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Analyze the problems this process creates for the company. The main problem this process creates for the company are the potentially lost sales or extra costs in maintaining additional inventory to prevent stock-outs if customers place unexpected orders or requests to change existing orders. It is also very costly to spend 17 business 13-17 ..

days to complete the entire production planning process. Manually keying in data to two different systems (production planning system and the order management system) creates potential problems if data are entered incorrectly. The employee overhead for this process is also extra costs the company can easily eliminate. Using “best guesses” to create production plans is never a good idea.

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How could an enterprise system solve these problems? In what ways could it lower costs? Diagram what the production planning process might look like if the company implemented enterprise software. The first step is to eliminate having to manually key in any data into any system. Production planning should be based on data derived from both systems (production planning system and the order management system) and not on best guesses. That eliminates having different estimates from the sales department and the production department. The company can use business process management (BPM) to revise and optimize workflow management, business process modeling, and change management. BPM uses process-mapping tools to identify and document existing processes and to create models of improved processes. BPM software tools automatically manage processes across the business, extract data from various sources and databases, and generate transactions in multiple related systems. Middleware can connect the production and inventory system to the order management system. A single database should serve both systems. Web services can connect the two systems if the company decides to go that way. One user interface can be developed jointly between sales and production using prototyping techniques. The company would lower its costs by eliminating data entry, creating production plans based on real data, and allow more flexibility in its production planning process that could easily adapt to customer demands. (Learning Objective 1: How does building new systems produce organizational change?

Learning Objective 3: What are the principal methodologies for modeling and designing systems? Learning Objective 4: What are alternative methods for building information systems? AACSB: Analytical thinking, Application of knowledge.)

Improving Decision Making: Using Database Software to Design a Customer System for Auto Sales Software skills: Database design, querying, reporting, and forms Business skills: Sales lead and customer analysis 13-11 Prepare a systems analysis report detailing Ace’s problem and a system solution that can be implemented using PC database management software. Then use database software to develop a simple system solution. Your systems analysis report should include the following: 1. Description of the problem and its organizational and business impact.

2. Proposed solution, solution objectives, and solution feasibility.

3. Costs and benefits of the solution you have selected. The company has a PC with Internet access and the full suite of Microsoft Office desktop productivity tools.

4. Information requirements to be addressed by the solution.

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5. Management, organization, and technology issues to be addressed by the solution, including changes in business processes.

Based on the requirements you have identified, design the database and populate it with at least ten records per table. Consider whether you can use or modify the existing customer database in your design. Print out the database design. Then use the system you have created to generate queries and reports that would be of most interest to management. Create several prototype data input forms for the system and review them with your instructor. Then revise the prototypes.

The example solution file represents one of many alternative database designs that would satisfy Ace’s requirements. This file can be found in the Microsoft Access file named: MIS17ch13 solutionfile.mdb. (Learning Objective 1: How does building new systems produce organizational change? Learning Objective 3: What are the principal methodologies for modeling and designing systems? Learning Objective 5: What are new approaches for system building in the digital firm era? AACSB: Written and oral communication, Analytical thinking, Application of knowledge.)

Achieving Operational Excellence: Analyzing Website Design and Information Requirements Software skills: Web browser software Business skills: Information requirements analysis, website design 13-12 Visit the website of your choice and explore it thoroughly. Prepare a report analyzing the various functions provided by that website and its information requirements. Your report should answer these questions: What functions does the website perform? What data does it use? What are its inputs, outputs, and processes?

What are some of its other design specifications? Does the website link to any internal systems or systems of other organizations? What value does this website provide the firm?

Because web systems play such a central role in today’s information systems world, the purpose of this project is to give students experience in evaluating a web system and thinking through how well it meets IS requirements. After selecting a website, students should begin this project by developing a set of requirements they think the system will meet (strengths and weaknesses must be measured against some standards).

Students should use Table 13-1, Design Specifications, to evaluate the website and develop system specifications that will deliver the functions they developed in the requirements analysis. Probably the most important specifications will be output, input, user interface, and connectivity. (Learning Objective 1: How does building new systems produce organizational change? Learning Objective 3: What are the principal methodologies for modeling and designing systems? AACSB: Written and oral communication, Analytical thinking, Application of knowledge.)

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Collaboration and Teamwork Project 13-13 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: Textron Moves ERP to the Cloud 13-14 What problem was the company facing? What management, organization, and technology factors contributed to the problem? What was the business impact of this problem?

The company had been constrained by aging systems, including a 25-year-old ERP system based on Infor and Lawson Software, that was highly customized with company-specific features and had an antiquated IT infrastructure. These systems did not provide enough flexibility and up-to-the-minute information for the company to grow its business and coordinate an enterprise that spanned many industries and locations.

Management: Some management problems were related to the tremendous growth the company had undergone with various locations and divisions. This can make for a system that is cumbersome and underperforming. They also had allowed for too many customizations which over time which make it hard to manage whenever it needs to be upgraded.

Organizational: Similar to the management challenges, at an organizational level, things had grown to large and custom that it made it impossible to effectively manage. The message was hard to keep consistent across the organization in terms of the updates needed and how to best manage them.

Technology: The old ERP system had been heavily modified and customized, even though the company was using standard software modules for accounts payable, general ledger, cash management, and fixed assets. Continually planning, installing, and testing software upgrades and patches required large capital expenditures because all the customized parts of the software had to be identified, tested, and reinstalled.

(Learning Objective 1: How does building new systems produce organizational change? AACSB: Analytical thinking.)

13-15 List and describe the major information requirements for Textron’s new ERP system.

The new system needed to manage a large amount of financial data and they dabbled with different ways to do this. They ultimately decided to integrate this information in 13-20 ..

an Oracle Enterprise Resource Planning Cloud (including general ledger, accounts payable, and fixed assets modules) in combination with Oracle Integration Cloud Services, and Oracle Transactional Business Intelligence as the best solution that had the requisite functionality to meet its information requirements, ease of use, and the flexibility to support future growth. Switching to cloud software services would also avoid the large capital expenditures required by constant software upgrades and patches. Planning, installing, and testing upgrades every few months had taken away time and resources the IT staff could have otherwise spent on projects to help grow the business.

(Learning Objective 2: What are the core activities in the systems development process? AACSB: Analytical thinking.)

13-16 Was Oracle Enterprise Cloud a good solution for Textron? Explain your answer.

Textron’s cloud ERP project was completed on time and under budget within 14 months, much less than management had anticipated. Moreover, Textron was able to maintain its normal course of business despite this ambitious system implementation schedule. But there were challenges. Finance users initially resisted the new system, arguing that the numbers wouldn’t change regardless of technology and that they relied on the same reports they had always gotten. Mike Skibo, who was Textron’s CIO at that time, eventually convinced them of the need for change, and promised that they would no longer need to contend with the disruption of major ERP upgrades every few years.

(Learning Objective 3: What are the principal methodologies for modeling and designing systems? AACSB: Analytical thinking.)

13-17 What steps did Textron take to make sure its new ERP system was successful?

Oracle Consulting spent time learning about Textron’s business processes and information requirements, including unique customer reporting. The consultants provided guidance to help Textron’s team adopt the modern best business practices to use in its new system and also to tailor out-of-the-box reports. Working with Oracle Consultants, Textron was able to roll out a reliable system that has been widely accepted. Involving business users at every step of the migration to the new system was critical to ensuring users would understand the new SaaS ERP system and do more with the information provided by the system on their own without depending so heavily on the IT department. User adoption and acceptance of the system has occurred at a healthy rate. Implementing Oracle ERP Cloud has made it possible for Textron to eliminate costly upgrades and see more reliable real-time data flowing through the company. The system will be able to support future growth.

(Learning Objective 4: What are alternative methods for building information systems? AACSB: Analytical thinking.)

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13-18 What were the benefits of the new ERP system? How did it change operations and decision making?

Oracle Enterprise Resource Planning Cloud provided a cloud-based software application suite that manages enterprise functions such as accounting, financial management, project management, and procurement and runs in Oracle’s cloud computing centers. Using Oracle Integration Cloud Services provided a tool for achieving simple, lightweight integrations between SaaS applications that do not require much complexity. Lastly, Oracle Transactional Business Intelligence (OTBI) provided a flexible and easy-to-use analysis tool that helps business users gain realtime insight into transactional data and understand data patterns. This tool has capabilities for robust ad hoc reporting, role-based dashboards, data visualization, and self-service information delivery.

(Learning Objective 1: How does building new systems produce organizational change? Learning Objective 3: What are the principal methodologies for modeling and designing systems? AACSB: Analytical thinking.)

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Chapter 14 Making the Business Case for Information Systems and Managing Projects Student Learning Objectives 14-1 How should managers build a business case for the acquisition and development of new information systems?

14-2 What are the objectives of project management and why is it so essential in developing information systems?

14-3 What are the principal risk factors in information systems projects?

14-4 How can project risks be managed?

14-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Business case, 529 Capital budgeting, 535 Change agent, 539 Change management, 539 Counterimplementation, 544 Ergonomics, 545 External integration tools, 544 Formal control tools, 542 Formal planning tools, 542 Gantt chart, 542 Implementation, 539 Information systems plan, 530 Intangible benefits, 534

Internal integration tools, 542 Organizational impact analysis, 545 PERT chart, 542 Portfolio analysis, 532 Project, 537 Project management, 537 Project portfolio management, 547 Scope, 538 Scoring model, 533 Sociotechnical design, 545 Tangible benefits, 534 User-designer communications gap, 540 User interface, 537

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Teaching Suggestions The opening case, “BDO Canada Selects New Project Management Software,” illustrates how important it is to involve users in designing, building, and implementing system changes.

Resource management has historically been one of the IT department’s greatest challenges. BDO had been using an internally built project management tool for five years to ensure its projects were tracked accurately and completely, that resources were properly allocated, and that the IT department could plan and forecast better. In 2016, BDO’s Project Management Office (PMO) team determined that the homegrown tool lacked this functionality and no longer followed best practices. Most team members used different project scheduling and tracking methods, which prevented the PMO team from having an overall view of projects. A user-friendly online software-as-a-service (SaaS) tool would work better with BDO’s growing portfolio of cloud applications.

The PMO team rolled out Project Online to the BDO IT department in early 2019. To promote adoption, BDO’s senior IT management meets on a regular basis, and the PMO team works with IT project managers to help them with product features and processes.

The PMO team also offers drop-in sessions for teams with any questions two or three times per month.

This case study shows the upside of correctly managing projects and how successful they can be when done right. Unfortunately, too many organizations fail to correctly assess the business value of projects or fail to manage the organizational change brought on by new projects.

Section 14-1, “What are the objectives of project management and why is it so essential in developing information systems?” Explain to students how a business case is often presented, and how it should indicate out the effects it might have on the organizational culture, systems, processes, and jobs. This section also shows seven major factors used in making the business case for a specific new system. These factors are: (1) long-term strategic; (2) improved decision making; (3) customer and supplier relationships; (4) survival; (5) new products and services; (6) financial rationale; and (7) fitting with the long-term IT plan of the firm.

Should also look to address information systems plans and portfolio analysis. How do these business plans and what groups of people are involved and impacted by these initiatives should be covered.

Section 14-2, “What are the objectives of project management and why is it so essential in developing information systems?” Spend some time discussing why so many information system projects fail. Is it because the system was not built correctly or was it really how the project was managed or mismanaged that caused the failure? You should remind students of the biggest problems with IT projects: It takes too long to build systems and they often do not work as intended. Of course, this is not always true, but 14-2 ..

building systems is difficult and labor intensive. This section provides students with an introduction to five project management objectives: scope, time, cost, quality, and risk.

What is most important is that information technology projects should be treated the same as any other business project-installing a new production line or designing and building a major advertising and sales campaign.

Section 14.3, “What are the principal risk factors in information systems projects?”

This section begins by describing three dimensions of project risk: size, structure, and experience with technology. It goes on to explain how change management can diminish the potential failure rate of projects regardless of these dimensions. Many organizations’ projects have failed mostly because they did not understand the behavioral changes the new system would cause. The user-designer communication gap is a good example of a common problem that can cause an information systems project to fail. Table 14-4 compares user concerns vs. designer concerns and explains how the two entities view systems so differently.

Section 14.4, “How can project risks be managed? One of the most effective ways to control risk factors is by using PERT and Gantt charts. If nothing else, they help increase communication between organizational factions. You might find it interesting to have students complete one of the chart types for a simple project like redesigning your course syllabus. It will show them firsthand some of the elements that go into creating a college course. If you have access to Microsoft’s Office Project software, you can use it to demonstrate a quick project.

Interactive Session: Management: Sauder Woodworking Gets ERP Implementation Right Case Study Questions 1. Why is an ERP system so important for Sauder Woodworking? Why did Sauder want to switch to a newer ERP system?

Sauder started using SAP ERP Central Component (ECC) software for enterprise resource planning (ERP) in 2004. ECC provides modules covering a full range of industry applications, including finance, logistics, HR, product planning, and customer service, linked together into a single, customizable system run on a database of the user’s choice. As a modular system, SAP ECC is designed so that organizations can use the pieces they need, configured in a way that makes sense for their business.

They wanted to move to the newer version to leverage some of the new features such as in-memory computing.

2. Was SAP S/4HANA a good choice for Sauder? Why or why not?

This was generally considered a good choice for Sauder, but the company plans to optimize its use of the S/4HANA system in phases, starting with the finance

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functions. Running on SAP S/4HANA has positioned Sauder Woodworking better for achieving its strategic goals.

3. Were there any risks in this project? How did Sauder deal with them?

To minimize business disruptions, management wanted the SAP ECC system converted to SAP S/4HANA within 72 hours, a very narrow time frame for a project of this scope. There was no room for error. At the same time Sauder began transitioning to SAP S/4HANA, it also made major changes to its IT infrastructure.

The company migrated off legacy IBM iSeries systems to a new platform based on Dell servers and storage area networks (SANs) in a VMware virtual environment.

Sauder’s IT staff had to learn how to support these new technologies, but was fortunately assisted by Symmetry consultants. Symmetry helps firms manage complex SAP implementations on a global scale. Symmetry had provided services to Sauder for over 12 years and understood the nature of its business and technology environment.

Interactive Session: Technology: Arup Moves Project Management to the Cloud Case Study Questions 1. What is the relationship between information technology, project management, and Arup’s business model and business strategy?

Arup is an intensive user of information technology in all aspects of its work, including working with clients, designing buildings, running structural simulations, and coordinating projects. Its management wants to ensure that Arup’s information systems group is working on all the right IT projects for furthering the business and is doing so in the right way. Arup’s systems have to be stable, leading edge, and available at all times, with employees able to access the information they need at any time and any place.

Until recently Arup’s IT staff relied on Microsoft Excel spreadsheets or Microsoft Word documents as their project management tools. Reports were sporadic and in diverse formats, collaboration was very limited, project delivery styles were inconsistent, and there was no central visibility into what was happening with each project. Arup set up a Global IT Portfolio Management Office to oversee its entire portfolio of IT projects, but it was hampered by having to manually create reports using spreadsheets and email updates from regional offices.

2. How does Microsoft Project Online support Arup’s business strategy? How did it change the way the company works?

Arup decided to adopt Microsoft Project Online to improve project management.

Project Online is Microsoft’s cloud-based project management tool, and it helps organizations efficiently plan projects, track status, and collaborate with others from 14-4 ..

any location and any device. Members of Arup’s global workforce have immediate access to project data at any time wherever they are working. The cloud solution also makes it possible to report on projects using live data, with the system able to tie into other processes such as service and change management. Program Framework consultants helped Arup implement Project Online and train employees. They also developed a customized Project and Program Status Reporting capability for Project Online.

3. What management, organization, and technology issues did Arup have to address when selecting Project Online as its global project portfolio management tool?

Management: In the past, Arup’s Global IT Portfolio Management Office had to spend 40 hours per month compiling reports manually. By the time it created a status report, the report was already out of date. Now with its new system in place, Arup’s management can examine and classify projects throughout the entire enterprise based on their red, green, and amber status indicators. The ability to see Arup’s entire project portfolio gives management better insight into project delivery.

Organization: Prior to Project online, Arup relied on manual reporting, and the use of spreadsheets for individual projects, as its primary business process technology.

With Project Online, Arup had to change its manual processes to automated processes, and re-train employees to use the new processes required by Project Online. Project Online has become essential for supporting a common approach to Arup’s project management across the globe Technology: Arup changed its technology from software running on its own servers to Microsoft’s cloud-based project management tool running on Microsoft cloud servers. The online project management software is a part Microsoft’s Office 365 software and is fully integrated with other Office products like Word, PowerPoint, and Excel.

Section 14-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level IT project management assistant. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 14-1 How should managers build a business case for the acquisition and development of new information systems?

Define and describe the components of a business case for a proposed investment.

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The business case for an IT investment describes the problem facing the organization that can be solved by investing in a proposed system solution. It provides an analysis of all the costs, benefits, and risks associated with that investment and the justification for that proposed course of action. The business case describes the rationale for proceeding with an investment and shows how the investment supports the firm’s strategic goals and business objectives and how it fits in with the overall information systems plan of the firm. It also provides the information necessary to make an informed decision about whether to proceed with the investment and in what form. The business case explains how this investment will provide value for the business and identifies any risks that could negatively affect outcomes. The business case identifies alternative solutions, along with the deciding factors for selecting the preferred option. (Learning Objective 1: How should managers build a business case for the acquisition and development of new information systems? AACSB: Application of knowledge.)

List and describe the major components of an information systems plan.

The plan contains a statement of corporate goals and specifies how information technology will support the attainment of those goals. It explains how general goals will be achieved by specific systems projects. It identifies specific target dates and milestones that can be used later to evaluate the plan’s progress in terms of how many objectives were actually attained in the time frame specified in the plan. The plan indicates the key management decisions, technology, and required organizational change. (Learning Objective 1: How should managers build a business case for the acquisition and development of new information systems? AACSB: Application of knowledge.)

Explain the difference between tangible and intangible benefits.

Tangible benefits can be quantified and assigned a monetary value. Intangible benefits cannot be immediately quantified but may lead to quantifiable gains in the long run. (Learning Objective 1: How should managers build a business case for the acquisition and development of new information systems? AACSB: Application of knowledge.)

List six tangible benefits and six intangible benefits of an IT investment.

Tangible benefits include: • Increased productivity • Lower operational costs • Reduced workforce • Lower computer expenses • Lower outside vendor costs • Lower clerical and professional costs • Reduced rate of growth in expenses • Reduced facility costs 14-6 ..

Intangible benefits include: • Improved asset utilization • Improved resource control • Improved organizational planning • Increased organizational flexibility • More timely information • Improved customer experience • Increased organizational learning • Legal requirements attained • Enhanced employee goodwill • Increased job satisfaction • Improved decision making • Improved operations • Higher client satisfaction • Better corporate image (Learning Objective 1: How should managers build a business case for the acquisition and development of new information systems? AACSB: Application of knowledge.)

Describe how capital budgeting, portfolio analysis, and scoring models can be used to establish the worth of systems.

Capital budgeting methods rely on measures of cash flows into and out of the firm; capital projects generate those cash flows. The investment cost for information systems projects is an immediate cash outflow caused by expenditures for hardware, software, and labor. In subsequent years, the investment may cause additional cash outflows that will be balanced by cash inflows resulting from the investment. Cash inflows take the form of increased sales of more products or reduced costs in production and operations. The difference between cash outflows and cash inflows is used for calculating the financial worth of an investment. By using portfolio analysis, management can determine the optimal mix of investment risk and reward for their firms, balancing riskier high-reward projects with safer lower-reward ones.

Firms where portfolio analysis is aligned with business strategy have been found to have a superior return on their IT assets, better alignment of IT investments with business objectives, and better organization-wide coordination of IT investments. A scoring model is useful for selecting projects where many criteria must be considered. It assigns weights to various features of a system and then calculates the weighted totals. (Learning Objective 1: How should managers build a business case for the acquisition and development of new information systems? AACSB: Application of knowledge.)

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14-2 What are the objectives of project management and why is it so essential in developing information systems?

Describe information system problems resulting from poor project management.

When an information system fails to work properly or costs too much to develop, companies may not realize any benefit from their information system investment, and the system may not be able to solve the problems for which it was intended. Good project management is essential for ensuring that systems are delivered on time, on budget, and provide genuine business benefits. (Learning Objective 2: What are the objectives of project management and why is it so essential in developing information systems? AACSB: Application of knowledge.)

Define project management. List and describe the project management activities and variables addressed by project management.

Project management refers to the application of knowledge, skills, tools, and techniques to achieve specific targets within specified budget and time constraints.

Project management activities include planning the work, assessing the risk, estimating and acquiring resources required to accomplish the work, organizing the work, directing execution, and analyzing the results. Project management must deal with five major variables: • Scope: Defines what work is or is not included in a project.

• Time: The amount of time required to complete the project.

• Cost: Based on the time to complete a project multiplied by the cost of the human resources required to complete the project.

• Quality: An indicator of how well the end result of a project satisfies the objectives specified by management.

• Risk: Refers to potential problems that would threaten the success of a project. (Learning Objective 2: What are the objectives of project management and why is it so essential in developing information systems?

AACSB: Application of knowledge.)

14-3 What are the principal risk factors in information systems projects?

Identify and describe each of the principal risk factors in information systems projects.

•

Project size: The larger the project (dollars spent, the size of the implementation staff, the time allocated, and the number of organizational units affected), the greater the risk. The larger the project, the higher the failure rate. There are few reliable techniques for estimating the time and cost to develop large-scale information systems.

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•

Project structure: Highly structured projects usually have clear and straightforward requirements; therefore, outputs and processes are easily defined.

Users know exactly what they want and what the system should do; there is almost no possibility of users changing their minds.

•

Experience with technology: The less experience the project team has with hardware, system software, application software, or database management system, the higher the risk of project failure. (Learning Objective 3: What are the principal risk factors in information systems projects? AACSB: Application of knowledge.)

Explain why builders of new information systems need to address implementation and change management.

An information system is a sociotechnical entity, an arrangement of both technical and social elements. Information systems change involves hardware and software, but in addition, it involves changes in jobs, skills, management, and organization. When we design a new information system, we are redesigning the organization, reordering its technical and social elements. Change management addresses these types of changes, or more directly, the effects of the changes on the people whose jobs will change. The system not only changes the technology and the organization, it also changes people, and the project must also address this aspect if it is to succeed.

(Learning Objective 3: What are the principal risk factors in information systems projects? AACSB: Analytical thinking.)

14-4 How can project risks be managed?

Explain why eliciting support of management and end users is so essential for successful implementation of information systems projects.

The user-designer communication gap deals with the relationship that exists between end users and information systems specialists. These two groups have different backgrounds, interests, and priorities and has traditionally been a problem for information systems implementation efforts. These differences create user-designer communications gaps as depicted in Table 14-4. Information systems specialists often have a highly technical orientation to problem solving, focusing on technical solutions in which hardware and software efficiency is optimized at the expense of ease of use or organizational effectiveness. End users prefer systems that are oriented toward solving business problems or facilitating organizational tasks. (Learning Objective 4: How can project risks be managed? AACSB: Analytical thinking.)

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Identify and describe the strategies for controlling project risk.

Strategies you can follow to increase the chances of a successful system include: • New systems that involve challenging and complex technology can be helped by recruiting project leaders with strong technical and administrative experience.

• If the firm does not have staff with the required technical skills or expertise, outsourcing or using external consultants are options that may be pursued.

• Using formal planning and control tools, such as Program Evaluation and Review Technique (PERT) or Gantt charts, improve project management by listing the specific activities that make up a project, their duration, and the sequence and timing of task.

• Promote user participation by making user education and training easily available, and by providing better incentives for users who cooperate.

• Exercise sensitivity to ergonomic issues.

• Solve organizational problems prior to introducing new systems. (Learning Objective 4: How can project risks be managed? AACSB: Application of knowledge.)

Identify the organizational considerations that should be addressed by project planning and implementation.

The term implementation refers to the entire process of organizational change surrounding the introduction of a new information system. Information systems design and the entire implementation process should be managed as planned organizational change using an organizational impact analysis. A very large percentage of information systems fail to deliver benefits or solve the problems for which they were intended because the process or organizational change surrounding system building was not properly addressed. The principal causes of information system failure are (1) insufficient or improper user participation in the systems development process, (2) lack of management support, (3) high levels of complexity and risk, and (4) poor project management. (Learning Objective 4: How can project risks be managed? AACSB: Application of knowledge.)

Explain how project management software tools contribute to successful project management.

You can use special tools to help you manage the implementation of a new information system (internal integration tools). The software features these capabilities: • Define and order tasks • Assign resources to tasks • Establish starting and ending dates to tasks • Track progress 14-10 ..

• • •

Facilitate modifications to tasks and resources Automate the creation of Gantt and PERT charts Track the way changes in one aspect of a project affect others

If nothing else, these special tools will help you communicate with everyone on the implementation team and in the organization as a whole. (Learning Objective 4: How can project risks be managed? AACSB: Analytical thinking.)

Discussion Questions 14-5 How much does project management impact the success of a new information system?

Student answers to this question will vary.

14-6 It has been said that most systems fail because system builders ignore organizational behavior problems. Why might this be so?

Student answers to this question will vary.

14-7 What is the role of end users in information systems project management?

Student answers to this question will vary.

Hands-on MIS Projects Management Decision Problems 14-8 U.S. Census Bureau: Signed a $600 million contract with Harris corporation in 2006 to build 500,000 devices, but still weren’t sure which features they wanted included in the units. Census officials did not specify the testing process to measure the performance of the handheld devices. Four hundred change requests were added to the project requirements. Two years and hundreds of millions of taxpayer dollars later, the handhelds were far too slow and unreliable to be used for the 2010 U.S. census. What could Census Bureau management and the Harris Corporation have done to prevent this outcome?

Both organizations could have done a much better job of defining project objectives at the very beginning including the scope, time, cost, quality, and risk of the project.

Simply defining the scope of the project could have drastically reduced the number of change requests that were submitted. The Census Bureau should have developed key performance indicators to guide management of the project. It could have brought in a change agent to help guide the organization towards a more successful implementation. Closing the user-designer communication gap could have reduced the poor outcome of the project. (Learning Objective 2: What methods can be used for selecting and evaluating information systems projects and aligning them with the 14-11 ..

firm’s business goals? Learning Objective 4: How can project risks be managed?

AACSB: Analytical thinking, Application of knowledge.)

14-9 Caterpillar: The company wants to end its support for its Dealer Business System (DBS), which it licenses to its dealers to help them run their businesses. The software is becoming out of date and senior management wants to turn support over to Accenture Consultants. The dealers were never required to use the system but it had become a de facto standard for business processes. Before Caterpillar turns the product over to Accenture, what factors and issues should it consider? What questions should it ask? What questions should its dealers ask?

Using an information systems plan, senior managers can analyze the idea of turning the system over to outside consultants and determine strategies for doing so. Step 2, Strategic Business Plan Rationale, requires managers to evaluate the current situation and business organization against changing environments. Using Step 3, Current Systems, Caterpillar executives, Accenture consultants, and a select number of dealers can determine the major systems for supporting business functions and processes and current infrastructure capabilities of dealers. It also requires them to evaluate anticipated future demands. Step 4, New Developments, allows Accenture and the dealers to understand the business rationale and the applications’ role in strategy for the continued use of the system by dealers. They would also have to evaluate the new infrastructure capabilities dealers would require, especially with software updates. Step 5, Management Strategy, and Step 6, Implementation Plan, require Accenture, dealers, and Caterpillar executives to understand and develop plans for migrating the system away from corporate use to the dealers. Learning Objective 4: How can project risks be managed? AACSB: Analytical thinking, Application of knowledge.)

Improving Decision Making: Using Spreadsheet Software for Capital Budgeting for a New CAD System Software skills: Spreadsheet formulas and functions Business skills: Capital budgeting 14-10 Your company would like to invest in a new computer-aided-design (CAD) system that requires purchasing hardware, software, and networking technology, as well as expenditures for installation, training, and support. The Laudon website, MyLab MIS, for Chapter 14 contains tables showing each cost component for the new system as well as annual maintenance costs over a five-year period. It also features a Learning Track on capital budgeting models. You believe the new system will produce annual savings by reducing the amount of labor required to generate designs and design specifications, thus increasing your firm’s cash flow. Using the data provided in these tables, create a worksheet that calculates the costs and benefits of the investment over a five-year period and analyze the investment using the four capital budgeting models presented in this chapter’s Learning Track. Is this investment worthwhile? Why or why not? (Learning Objective 1: How should 14-12 ..

managers build a business case for the acquisition and development of new information systems? AACSB: Written and oral communication, Analytical thinking, Application of knowledge.)

A solution can be found in the Microsoft Excel file named: laudon_mis17_ch14_solution_file.xls.

Improving Decision Making: Using Web Tools for Buying and Financing a Home Software skills: Internet-based software Business skills: Financial planning 14-11 You would like to purchase a home in Fort Collins, Colorado. Ideally, it should be a single-family house with at least three bedrooms and one bathroom that costs between $350,000 and $450,000 and finance it with a 30-year fixed rate mortgage.

You can afford a down payment that is 20 percent of the value of the house. Before you purchase a house, you would like to find out what homes are available in your price range, find a mortgage, and determine the amount of your monthly payment.

Use the Realtor.com site to help you with the following tasks: • Locate homes in Fort Collins, Colorado, that meet your specifications.

• Find a mortgage for 80 percent of the list price of the home. Compare rates from at least three sites.

• After selecting a mortgage, calculate your closing costs and the monthly payment.

When you are finished, evaluate the whole process. For example, assess the ease of use of the site and your ability to find information about houses and mortgages, the accuracy of the information you found, and the breadth of choice of homes and mortgages.

Naturally, students will select different properties in the Fort Collins area. Some of the common features of the sites they visit will have them complete an application and email it to the lender. Phone numbers are available to talk to representatives.

Payment information should be accurate and easy to use. The students might have some difficulty in finding closing cost information. Many of the closing costs will only be calculated a few minutes before the actual closing. You might suggest to the students that they not complete the application and email it. This will cost the company additional money and resources; as well it could put the students on email lists that they will not be interested in receiving. (Learning Objective 1: How should managers build a businesscase for the acquisition and development of new information systems?? Learning Objective 4: How can project risks be managed?

AACSB: Analytical thinking, Application of knowledge.)

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Collaboration and Teamwork Project 14-12 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: Pennsylvania’s Unemployment Compensation Modernization System: Unfinished Business Case Study Questions 14-13 Assess the importance of the Unemployment Compensation Modernization System project for the state of Pennsylvania.

Unemployment compensation (UC) claims are usually filed online or by telephone or mailed to a UC service center. DLI had a legacy mainframe system for processing unemployment benefits that was over 40 years old. However, it became increasingly expensive to maintain and difficult to modify, with limited functionality for case management and integrating newer tools and technologies to enhance productivity.

In 2006, DLI awarded IBM a fixed price contract totaling $109.9 million for the Unemployment Compensation Modernization System (UCMS), which would replace the antiquated mainframe system. The initial contract with IBM called for more modern and efficient technology and business processes for (1) maintaining wage records, (2) processing employer taxes, and (3) claims processing, payment, and appeals, to be completed by 2010. IBM won the UCMS contract after a three-year bidding process, claiming to be the only vendor with the type of proprietary databases capable of supporting a totally integrated computer system.

(Learning Objective 2: What are the objectives of project management and why is it so essential in developing information systems? AACSB: Analytical thinking, Application of knowledge.)

14-14 Why was unemployment compensation modernization a risky project in Pennsylvania? Identify the key risk factors.

This project experienced significant delays and cost overruns, ultimately costing nearly $180 million, with much of the system never completed when the contract expired in 2013. By that time, the project was 45 months behind schedule and $60 million over budget. Pennsylvania taxpayers had paid IBM nearly $170 million for what was supposed to be a comprehensive, integrated, and modern system that it never got. IBM’s contract was not renewed. In 2017, Pennsylvania sued IBM for breach of contract, fraudulent and negligent misrepresentation, and charging taxpayers for services it did not provide. IBM said Pennsylvania’s claims had no merit and that it would fight the lawsuit. A spokesman for the company laid some of 14-14 ..

the blame for the project’s problems on the state, saying that there was responsibility on both sides for system performance and service delivery.

IBM had extensive systems experience and technology knowledge, but its proposal underestimated the project’s scope and complexity. DLI lacked sufficient staffing and experience for effective oversight and management of the contract and project. There was no formal delegation of roles and responsibilities for managing the project. No one at DLI was held accountable. DLI essentially relied on the contractor to selfmanage. UCMS was considered a large-scale software project due to its complexity, large number of information requirements and business rules, and its cost.

DLI’s solicitation for vendor proposals for UCMS exhibited ambiguity in communicating all of these requirements, and also neglected to define and describe quantitative and qualitative performance measures and metrics for the proposed system. A large-scale software-intensive system such as UCMS requires a rigorous and disciplined testing strategy, but this was not implemented. IBM decided to use DLI users to help develop test scripts. They provided the business expertise, but IBM did not use IT test experts on its end. User acceptance testing was initiated before completing system tests for Phase 2 and Phase 3. Rigorous testing came too late in the project. DLI did not specify a minimum of metrics for UCMS system performance so that there were no identifiable criteria and evidence for determining that Phase 2 and Phase 3 application releases were stable.

DLI staff had approved IBM’s representation of business system requirements without fully understanding what they were approving. IBM’s software development and testing program for this project lacked rigor. This resulted in a higher number of software defects than industry norms, software code that was excessively complex (which makes testing too difficult), and late discovery of missing business requirements.

(Learning Objective 4: How can project risks be managed? AACSB: Analytical thinking, Application of knowledge.)

14-15 Classify and describe the problems encountered by the UCMS projects. What management, organization, and technology factors were responsible for these problems?

Management: A project of this complexity and magnitude requires a high degree of continuity in knowledge throughout the system development cycle, but this was never achieved. DLI staff often approved JAD requirements documents and Detailed System Design documents under pressure to meet short deadlines for approval.

Organization: IBM’s software development plan was supposed to use industry and company standards and practices, but there was no ongoing discipline to execute these standards and practices during the project. DLI accepted Phase 2 prematurely for production in 2011 with known defects impacting system performance, including 14-15 ..

software defects, unresolved data conversion issues, and problems with batch processing operations.

During requirements determination, DLI didn’t have enough user subject matter experts to participate in joint application design sessions with technical members of the project team. Thirty-six JAD subcontractors were prematurely removed from the project, leaving IBM with incomplete understanding of unemployment claims processing business requirements. System design and testing staff were not included in the JAD process, running counter to sound business practice. Including them was essential to ensure UC business requirements were defined in sufficient detail to be testable.

Technology: The vast majority of the software defects were serious, and 50 percent were not discovered until the User Acceptance test, very late in the system development cycle. Without thorough and complete testing throughout the development process, there is no way to know how many of the total defects residing in software will be discovered as a system is being used. IBM had not performed a stress test to determine the performance limits of the UCMS system.

(Learning Objective 1: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals?

Learning Objective 4: How can project risks be managed? AACSB: Analytical thinking, Application of knowledge.)

14-16 What could have been done to mitigate the risks of these projects?

Many of the problems in this high-risk project could have been avoided or at least minimized with better management and control of the risk factors.

The first step in managing project risk involves identifying the nature and level of risk confronting the project. Implementers can then handle each project with the tools and risk management approaches geared to its level of risk. Not all risks are identifiable in advance, but with skillful project management, most are. Frequent communication and a culture of collaboration will help project teams adapt to unforeseen problems that arise.

Projects with challenging and complex technology to master benefit from internal integration tools. The success of such projects depends on how well their technical complexity can be managed. Project leaders need both heavy technical and administrative experience. They must be able to anticipate problems and develop smooth working relationships among a predominantly technical team. The team should be under the leadership of a manager with a strong technical and project management background, and team members should be highly experienced. Team

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meetings should take place frequently. Essential technical skills or expertise not available internally should be secured from outside the organization.

Large projects benefit from appropriate use of formal planning tools and formal control tools for documenting and monitoring project plans. The two most commonly used methods for documenting project plans are Gantt charts and PERT charts.

While project management software helps organizations track individual projects, the resources allocated to them, and their costs, project portfolio management software helps organizations manage portfolios of projects and dependencies among them.

Project portfolio management software helps managers compare proposals and projects against budgets and resource capacity levels to determine the optimal mix and sequencing of projects that best achieves the organization’s strategic goals.

(Learning Objective 1: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals?

Learning Objective 4: How can project risks be managed? AACSB: Analytical thinking, Application of knowledge.)

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Chapter 15 Managing Global Systems Student Learning Objectives 15-1 What major factors are driving the internationalization of business?

15-2 What are the alternative strategies for developing global businesses?

15-3 What are the challenges posed by global information systems and management solutions for these challenges?

15-4 What are the issues and technical alternatives to be considered when developing international information systems?

15-5 How will MIS help my career?

Key Terms The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

Business driver, 562 Cooptation, 575 Core systems, 572 Domestic exporter, 568 Franchisers, 569 Global culture, 563 International information systems architecture, 562

Legitimacy, 574 Multinational, 569 Particularism, 566 Software localization, 579 Transborder data flow, 567 Transnational, 569

Teaching Suggestions The opening case, “New Systems Help Eli Lilly Standardize as a Global Company,” demonstrates that a global company has the same information system requirements as a domestic company, just on a larger, more complex, scale.

As a far-flung global company, Lilly had dozens of disparate local and regional information systems customized to support local business processes, and they were very difficult to coordinate. Imagine the data redundancies and inefficiencies when 40 different local controllers executed the month-end financial closing process on 40 different systems with different data standards!

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Old systems needed to be retired and replaced by a common IT platform—in this case, a single enterprise-wide ERP system. Starting in 2010, Lilly began rolling out a single global instance of SAP to all its locations.

Today, essentially all of Lilly’s global business runs on SAP ERP and 17 other SAP software solutions, including systems for governance, risk management, and compliance (GRC). Of special importance was Lilly’s adoption in 2013 of SAP GRC Process Control for process automation. Previously, Lilly’s financial control group tried to manage the control structure regionally by using individual spreadsheets that identified controls for different locations. The company’s master control matrix was a large workbook incorporating data from individual spreadsheets with color coding to manage changes to the file. It was both frustrating and time-consuming to identify which controls were in place at any point in time throughout Lilly’s global organization.

SAP GRC Process Controls is a tool that provides organizations with a continuous view of their key compliance activities across all business processes, such as compliance with Sarbanes-Oxley (SOX), segregation of duties (SoD), and operational controls for managing the business. (SOX controls the accuracy and security of data reported within financial statements, and SoD assigns more than one individual to perform a single task to prevent fraud and error.) SAP GRC Process Control serves as a central repository to store data from a global control matrix for Lilly’s entire enterprise and improves management of those controls with automated monitoring. The Process Control tool can issue alerts when controls need to be tested, store testing and sign-off documentation, create and delegate remediation plans, and keep an audit trail of changes to controls.

By standardizing and streamlining execution of its process controls and business rules throughout the enterprise, Eli Lilly has become even more efficient and effective as a global company.

Section 15-1, “What major factors are driving the internationalization of business?”

Figure 15-1 is an excellent example of the globalization of businesses and industries. This figure shows how one product, the Apple iPhone, involves operations in seven different countries around the world. That is possible only through advanced networks and information systems like the one Apple uses. Students might find it interesting to trace common products through the design, production, and distribution phases to see the globalization of industries first-hand. They can use the Internet to research this information for themselves.

This section discusses the added challenges corporations face when they do business on a global scale. Cultural particularism, social expectations, and political laws that vary from country to country add layers to business processes, management strategies, and information requirements that are not present in domestic companies. The problems and situations in this section are the basis for the remaining sections—how to organize and manage information systems that meet these challenges and serve a business worldwide.

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Section 15-2, “What are the alternative strategies for developing global businesses?” It is important for students to understand that a company’s corporate headquarters isn’t always located in the United States as many people assume. There are many instances of companies whose corporate headquarters are located in foreign countries and simply have local or regional operations in the United States. This section defines four business strategies and structures global companies can use: domestic exporter, multinational, franchiser, transnational. It is an interesting exercise for students to classify companies tthey are familiar with into one of these four categories. For instance, Caterpillar is a domestic exporter, Intel is a multinational, McDonald’s is a franchiser, and Sony is a transnational. The section ends by matching the appropriate system configuration with the global strategy that a company uses.

Section 15-3, “What are the challenges posed by global information systems and management solutions for these challenges?” Take all the problems and challenges that a domestic company faces in designing, building, and managing its information technology infrastructure and magnify them on a global scale. The subsection “A Typical Scenario: Disorganization on a Global Scale” describes the more common situation occurring in global corporations—a hodgepodge of hardware, software, and telecommunications. The section describes how to arrive at a solution to these problems by defining core business processes, choosing an approach, and making the benefits clear to users. Using Table 15-4, you can demonstrate management challenges and solutions to creating a global information technology infrastructure.

Section 15-4, “What are the issues and technical alternatives to be considered when developing international information systems?” Students may assume that all countries have the same technology and telecommunications infrastructure as the United States.

Many students are also under the impression that the United States leads the world in technology usage and advanced applications. Spend some time discussing how both assumptions are untrue. The disparate levels of telecommunications services throughout the world add to the challenges and difficulties of developing global information systems.

It may also be interesting to discuss the challenges in developing software for global systems because of language and cultural differences. For instance, when a company develops a user interface for applications that will supposedly be used worldwide, should the English language be used, or should the application be adaptable to local languages via software localization? Discuss the challenges in using two different languages for similar applications.

Interactive Session: Management: Rethinking Global Supply Chains Case Study Questions 1. What factors have contributed to the growth of global supply chains?

Lower transportation costs, falling trade barriers, the growth of subcontracting, and use of the Internet as a low-cost global communication tool have enabled many companies to shift to a global sourcing model.

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2. What are the advantages and disadvantages of global supply chains?

Global supply chains have made it possible for original equipment manufacturers (OEMs) and Tier 1 vendors in the various industry supply chains, for example, to meet aggressive cost targets while keeping the price of new products low.

The complexity of having many levels of tiers for supply lines makes it very difficult for companies to have visibility into who their suppliers actually are. Without this knowledge, many companies are caught off guard when major disruptions occur.

3. What measures can companies take to mitigate supply chain risk?

Businesses should eliminate their dependence on sourcing from a single supplier, region, or country. They should develop alternate supply sources and increase their safety stocks. These moves will increase costs, but they will make supply chains more resilient. Companies should also consider more regionalization of production and even localization of suppliers if feasible. Lastly, companies should consider reducing the number of products they make.

4. Should companies continue to maintain global supply chains? Explain your answer.

Companies should continue to maintain global supply chains as the pros outweigh the cons for the business. What is important is to recognize some of the steps and ways that problems and issues can be mitigated so that the impacts are less severe when something unexpected might interrupt the supply chain.

Interactive Session: Organizations: Digital Nationalism Case Study Questions 1. What is digital nationalism? Give two examples.

Some countries require that data on their citizens be physically stored on servers within their borders. Others allow the data to leave their borders but insist on a copy remaining domestically.

Russia now requires a copy of data on Russian citizens to be stored in the country.

The country has banned LinkedIn for defying the rules and fined Facebook and Twitter $63,000 each for failing to comply with a national data law. The European Union’s General Data Protection Regulation (GDPR—see Chapter 4) is not specifically about localization, but it imposes stringent restrictions that make it difficult for companies to move data across borders.

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2. What problems does digital nationalism pose for conducting business globally?

Many of these laws are ostensibly targeted at Western multinationals, but larger companies are generally better able to meet these requirements than smaller ones, which lack the necessary resources. Developing countries, often at the forefront of digital nationalism, might also suffer. For example, India and the Philippines have large numbers of outsourcing firms that rely on a unified global information network. These countries’ efforts to set up roadblocks on that network could come back to haunt them.

Section 15-5, “How will MIS help my career?” addresses how the chapter’s elements and information can help in securing a good job as an entry-level sales and marketing trainee. These types of jobs are becoming more popular as information technology becomes more important in the workplace.

Review Questions 15-1 What major factors are driving the internationalization of business?

List and describe the five major dimensions for developing an international information systems architecture.

According to Figure 15-2, the five major factors are the need to: • Understand the global business environment in which your firm is operating.

• Consider a corporate strategy for competing in that environment.

• Consider how to structure your organization to pursue the strategy.

• Consider management and business processes in implementing the strategy.

• Develop an appropriate technology platform. (Learning Objective 1: What major factors are driving the internationalization of business? AACSB: Application of knowledge.)

Describe the five general cultural factors leading toward growth in global business and the four specific business factors. Describe the interconnection among these factors.

According to Table 15-1, the five general cultural factors are: • Global communication and transportation technologies: A global village has been created in which global communications of all kinds are no more difficult and not much more expensive than domestic communications.

• Development of global culture: Has created shared values and beliefs around the world.

• Emergence of global social norms: References the fact that proper attire, proper consumption, good and bad government, and other norms are more and more shared.

• Political stability: The world is living through the longest period of world 15-5 ..

•

political stability in the modern age.

Global knowledge base: Educational, scientific, and industrial knowledge and skills are no longer centered in North America, Europe, and Japan, but have spread to Latin American, China, Southern Asia, and Eastern Europe.

The specific business factors are: • Global markets: Patterns of consumption of goods are becoming similar around the world.

• Global production and operations: Far-flung production facilities are coordinated at central headquarters thousands of miles away.

• Global coordination: Coordination of business factors has expanded beyond production to include all major business functions, such as accounting, marketing, sales, and human resources systems development.

• Global workforce: The location of business activities is based on workforce availability.

• Global economies of scale: Production is concentrated where it is best accomplished; lower production costs are exploited wherever they emerge.

These factors are interrelated. The spread of global communications has led to the emergence of a global culture and global social norms. This, in turn, has led to the development of global markets. Emerging global technologies make possible the transportation of raw materials and finished products throughout the world and have given businesses the ability to act globally. Global production and coordination and the ability of businesses to make use of global economies of scale all depend upon the emergence of sophisticated global communications. The existence of global markets has been one of the factors making global production and operations attractive.

(Learning Objective 1: What major factors are driving the internationalization of business? AACSB: Application of knowledge.)

List and describe the major challenges to the development of global systems.

According to Table 15-2, the general challenges are: • Cultural particularism—regionalism, nationalism, language differences, different standards for electronic data interchange, email, and telecommunications.

• Social expectations—brand-name expectations, work hours: phone networks are not uniformly reliable.

• Political laws—transborder data and privacy laws, commercial regulations, different data transfer speeds and shortages of skilled consultants. (Learning Objective 1: What major factors are driving the internationalization of business? AACSB: Application of knowledge.)

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Explain why some firms have not planned for the development of international systems.

For some companies, the competition has not been powerful enough to drive them toward developing international systems. Other companies lack the global strategy needed for such development, or they have inherited a patchwork of international systems built with outdated technologies and standards. Some companies underestimate the time, expense, and logistical difficulties of making goods and information flow freely across different countries. The difficulties involved in planning a system appropriate to the firm’s global strategy, structuring the organization of systems and business units, solving implementation issues, and choosing the right technical platform are simply too much for some companies.

(Learning Objective 1: What major factors are driving the internationalization of business? AACSB: Analytical thinking.)

15-2 What are the alternative strategies for developing global businesses?

Describe the four main strategies for global business and organizational structure.

Referencing Table 15-3, there are four main strategies: • Domestic exporter: Heavy centralization of corporate activities in the home country of origin. Production, sales, marketing, finance, and other such functions are set up to optimize resources in the home country. Foreign marketing is totally reliant on the domestic home base.

• Multinational: Concentrates financial management and control in a central home base, but decentralizes production, sales, and marketing to suit local market conditions.

• Franchiser: Create, design, and finance the product in the home country, but rely on foreign personnel for further production, marketing, and human resources. Often, the product must be produced locally because it is perishable.

• Transnational: A stateless, truly globally managed firm. It has no single national headquarters, but instead has many regional headquarters and perhaps a world headquarters. Nearly all value-added activities are managed from a global perspective without reference to national borders. (Learning Objective 2: What are the alternative strategies for developing global businesses?

AACSB: Application of knowledge.)

Describe the four different system configurations that can be used to support different global strategies.

According to Figure 15-3 there are four different system configurations: • Centralized: Systems development and operations that occur totally at the domestic home base.

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• • •

Duplicated: Systems development occurs totally at the home base, but operations are handed over to autonomous units in foreign locations.

Decentralized: Each foreign unit designs its own, totally unique solutions and systems.

Networked: Systems development and operations occur in an integrated and coordinated fashion across all units. (Learning Objective 2: What are the alternative strategies for developing global businesses? AACSB: Application of knowledge.)

15-3 What are the challenges posed by global information systems and management solutions for these challenges?

List and describe the major management issues in developing international systems.

The major management issues in developing international systems are listed in Table 15-4. These issues include agreeing on common user requirements, introducing changes in business processes, coordinating applications development, coordinating software releases, and encouraging local users to support global systems. (Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Application of knowledge.)

Identify and describe three principles to follow when organizing the firm for global business.

According to Figure 15-4, a sensible strategy is to reduce agency costs by developing only a few core global systems that are vital for global operations, leaving other systems in the hands of regional and local units. Not all systems should be coordinated on a transnational basis. Core systems are those that support functions that are critical to the organization. Other systems should be partially coordinated because they share key elements, but they do not have to be totally common across national boundaries. A final group of systems is peripheral, truly provincial, and needed to suit local requirements only. (Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Application of knowledge.)

Identify and describe three steps of a management strategy for developing and implementing global systems.

Step 1: A company must define its core business processes before it can build an information system that supports them.

1. Define a short list of critical core business processes by conducting a business process analysis. The list should include about ten business processes that are critical to the firm.

2. Identify centers of excellence for these processes. Some areas of a company, 15-8 ..

for some lines of business, have a division or unit that stands out in the performance of one or several business functions.

3. Rank the business process of the company and decide which processes should be core applications, centrally coordinated, designed, and implemented around the globe, and which should be regional and local. By identifying the critical business processes, the company has gone a long way toward defining a vision of the future that it should be working toward.

Step 2: Identify the core systems to coordinate centrally. Keep the list to an absolute minimum. By dividing off a small group of systems as critical, the opposition to a transnational strategy is divided. You can appease those who oppose the central worldwide coordination implied by transnational systems by permitting peripheral systems development to progress unabated.

Step 3: Choose an incremental, grand design, or evolutionary approach. Both the incremental and grand design approaches are dangerous. The best approach is to evolve transnational applications incrementally from existing applications with a precise and clear vision of the transnational capabilities the organization should have in five years. (Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Application of knowledge.)

Define cooptation and explain how it can be used in building global systems.

Cooptation is defined as bringing the opposition into the process of designing and implementing the solution without giving up control over the direction and nature of the change. The idea is to find a way whereby local units in transnational companies are brought into the process of building transnational core systems by becoming part of the process rather than by being brought in through raw power. One cooptation approach is to permit each country unit to develop one transnational application first in its home territory, and then throughout the world. Another approach is to develop systems based upon existing centers of excellence. The centers of excellence perform the initial identification and specification of the business process, define the information requirements, perform the business and systems analysis, and accomplish all design and testing. This approach uses a phased rollout strategy. (Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Analytical thinking, Application of knowledge.)

15-4 What are the issues and technical alternatives to be considered when developing international information systems?

Describe the main technical issues facing global systems.

Hardware, global software, and telecommunications are the main technical issues.

Hardware issues arise because the firm needs to standardize the computer hardware 15-9 ..

platform when there is so much variation from operating unit to operating unit and country to country. Finding applications that are user friendly in an international environment and that truly enhance productivity is a critical software challenge.

Making data flow seamlessly across networks shaped by disparate national standards is a major telecommunications challenge. Table 15-5 highlights the most prominent problems of international networks. (Learning Objective 4: What are the issues and technical alternatives to be considered when developing international information systems? AACSB: Application of knowledge.)

Identify some technologies that will help firms develop global systems.

The main hardware and telecommunications issues are systems integration and connectivity. The choices for integration are to go either with a proprietary architecture or with an open systems technology. Global networks are extremely difficult to build and operate. Firms can build their own global networks, or they can create global networks based on the Internet (intranets or virtual private networks).

The main software issue concerns building interfaces to existing systems and selecting applications that can work with multiple cultural, language, and organizational frameworks. (Learning Objective 4: What are the issues and technical alternatives to be considered when developing international information systems?

AACSB: Application of knowledge.)

Discussion Questions 15-5 If you were a manager in a company that operates in many countries, what criteria would you use to determine whether an application should be developed as a global application or as a local application?

Student answers to this question will vary.

15-6 Describe ways the Internet can be used in international information systems.

Student answers to this question will vary.

Hands-On MIS Projects Management Decision Problems 15-7 United Parcel Service: UPS has been expanding its package delivery and logistics services in China, serving both multinational companies and local businesses. UPS drivers in China need to use UPS systems and tools such as it handheld Driver Information Acquisition Device for capturing package delivery data. UPS wants to make its WorldShip and other shipping management services accessible to Chinese and multinational customers via the web. What are some of the international systems issues UPS must consider in order to operate successfully in China?

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UPS is likely to face these international systems issues: • User interfaces: Which language will be used, Chinese or English? The Chinese language has far more interpretations than the English language. The Chinese language is character based, so it may not be easy to translate the user interface instructions between the two languages.

• Databases: Again the languages do not easily translate between each other which may make it difficult to incorporate Chinese data into an English-based database and vice versa.

• Telecommunication technologies and transmissions: UPS is likely to face connectivity issues especially in the non-urban areas. The Chinese government may censure transmissions which could hinder UPS operations.

• Cultural barriers: Chinese cultural particularisms like regionalism, nationalism, and language differences in different geographic areas may hinder UPS operations. (Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? Learning Objective 4: What are the issues and technical alternatives to be considered when developing international information systems? AACSB: Analytical thinking, Application of knowledge.)

15-8 Selling tennis rackets outside the United States: Your company manufactures and sells tennis rackets and would like to start selling outside the United States. You are in charge of developing a global web strategy, and the first countries you are thinking of targeting are Brazil, China, Germany, Italy, and Japan. Using the statistics in the CIA World Factbook, which of these countries would you target first? What criteria did you use? What other considerations should you address in your web strategy? What features would you put on your website to attract buyers from countries you target?

Statistics below are copied from the CIA World Factbook online that is updated biweekly. Included is criteria students may use to help them decide which country they would target first to sell tennis rackets. Because the sport is associated with higher income groups with higher levels of education, this criteria may determine which country has the best target group. The number of Internet users is helpful but should not be the most important criteria in the decision.

Country

Age Structure 0–14years /15–64 years

Literacy Rates Over 15 yrs can read & write

Education Levels # of years in school

GDP per capita

Household incomes by % share highest 10%

Internet users

Brazil China Germany Italy Japan

27/66 20/71 13/66 13/66 13/64

88% 90% 99% 98% 99%

14 11 16 16 15

$9,500 $5,400 $34,100 $30,900 $33,500

44% 34% 22% 26% 21%

50 mil 253 mil 42 mil 32 mil 88 mil

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Other considereations to address in the web strategy may include language translations for the user interface and database, cultural factors, and the availability and costs of Internet connections.

Features students may consider adding to the website would be to track local tennis players in competitions, statistics of professional players from that country, and blogs about tennis-related products, the game itself, and the professional tour. (Learning Objective 1: What major factors are driving the internationalization of business?

Learning Objective 2: What are the alternative strategies for developing global businesses? Learning Objective 4: What are the issues and technical alternatives to be considered when developing international information systems? AACSB: Analytical thinking.)

Achieving Operational Excellence: Building a Job Database and Web Page for an International Consulting Firm Software skills: Database and web page design Business skills: Human resources internal job postings 15-9 KTP Consulting operates in various locations around the world. KTP specializes in designing, developing, and implementing enterprise systems for medium- to largesize companies. KTP offers its employees opportunities to travel, live, and work in various locations throughout the United States, Europe, and Asia. The firm’s human resources department has a simple database that enables its staff to track job vacancies. When an employee is interested in relocating, she or he contacts the human resources department for a list of KTP job vacancies. KTP also posts its employment opportunities on the company website.

1. What type of data should be included in the KTP job vacancies database?

2. What information should not be included in this database?

3. Based on your answers to these questions, build a job vacancies database for KTP. Populate the database with at least 20 records. You should also build a simple web page that incorporates job vacancy data from your newly created database. Submit a copy of the KTP database and web page to your professor.

Students must first be reminded that before coding ever begins, it is the responsibility of the developer to fully understand the task at hand, the company’s needs, and the external business environment. The second step is to plan for the development of the web database construction. Planning tools include Entity Relationship Diagrams, Relational Schemas, and Dependency Diagrams. Once the developer understands and has made plans, then the coding and construction of the web database can begin.

Laudon and Laudon do an excellent job of steering students in the right direction of the understanding step with their questions about data types and exclusion data.

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Data that should be included in the database are area name; geographic location, contact person and phone number, hours per week, position title, necessary qualifications, and required experience.

Data that probably should not be included in the database: position, salary, race, religion (although it may be a significant consideration in some geographic locations).

In an earlier application exercise, students created simple web pages. This exercise is more involved because it must pull data from the database the students created. This is an example of how the web page could be displayed.

(Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? Learning Objective 4: What are the issues and technical alternatives to be considered when developing international information systems? AACSB: Written and oral communication, Analytical thinking, Application of knowledge.)

Improving Decision Making: Conducting International Marketing and Pricing Research Software skills: Internet-based software Business skills: International pricing and marketing 15-10 You are in charge of marketing for a U.S. manufacturer of furniture that has decided to enter the international market. You want to explore the European market by identifying two European office furniture retailers and noting the European price range for products similar to those you would like to sell in Europe for around $165.

In addition, use a currency converter website, that can determine the value of $165 in Euros. Then locate and obtain customs and legal restrictions on the products you will export from the United States and import into the country of the retailer you have 15-13 ..

selected. Finally, locate a company that will represent you as a customs agent and gather information on shipping costs.

The students will use various approaches in completing this exercise. Students can easily use Google to search for currency converters. Answers will vary depending on the day the assignment is completed. Sites for the Europages Business Directory and U.K. Business Directory may or may not be available when the assignment is made.

If they are not available, the students will need to conduct a search for other business directories. They will have various answers to the ease of use. One of the difficulties I found was that the businesses often did not have an associated website. After going back to a search engine and finding the business, the website primarily had contact information as opposed to customs and legal information. The shipping costs will vary greatly depending on the mode of shipping, the shipping point of departure, and the value of the currency on the day of the shipment. (Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? Learning Objective 4: What are the issues and technical alternatives to be considered when developing international information systems? AACSB: Analytical thinking, Application of knowledge.)

Collaboration and Teamwork Project 15-11 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Drive, Google Docs, and Google Sites to complete the assignment.

Case Study: E-Commerce in China: Opportunities and Obstacles 15-12 Describe the political, cultural, and organizational obstacles for foreign companies that want to do business online in China.

Political: The Great Firewall of China—a combination of legislation and technologies to regulate the Internet domestically in China. China blocks access to select foreign websites (such as Google, Snapchat, Facebook, Twitter, and the New York Times) and can slow down cross-border Internet traffic. China limits access to foreign information sources, blocks foreign Internet tools such as Google search and mobile apps), and requires foreign companies to adapt to domestic regulations.

Cultural: The most popular categories of goods that Chinese consumers purchased online include apparel, food and beverages, household products, consumer electronics, appliances, and personal care products. Food, luxury, and sports and wellness products are key categories for future growth. Chinese online shoppers tend to be young, urban, and highly educated. They are much more consumption-oriented than older generations, which were shaped as savers by different political and economic circumstances. Younger shoppers are more willing to spend.

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Credit cards never became widely used in China. Until recently, discretionary spending was not possible for many Chinese, and there has been a longstanding cultural aversion to debt. On top of that, the government made it difficult for companies such as Visa Inc. and Mastercard Inc. to set up shop.

Organizational: About 45 percent of Chinese consumers use social media to discover new products, 54 percent to review and comment on products, and 25 percent to purchase directly through a social channel. Retailers and brands need to build and participate in social communities and engage with customers in social platforms. China may be the world’s largest and fastest-growing e-commerce market, but it is also one of the most difficult for foreign firms to penetrate. E-commerce in China is crowded and hyper-competitive, and the country is not entirely open for online business.

A new cybersecurity law that went into effect in June 2017 requires security checks on foreign companies and forces firms to store key data in China.

(Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Analytical thinking, Application of knowledge.)

15-13 How do these factors impede companies from setting up e-commerce businesses in China?

The Great Firewall has also impacted China’s internal Internet economy by nurturing domestic companies and reducing the appeal of products from foreign Internet companies. The Great Firewall fosters trade protectionism that has allowed China to grow its own Internet giants. China has its own version of many popular foreign e-commerce businesses, such as weibo.com (Twitter), Youku Tudou (YouTube), WeChat (Facebook), and Ctrip (Orbitz and others). Alibaba has outmaneuvered eBay, and Uber had to sell its Chinese business to a local rival. The Internet behind the Great Firewall can be considered a “parallel universe” to the Internet that exists outside. China ranked last among the countries of the world for Internet openness.

There are costs for gaining entry to the Chinese market. Initial deposits can range from $8,000 to $25,000, annual service fees from $5,000–$10,000, and commissions on sales revenue around 5%. Other costs can include being required to use approved agencies in the production of storefronts and sales information as well as guaranteed stock availability and stock location. Agency fees alone can run into many thousands of dollars. Once a new technology or business model appears, the Chinese can quickly adapt it to the local market.

The scarcity of high-quality logistics providers in China often burdens e-commerce firms with late deliveries, damaged and lost parcels, slow collect-on-delivery (COD) processes, poor return procedures, and no special services such as installation or the 15-15 ..

ability to try on purchases. These inefficiencies add considerably to e-commerce operating costs and erode profit margins.

(Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Analytical thinking, Application of knowledge.)

15-14 What would your company need to do to create a successful e-commerce presence in China? Explain.

Firms that can understand the internationalization of their own industry and respond appropriately will reap enormous gains in productivity and stability. At a cultural level, particularism, making judgments and taking action on the basis of narrow or personal characteristics, in all its forms (religious, nationalistic, ethnic, regionalism, geopolitical position) rejects the very concept of a shared global culture and rejects the penetration of domestic markets by foreign goods and services. Differences among cultures produce differences in social expectations, politics, and ultimately legal rules. In certain countries, such as the United States, consumers expect domestic name-brand products to be built domestically and are disappointed to learn that much of what they thought of as domestically produced is in fact foreign made.

Different cultures produce different political regimes. Among the many different countries of the world are different laws governing the movement of information, information privacy of their citizens, origins of software and hardware in systems, and radio and satellite telecommunications. Even the hours of business and the terms of business trade vary greatly across political cultures. These different legal regimes complicate global business and must be considered when building global systems.

European countries have different laws concerning transborder data flow and privacy from those in the United States. Transborder data flow is defined as the movement of information across international boundaries in any form.

National laws and traditions have created disparate accounting practices in various countries, which affects the ways profits and losses are analyzed. Language remains a significant barrier. Although English has become a kind of standard business language, this is truer at higher levels of companies and not throughout the middle and lower ranks. Software may have to be built with local language interfaces before a new information system can be successfully implemented.

Currency fluctuations can play havoc with planning models and projections. A product that appears profitable in Mexico or Japan may actually produce a loss because of changes in foreign exchange rates.

(Learning Objective 1: What major factors are driving the internationalization of business? AACSB: Application of knowledge. Learning Objective 3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Analytical thinking, Application of knowledge.)

15-16 ..

Chapter 1 Running Case Solution Description 1. What are the company goals and culture?

Dirt Bikes appears to have a very democratic, employee-friendly culture, emphasizing ongoing learning, quality, attention to detail, and employee contributions.

2 What products and services does Dirt Bikes USA provide? How many types of products and services are available to customers? How does Dirt Bikes sell its products?

Dirt Bikes specializes in off-road and motocross motorcycles that emphasize racing performance, styling, and best quality parts sourced from all over the world. It is a small company producing only 4 models. Dirt Bikes sells through a network of authorized dealers. Its sales department is responsible for working with these distributors and finding ways to promote Dirt Bikes.

3. How many employees are managers, production workers, or knowledge or information workers? Are there levels of management?

The company is very small and not very hierarchical. Most of the employees are in production. Many of its departments have less than 10 people. Production is probably the only department that warrants more than 1 manager. One might expect to see separate managers for Service, Shipping & Receiving, Parts, and Design and Engineering and perhaps several additional managers for Manufacturing.

4. What kinds of information systems and technologies would be the most important for a company such as Dirt Bikes?

One would expect to see information systems supporting manufacturing and production and sales and marketing being the most important for this company. Such systems would help the company monitor work on the assembly line, obtain parts from suppliers, monitor orders from distributors, and provide parts and servicing information. A company website to publicize the unique features of this brand and its connection to motorcycle racing events would also be very valuable.

Chapter 2 Running Case Solution Description The spreadsheet solution file for this case uses a line chart to show the 5-year trend in Dirt Bikes’ total sales and a stacked column chart of 5-year sales trends to show how much international and domestic sales (measured by units sold) contribute to the total.

One can see from these graphs that unit sales dipped slightly during 2020 but that overall, sales have been growing. The portion of overall sales represented by international sales has not changed significantly, suggesting that there may be opportunities for Dirt Bikes to grow its international sales. The income statement data show a continuing rise in operating expenses and cost of goods sold combined with declines in gross and net margins. Dirt Bikes needs some way to bring down its costs, and new information systems might help. The balance sheet shows that Dirt Bikes has sufficient assets so that it could afford to invest in new product development and new information systems.

This worksheet shows the number of Dirt Bikes motorcycles sold between 2016 and 2020 Worksheet name: Sales Amounts are in units sold

Model Enduro 250 Enduro 550 Moto 300 Moto 450 TOTAL

Sales by Model 2016 2017 2018 1201 1663 2291 2832 3290 3759 1755 1932 2454 463 598 661 6251 7483 9165

2019 2312 4078 2615 773 9778

2020 2195 3647 2627 823 9292

Units sold

Annual Sales 4500 4000 3500 3000 2500 2000 1500 1000 500 0

Enduro 250 Enduro 550 Moto 300 Moto 450

2016

2017

2018 Year

2019

2020

This worksheet shows Dirt Bikes' income statements and summary balance sheets from 2018-2020 Worksheet name: Statements amounts are in thousands Consolidated Satements of Income (in thousands) 2020 2019 2018 Revenue Net sales Cost of goods sold Gross profit/(loss) Gross margin

60,144 45,835 14,309 23.8%

64,063 43,155 20,908 32.6%

61,529 41,072 20,457 33.2%

Operating expenses Sales and markering Engineering and product development General and administrative Total operating expenses Operating income/loss

4,733 3,141 1,913 9,787 4,522

4,537 2,992 1,601 9,130 11,778

3,944 2,339 1,392 7,675 12,782

Other income/expense Interest income/expense Other income/(expense) Income before provision for income taxes Income taxes Net income/(loss) Net margin

1,747 (6,254) 15 1,459 (1,444) -2%

175 (2,914) 9,039 1,729 7,310 11%

80 (3,080) 9,782 535 9,247 15%

Summary Balance Sheet Data At December 31 Current assets Cash and cash equivalents Accounts reveivable Inventories Total current assets

2020

2019

2018

6,994 13,083 6,315 26,392

7,197 12,981 5,931 26,109

6,891 12,872 5,843 25,606

Property plant, and equipment Other assets Total assets

36,920 1,765 65,077

34,515 1,903 62,527

32,002 1,834 59,442

Current liabilities Accounts payable Accrued expenses and other liabilities Total current liabilities

8,943 10,877 19,820

8,694 9,382 18,076

7,592 8,654 16,246

Long-term debt Total liabilities

9,772 29,592

9,338 27,414

8,890 25,136

Shareholders' equity Total liabilities + shareholders' equity

35,485 65,077

35,113 62,527

34,306 59,442

This worksheet shows number of Dirt Bikes' domestic vs. interational motorcycles sold between 2016 and 2020 Worksheet name: International Amounts are in units sold

2020 8530 762 9292 8.2%

Domestic vs. International Sales 12000 10000 911

8000

Units Sold

Domestic International TOTAL % International

Domestic vs. International Sales 2016 2017 2018 2019 5723 6843 8254 8889 528 640 911 889 6251 7483 9165 9778 8.4% 8.6% 9.9% 9.1%

6000

762

640

International

528

4000 2000

889

5723

6843

8254

8889

8530

2018

2019

2020

0 2016

2017

Year

Domestic

International Domestic

Chapter 3 Running Case Solution Software requirements:

Web browser software Word processing software Electronic presentation software (optional)

1. What activities at Dirt Bikes create the most value?

The most valuable activities include inbound activities (primarily supply chain management but also including locating appropriate, high quality parts anywhere in the world)), manufacturing (which is mostly assembling the proper materials that come from elsewhere, but also include the testing of each product as it comes off the assembly line), marketing (including some advertising, its racing commitment and accompanying publicity, coverage in appropriate journals, and an attractive and helpful website), sales (both ordering systems and systems support for its dealers), and service (again, support for its dealers, plus availability of parts and service information for owners who are too far away from dealers).

2. How does Dirt Bikes provide value to its customers?

The value Dirt Bikes’ customers receive comes from the quality of the bikes, their off-road and racing performance, effective and valuable user groups, and available servicing when needed.

3. What other companies are Dirt Bikes’ major competitors? How do their products compare in price to those of Dirt Bikes? What are some of the product features they emphasize?

Dirt Bikes models and prices are: The Enduro 250 retails for $6250, the Enduro 550 retails for $8800, the Moto 300 retails for $7295 and the Moto 450 retails for $9395. Dirt Bikes has appealed primarily to serious trail and Enduro riders, although it is making inroads into the motocross market. Major Dirt Bikes competitors include, Honda, Husquvarna, Kawasaki. Suzuki, KTM, and Yamaha. Students should check the web for these companies’ most recent dirt bike models and prices and see how well Dirt Bikes can compete with these companies in terms of price, performance, and styling. Dirt Bikes needs to continue emphasizing its American brand name, styling, and quality. Can it also compete on price?

4. What are the competitive forces that can affect the industry?

The industry could be affected by changing economic conditions and demographics, which could depress the market for dirt bikes and put more emphasis on competing on the basis of cost. Young populations in Japan, USA, and Europe who make up most of the customers for dirt bikes are declining (although many baby-boomers and retirees are flocking to Harley Davidson and other brands for highway cruising.) The market for dirt bikes worldwide is not very big and there are already many competitors, so Dirt Bikes is not likely to see

competition from new entrants into the market. The ability to use the Internet to search worldwide for suppliers could help Dirt Bikes keep its supplier costs in line.

5. What competitive strategy should Dirt Bikes pursue?

Students will differ in their answers to this question. Like all motorcycle manufacturers, Dirt Bikes will try to keep its costs down, but it clearly is not a low-cost producer. It is, however a company that emphasizes the uniqueness and quality of its product. Through better marketing, contact with customers and use of Web and demographic data, it could also do more by focusing on market niche.

6. What information systems best support that strategy?

If students believe Dirt Bikes could benefit from a strategy emphasizing product differentiation and finely-tuned marketing to target dirt bikes enthusiasts, then computer-aided design systems, systems for promoting quality, customer relationship management systems, and other systems for marketing and customer service would be appropriate.

7. (Optional) Use electronic presentation software to summarize your findings for management.

Chapter 4 Running Case Solution 1. How much data should Dirt Bikes collect on visitors to its website, and why that data?

What information could it find out by tracking their activities at its website? What value would this information provide the company? What are the privacy problems raised by collecting such data?

DB could benefit from using its website to learn more about its customer’s tastes and interests. The website could collect information such as visitors’ age, location, marital status, occupation, income level, hobbies, and specific motorcycle interests (including why they might purchase a motorcycle and how they would use it—races, transportation, joining a motorcycle group). Such information will help DB to know the types of people interested in its products and how it can communicate to them, create more targeted and personalized advertising and even affect DB’s plans for the future, including designing new products to better fit their interests.

If DB collects such personal data through its website, privacy problems would arise if DB tried to share that information with other companies without the knowledge and explicit consent of the website visitors. The company would have to state clearly its privacy policy and then carefully follow that policy in order to avoid privacy problems.

Otherwise many visitors might find themselves inundated by advertisements from DB and from any other companies with which DB might have shared the information. It could even cause DB to lose sales and its good reputation.

2. Should Dirt Bike use cookies? What are the advantages of using cookies for both Dirt Bikes and its website visitors? What privacy issues do they create for Dirt Bikes?

Cookies could be very useful for both DB and visitors to its site. The visitors would find their return to DB’s site easier and more personal, while DB could use the cookie data to provide to them with information of greatest interest to them. Moreover it might induce visitors returning more often. However, website visitor information collected from cookies could be misused by DB and by companies the collect that data, creating problems for both the visitor and for DB’s reputation.

3. Should Dirt Bikes adopt an “opt-in” or “opt-out” model of informed consent?

Obviously the “opt-in” approach puts more power in the hands of site visitors and therefore does not enable DB to collect as much information. DB would have to make the choice between collecting more information and having some visitors not being happy with the policy choice, or collecting less information but leaving more of its visitors happy to have been there.

4. Include in your report a short (2-3 pages) privacy statement for the Dirt Bikes website.

Students’ privacy statements would address the following: what personally identifiable information the company or a third party collects from website visitors; how the companies use this information; whether Dirt Bikes shares such information with other companies. The privacy might go into more detail about whether website visitors will know the organization collecting the information, how the information is used, with whom the information may be shared, what choices are available to visitors regarding

collection, use and distribution of their information; the kind of security procedures that are in place to protect the loss, misuse or alteration of visitor information; and finally how users can access and correct any inaccuracies in the information collected about them.

5. (Optional) Use electronic presentation software to summarize your recommendations for management.

Chapter 5 Solution Description The spreadsheet solution file shows that the total 3-year cost of renting hosted software is less expensive than purchasing it and using hosted software requires less management than Dirt Bikes owning and running its software. However, there are other factors to consider-the functionality of the hosted software versus purchased software, the flexibility of the hosted software compared to in-house resources, and the reliability and reputation of the hosted software vendor.

Chapter 5 Running Case Solution

Alternative 1: Buying the Software Features Number of users Software license fee Software upgrades Customization/implementation Hardware 1@$4000 User Training Technical Support 1/2 time ANNUAL TOTAL

Year 1 25 100,000.00 5,000.00 20,000.00 4,000.00 10,000.00 27,500.00 166,500.00

TOTAL 3-YEAR COST

233,999.75

Year 2 25 0.00 5,000.00 0.00 0.00 0.00 28,325.00 33,325.00

Alternative 2: Renting a Software Service Features Number of users Software rental fee ($2500 per user) Customization/implementation User Training ANNUAL TOTAL TOTAL 3-YEAR COST

Year 1 25 62500 12000 10000 84500

Year 2 25 62500 0 0 62500

209500

C:\Users\User\OneDrive\Desktop\Purchased Full Resources\Wiley\Management Information Systems Managing the Digital Firm, 17th edition Kenneth C. Laudon\bik\MIS17 Dirt Bikes Solution Files\MIS17Ch05 Running Case Solution

Alternative 1: Buying the Software Year 3 25 0.00 5,000.00 0.00 0.00 0.00 29,174.75 34,174.75

Alternative 2: Renting a Software Service Year 3 25 62500 0 0 62500

C:\Users\User\OneDrive\Desktop\Purchased Full Resources\Wiley\Management Information Systems Managing the Digital Firm, 17th edition Kenneth C. Laudon\bik\MIS17 Dirt Bikes Solution Files\MIS17Ch05 Running Case Solution

Chapter 6 Running Case Solution Description

The solution file represents one of many alternative database designs that would satisfy Dirt Bikes’ requirements. The design shown here consists of 4 tables: Customer, Distributor, Purchase, and Model. Dirt Bikes’s old customer database was modified by breaking it down into these tables and adding new fields to these tables. Data on both Dirt Bike customer purchases captured from distributors and customer purchases of nonDirt Bike models are stored in the Purchase table. The Customer table no longer contains purchase data but it does contain data on e-mail addresses, customer date of birth, years of education, additional sport of interest, and whether they attend dirt bike racing events.

As they create new tables, students will have to populate their new tables with data for the new fields they have created. This particular design tracks repeat Dirt Bikes customers through reports of customer purchases showing which customers have purchased more than 1 Dirt Bike. We added data on repeat Dirt Bikes purchases and on non-Dirt Bikes purchases in order to produce the report on Purchases shown here.

Reports for this solution were developed using Access query and report wizards.

Chapter 7 Running Case Solution 1. How could the various Internet tools help employees at Dirt Bikes? Create a matrix showing what types of employees and business functions would benefit from using each type of tool and why.

The Internet is far easier and less expensive to use for much of telecommunications than more traditional technologies. In addition, the cost of installation and training for using the Net is very low. Cost for using the Net is low enough that many smaller companies that could not afford telecommunications earlier are now using it, which means they are able to relate to other companies with modern technology. Students must also recognize that DB is still a relatively small company. Internet tools can reduce costs but students should not expect DB to make the large-sized gains larger companies can achieve. Nonetheless, the Internet and its many tools should be of help to DB now and even more as it grows.

A SAMPLE MATRIX: Tool E-mail Usenet Chatting Web FTP

Department Sales Accounting Customer relations Design Sales Management Production Finance Design Supplies

Benefit Communicate and share documents with customers and dealers Exchanging orders, invoices, and other necessary documents A bulletin board for customers to exchange information and ideas Discuss scientific issues with non DB scientists, designers, producers.

Salespersons on road discuss problems with home staff Consult with management of DB’s suppliers Facing production problems, researching the experiences of others Following the markets, interest rates and own investments Sharing large design files with distant colleagues Making large DB design documents available to suppliers

Wireless smartphones and tablets or Wi-Fi enabled PCs can be useful when employees need to be away from their home base and yet needing to use the Net. Instant messaging can be an excellent tool for communicating with other employees and with customers, suppliers and all the other non-employees the company will have to deal with. Students may find other uses for Internet tools and services not covered here.

2. How could Dirt Bikes benefit from intranets for its sales and marketing, human resources, and manufacturing and production departments? Select one of these departments and describe the kind of information that could be provided by an intranet for that department.

How could this intranet increase efficiency and productivity for that department?

Again, there are a multitude of responses students can give. Students must realize that intranets are internal, and they inexpensively allow connectivity for all computers, a very valuable facility for sharing information within the company. An intranet can, for example, be used to make easily (and widely, where appropriate) available sales reports and reports on attendance at races, and even racing videos. Human resources can instantly update employee

handbooks and benefits information, not only making this rapidly available but also saving on printing and distribution costs. Finance and accounting can integrate its information online for management and to help sales and production monitor revenues and costs. The marketing and sales staff can share their reports, leads, and insights with design about changing ideas on motorcycle design. The supply chain staff can monitor production’s status while accounting can obtain all necessary information on the purchase of supplies.

One area where productivity can be increased and costs reduced through the use of an intranet by production. The production unit can monitor possible design changes and even offer input on ways to make the proposed changes that will be easier and cheaper to manufacture. Moreover, the whole design process can be significantly speeded up when proposals and changes to the design are instantly shared. Management can also use the design and production information on the intranet to monitor the whole process. While all of this is useful for large companies and small, it can make the whole company more efficient and effective.

Another example is for marketing to be successful, marketers need to both understand what is successful in stimulating sales and to communicate to sales the information they need (two-way communication). We mentioned human resources in answering the questions above.

Manufacturing needs close contact with designers, those managing their supply chain, and even accounting. Sales must also communicate information that manufacturing needs so that it can plan for and execute its production. Even finance and accounting needs some information from these various departments, and students should identify the specific information needed by the department they select, where it comes from, and how communicating it on a timely basis can increase productivity and efficiency. For just one example, the timely arrival of needed supplies can lower inventory costs while helping production to keep operating without delays. This obviously requires not only constant communications with suppliers—extranets can be helpful here—but also communications between the production department and those within DB responsible for the supply chain.

Chapter 8 Running Case Solution 1. What are the most likely threats to the continued operation of Dirt Bikes’ systems?

The single most likely threat is for power outages, which can easily occur because of rain and snow storms, particularly in regions like the Rocky Mountains area. Outages can be very harmful because they can disrupt the operation of computers and telecommunications systems. Long-lasting outages could affect Dirt Bikes’ supply chain and sales and marketing work. Computer viruses should be rare if the company protects against them. Vandalism should be rare if the company takes appropriate protective steps.

As a young company with employee turnover, Dirt Bikes might have system problems caused by employee errors.

2. What would you identify as Dirt Bikes’ most critical systems? What is the impact on the company if these systems can’t operate? How long could the company survive if these systems were down? Which systems should are the most important to back up and restore in the event of a disaster?

The most critical systems are the production and supply chain systems. These are the most important because the company cannot continue to operate without these systems. The company probably can survive for one or two weeks if these systems are down, but it would suffer greatly if its inventory gets too low. Sales systems are very important, but sales can probably continue for days if sales systems disruptions do occur because actual sales are conducted by local dealers. Financial and human resources systems, while very important, are not as critical in the short run, although with no backups, the total loss of these systems could be very expensive and could cause production, sales and delivery delays if they are lost for a long period of time. Therefore these systems must be backed up although they are of lower priority for restoration than production and supply chain systems.

3. Use the web to locate two disaster recovery services that could be used by a small business such as Dirt Bikes. Compare them in terms of the services they offer. Which should Dirt Bikes use? Exactly how could these services help Dirt Bikes recover from a disaster?

Student answers will vary. Some of the criteria students should use are whether data are continuously backed up or backed up only periodically, whether data are backed up on tape or online, cost of the service, whether additional hardware is provided or data are synchronized over communications lines, and the amount of time it would take a subscribing company to recover if the service was used. Students should determine whether a company like Dirt Bikes needs immediate recovery capability given the cost of such services. Some disaster recovery vendors to explore are IBM, AWS, and Microsoft.

4. (Optional) If possible use electronic presentation software to summarize your findings for management.

Chapter 9 Running Case Solution 1. Use the Internet to locate alternative suppliers for motorcycle fuel tanks. Identify 2 or 3 suppliers. Find out the amount of time and cost to ship a fuel tank (weighing about 5 pounds) via ground (surface delivery) from each supplier to Dirt Bikes in Carbondale, Colorado. Which supplier is most likely to take the shortest amount of time and least cost to ship the fuel tanks?

A good place to start is MotorcycleGuide.net. This site is useful for finding information on fuel tanks because it offers links to other sites for motorcycle-related products. In the case of fuel tanks, it has links to many appropriate sites. Once having found this site, students can explore a number of sites relatively quickly to answer the assignment questions.

Students should explore the offerings of 2-3 vendors they select and establish the price for each fuel tank. Students should be able to estimate shipping costs for the fuel tanks based on their weight and distance from Carbondale.

2. Dirt Bikes’s management would like to know if there is any supply chain management software for a small business that would be appropriate for Dirt Bikes.

Use the Web to locate two supply chain management software providers for companies such as Dirt Bikes. Briefly describe the capabilities of the two pieces of software and indicate how they could help Dirt Bikes. Which supply chain management software product would be more appropriate for Dirt Bikes? Why? Students may come up with their own answers but they could explore the small business SCM offerings of SAP, Microsoft Dynamics 365, and Oracle SCM Cloud.

Chapter 10 Running Case Solution 1. How could Dirt Bikes benefit from e-commerce? Should it sell motorcycles or parts over the Web? Should it use its website primarily to advertise its products and services?

Should it use the web for customer service?

Today using the web can benefit most companies of any size, and DB is no exception. However, e-commerce is not so clear for DB. Students may want DB to sell its bikes over the Net, but that does not seem feasible because most potential customers will want to question sales people and test ride the bikes.

Moreover, selling over the web would undoubtedly create channel conflict because Dirt Bikes relies so heavily on dealers for its sales. However, because DB is a relatively small company with a limited number of dealers, some students may see it helpful if DB were to sell parts over the Net so that owners not living near a dealer can handle repairs and upgrades locally. In that case it would also make available maintenance information and directions over the Web, as well as details on such specifics as detailed engine.

Students should realized that the company might also benefit from potential or current customers gathering information on its motorcycles and parts, including photographs and brief motion clips, obtaining answers to their questions, and even communicating with other owners through a forum or bulletin board site. DB should maintain a voluntary mailing list where it can spread news and new product information useful to owners and potential owners alike. The site could also offer information on dealers, on technical information, including giving visitors and customers the ability to ask general and technical questions. The site should also offer corporate information, including its history. Students may even suggest DB-sponsored biking tours, and web connections to related merchandise.

Clearly, done properly the site can be helpful in advertising its bikes and parts; and many students will see a site as helpful in improving and spreading its image, including reports on such developments as the opening of new dealerships, participation in and victories in bike races, stories on current users, and so forth.

As for launching customer service over the web, many companies are benefiting from this use, even improving customer service while lowering its costs.

2. How would a website provide value to Dirt Bikes? Use the web to research the cost of an e-commerce site for a small to medium-sized company. How much revenue or cost savings would the website have to produce to make it a worthwhile investment for Dirt Bikes?

Many sites would be helpful for this research. For example a search by Google on “website costs” will bring back more good sites than the students can possibly use, but they will offer the students a wide variety of approaches and information.

Also they could examine sites of other motorcycle companies for ideas. A good website can make the company more well known while it also could reduce advertising and customer service costs, including mailing expenses, by offering information, pictures, Q and A, and conversations with current customers and

others considering purchases (see the answer to question 1 above). The site could also help advertise its dealers, thereby contributing to their success.

3. Prepare specifications describing the functions that should be performed by Dirt Bikes’s website. Include links to other websites or system in your specifications.

Again, answers will vary, as indicated in responses to question 1. Individual students will want to link to internal sites for communications and chatting (see question 1), parts sales, dealer locations and services, maintenance information, and even information on product changes and developments. It could also contain links to other sites for racing magazines and actual races, articles about DB in newspapers and journals, companies manufacturing parts for DB, and sites where they can learn about motorcycle riding, racing, bike safety, and other related issues.

4. Design the Home Page and an important secondary page linked to the Home Page using the capabilities of word processing software.

Students with the skills could use other software to build the sites, but for many students Word is feasible, enabling them to respond to this question. Designs will vary widely, although the Home Page must be appropriate for greeting individuals warmly and offering adequate information and links to DB sites for information, e-commerce, and even customer service. The instructor should recommend that students indicate on their home page links to other appropriate websites although for this exercise they need only create one actual link while the others could be just mentioned.

Chapter 11 Running Case Solution 1. What are the most important knowledge assets at Dirt Bikes? Are all of these assets explicit knowledge? What knowledge outside the organization is required by the company?

In this young but growing company, the students must recognize that DB is trying to grow when the competition is strong (although mostly foreign). What DB must do is to keep up with the current fashion in dirt and racing bikes in terms of looks, price, keeping its products leading-edge in both styling and performance. While students may identify a number of knowledge assets as the most important, it must be clear to DB management and therefore to the students that the most important must include knowledge of: (1) The current styles in the field, and the ability to separate genuine and long lasting trends from short-term fads a. Marketing, sales and design are all are responsible for creating, distributing and using the knowledge assets. They will have to share, evaluate and reach conclusions with each other (and management). Then design must take over. b. Their conclusions must become explicit, but the task of gathering this knowledge is very dependant upon their skills and knowhow – tacit knowledge c. This knowledge must mainly be gathered outside the organization, although many employees might also be able to contribute their own knowledge and experience (2) Design—of the whole bike and all of its parts, including how to design and how to translate a final design into manufacturing a. Design, working with engineers, production and/or the suppliers (creating, distributing, and using) b. Use of CAD (and CAM), documented design and production procedures are explicit, but much of the knowledge is tacit c. This knowledge is inside the company or from inside the suppliers who are likely taking over production (3) The best manufacturers of the current components, in terms of production ability, cost control, quality control, supplying finished products, and knowledge of their specific fields and changes in those fields a. Positions responsible for selecting, working with and monitoring both external and internal production include finance, design, production, engineering and certainly management. b. This is primarily explicit knowledge that DB must have to be successful c. If the product is produced by the company, then only internal knowledge is required. If it is produced externally, then while the company will have to have rules, regulations, standards to measure, the knowledge of what is being done externally comes from the outside producer.

(4) The ability to work with other designers and producers anywhere in the world a. Actually, almost everyone will need this knowledge b. Much of this knowledge is very tacit—knowledge of how to work with others, and knowledge of other cultures c. This knowledge comes mostly from working with others outside the company.

Information systems are critical to the whole process, including collecting views both by speaking to people and researching, e-mail, videoconferencing, the web, enterprise social networking, and enterprise content management.

2. How could the following employee groups benefit from knowledge management? designers and engineers, product development specialists. marketing specialists, sales department and representatives, managers. Describe the kinds of knowledge management systems that would be most valuable for each of these groups. What information would each of these systems provide?

There are many answers to this question because knowledge is so important in this company. Here we are offering some answers. Offer others of your own, and expect some students to present their own views.

Designers and engineers: Web for research. Enterprise content management for creating and storing knowledge. E-mail and messaging for communications. CAD for design.

Enterprise social networking for exchanging information, discussing problems and reaching conclusions. Electronic calendars for working with others.

Various AI systems for developing systems to be used in the final products.

Product development specialists: Web for research. Enterprise content management for creating and storing knowledge. E-mail, messaging, and enterprise social networking for communications both internal and external. CAD for design. Various AI systems for developing systems to be used in the final products.

Marketing specialists: Web for research. e-mail and messaging for internal and external communications, enterprise content management for exchanging information within the company. Enterprise social networking systems for collecting and sharing information.

Sales department and representatives: Web, e-mail, and enterprise social networking and content management for research and for sharing and collecting external information and for making presentations.

Managers: E-mail and messaging for exchanging information and obtaining reports. Ecalendars for planning meetings.

3. Use the web to research how the company could make better use of the Internet for knowledge management. What Internet information resources would be most useful to Dirt Bikes?

If students use a search engine such as Google to locate material on knowledge management, they will find not only many sites that discuss or offer software on the subject, but they will even find free trials of software that they can examine to learn about the uses and value of these sites. If they examine a few of these, they will better understand knowledge management technology, and they can then apply it to Dirt Bikes.

4. Describe an enterprise information portal for one of the employee groups listed in question 2. To what knowledge resources would it link? What would the home page of this portal look like?

The students will design these portals themselves. However, their portal design must offer choices and easy entry to all they will need to use, from e-mail and messaging, to entrance to the web and to internal papers relevant to their work. Portals for design and production would have to focus more on access to design and production information and selection and connection with external suppliers. Portals for sales and marketing would focus on communication and presentation tools, access to company sales and customer data, and access to important external sources of data and market research tools.

Chapter 12 Running Case Solution

Bill of Materials: Moto 300 Brake System

Component Brake cable Brake pedal Brake pad Front brake pump Rear brake pump Front brake caliper Rear brake caliper Front brake disc Rear brake disc Brake pipe Brake lever cover

Component No. M0593 M0546 M3203 M0959 M4739 M5930 M7942 M3920 M0588 M0943 M1059

Maximum savings per brake system Minimum savings per brake system

12.72 6.72

Total brake system materials cost

657.36 99 100 101 102

Front brake caliper cost

Total materials cost Front brake caliper cost

2,191.20 99 100 101

Source Unit Cost Quantity Extended Cost Nissin 27.81 1 27.81 Harrison Billet 6.03 2 12.06 Russell 27.05 2 54.10 Brembo 66.05 1 66.05 Brembo 54.00 1 54.00 Nissin 105.20 1 105.20 Nissin 106.78 1 106.78 Russell 143.80 1 143.80 Russell 56.42 1 56.42 Harrison Billet 28.52 1 28.52 Brembo 2.62 1 2.62 TOTAL BRAKE SYSTEM MATERIALS COST 657.36

Brake pipe cost 23 24 645.64 646.64 646.64 647.64 647.64 648.64 648.64 649.64

25 647.64 648.64 649.64 650.64

Brake pipe cost 22 23 24 2,148.80 2,152.13 2,155.47 2,152.13 2,155.47 2,158.80 2,155.47 2,158.80 2,162.13

25 2,158.80 2,162.13 2,165.47

22 644.64 645.64 646.64 647.64

102

2,158.80

2,162.13 2,165.47

2,168.80

Chapter 13 Running Case Solution Description Students will have to perform a systems analysis and then design a system solution using database software. They will need to identify information requirements and then map out entities, attributes, and relationships to guide the design of database tables. They will need to populate the database and generate queries and reports that satisfy management information requirements. This project should not be assigned unless students have the requisite database skills.

A great deal of Dirt Bikes’s employee data are paper-based. The employee database is very small and limited. Human resource specialists must sift through paper files to identify employees with training or skills in important specialties. Dirt Bikes could save time and money if information on employee training and educational levels was automated. There would be time savings for human resources staff who could access the information instantaneously. The company could save on outside employee recruiting costs if it could identify internal candidates for open positions. Employee motivation and morale would be boosted if workers knew they would be considered first for promotions.

(This is an intangible benefit.)

The solution calls for enhancing Dirt Bikes’ employee database so that it captures employee educational level and training data. The new system could help Dirt Bikes management identify employees of interest much more rapidly. Information from the system could also help Dirt Bikes identify skills that are in short supply to help it beef up its training programs in those areas.

Key information requirements include the ability to identify employee educational levels, and the ability to identify the training classes employees have taken.

Some organizational changes will be required. Human resource associates will need to make sure that the required training, performance rating, and educational data have been entered into the database. They will also have to learn how to use the database for promotion and staffing decisions. The organization will need to modify its human resources policies to emphasize recruitment from within.

The solution file represents one of many alternative database designs that would satisfy Dirt Bikes’ requirements. The design shown here consists of 2 tables: Employee and Training History. Dirt Bikes’ old employee database was modified to capture educational level data. We populated the tables with data to produce sample reports for this solution.

Estimated Costs & Benefits - New Training System Year Costs Development Business staff IS staff Data conversion Sub Total Maintenance and Support Data entry Maintenance and support Sub Total Total Costs

0

1

2

3

4

5

2020

2021

2022

2023

2024

2025

$1,000.00 $3,000.00 $4,000.00

$1,000.00 $3,000.00 $4,000.00

$1,000.00 $3,000.00 $4,000.00

$1,000.00 $3,000.00 $4,000.00

$1,000.00 $3,000.00 $4,000.00

$1,850.00 $2,100.00 $11,000.00 $14,950.00

$1,850.00 $2,100.00 $11,000.00 $14,950.00

$1,850.00 $2,100.00 $11,000.00 $14,950.00

$1,850.00 $2,100.00 $11,000.00 $14,950.00

$1,850.00 $2,100.00 $11,000.00 $14,950.00

$10,950.00

$10,950.00

$10,950.00

$10,950.00

$10,950.00

$5,000.00 $15,000.00 $5,500.00 $25,500.00

$45,500.00

Benefits Reduced labor costs HR Staff 1 @$37000 annually HR Staff 2 @ 42000 annually Reduced recruiting costs @11000 annually Sub Total Net Cash Flow

-$25,500.00

Total Benefits

$74,750.00

Assume HR Staff work officially 50 weeks and 2000 hours per year

C:\Users\User\OneDrive\Desktop\Purchased Full Resources\Wiley\Management Information Systems Managing the Digital Firm, 17th edition Kenneth C. Laudon\bik\MIS17 Dirt Bikes Solution Files\MIS17Ch14 Running Case Solution

Financial Models Year

0

Net Cash Flow (not including original investment) for years 2020-2025 Net Cash Flow (including original investment) for years 2020-2025 Payback Period = 3 years Initial Investment =

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Accounting Rate of Return (Total benefits - Total Costs - Depreciation)/Useful Life Total initial investments

Return on Investment (ROI) =

-$25,500.00 $10,950.00 $10,950.00 $10,950.00 $10,950.00 $10,950.00

-$25,500.00 Cumulative Cash Flow -$25,500.00 -$14,550.00 -$3,600.00 $7,350.00 $18,300.00 $29,250.00

Total Benefits Total Costs Depreciation Tot. benefits-Tot. costs-Deprec.

Life

2.45%

Net Present Value = =NPV(0.05,G3:L3)-costs!C9

$21,907.77

Internal Rate of Return =IRR(G4:L4)

32%

$74,750.00 $45,500.00 $25,500.00 $3,750.00 6 years

1 $10,950.00 $10,950.00

2 $10,950.00 $10,950.00

3 $10,950.00 $10,950.00

4 $10,950.00 $10,950.00

5 $10,950.00 $10,950.00

Chapter 15 Running Case Solution 1. Which countries would provide the best markets for Dirt Bikes’ products? Your analysis should consider factors such as: In which countries are dirt bikes popular? What is the per capita income of these countries? Which countries should be targeted for selling Dirt Bikes?

Given that Dirt Bikes is still a relatively new and small company, it would need to start in only a few of the larger and more prosperous countries that are located close together.

The European Union has the largest foreign market for U.S. motorcycle exports.

Students should use the web to research the per capita income of member countries. We would suggest that Dirt Bikes might want to concentrate on Germany, Austria and Switzerland due to their close physical proximity. Harley-Davidson clearly sees this area as potentially very profitable, given its work to expand trade there (using Google to search on “United States motorcycle exports” will produce a great deal of information on this topic). Students may come up with different proposals that will be acceptable depending upon the quality of their research and thoughts. Dirt Bikes should also target Canada and Australia, which are both English speaking countries with many bike enthusiasts.

Note that establishing the Dirt Bikes brand in each of these countries would probably require a lot of work. Therefore, Dirt Bikes might be smart to start with Canada and Germany the first year, expanding as those startups begin to look successful.

Dirt Bikes should target countries in addition to the United States that are either modern, English speaking countries having large trade with the U.S. or they are German speaking, and are physically close to each other. All should have good per capita incomes, and in addition all have land that can be attractive for use by dirt bikes.

2. How could Dirt Bikes use the web to increase international sales? What features should it place on its website to attract buyers from the countries it targets?

It is unlikely that the company will sell many bikes (or any) retail over the Internet. However, the web can first be used to try to help Dirt Bikes promote its brand abroad and help users locate dealers. Once the dealership has been established in each country, marketing would have to consider ways to market the product, such as pop up advertising at appropriate sites. Holding races in the countries and otherwise showing off the products themselves would be very valuable, and the web would could be used to advertise racing events outside the U.S. where Dirt Bikes has a presence. Racing and dirt bike publications are available on the Net, and so marketing would have to place advertising, stimulate articles to be written about the company and its bikes, and consider any other approaches that could get the name in front of the appropriate public.

Answers to this question will require some research on the Internet to learn more about the culture of bike riders that go online as well as race in each country. If Dirt Bikes markets in non-English speaking countries it should seriously consider websites in the local language.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 1: Information Systems in Global Business Today

Learning Track 1: How Much Does IT Matter?

In May 2003, Nicholas Carr, an editor at Harvard Business Review, wrote an article titled “IT Doesn’t Matter,” which stirred significant debate in the business community. Carr’s argument in a nutshell is that because every firm can purchase IT in the marketplace, because any advantage obtained by one company can easily be copied by another company, and because IT is now a commodity based on standards (such as the Internet) that all companies can freely use, it is no longer a differentiating factor in organizational performance. Carr argues that no firm can use IT to achieve a strategic edge over its competitors any more than it could with electricity, telephones, or other infrastructure. Therefore, Carr concludes, firms should reduce spending on IT, follow rather than lead IT in their industry, reduce risks by preparing for computer outages and security breaches, and avoid deploying IT in new ways. How does Carr’s argument stand up?

Most management information system (MIS) experts disagree. As we discuss in Chapter 1 and subsequent chapters throughout the book, research demonstrates that there is considerable variation in firms’ ability to use IT effectively. Many highly adept firms continually obtain superior returns on their investment in IT, whereas less adept firms do not.

Copying innovations of other firms can be devilishly difficult, with much being lost in the translation. There is only one Google, one Walmart, one Amazon, and one eBay, and each of these firms has achieved a competitive advantage in its industry based in large part on unique ways of organizing work enabled by IT that have been very difficult to copy. Many very powerful firms have tried to copy each of these dominant firms without success. If copying were so easy, we would expect to find much more powerful competition for these market leaders. In fact, copying what other firms have achieved is usually quite difficult in large part because information systems are much more than a collection of computers. They are instead a mixture of management, organizational, and technical skills which together are very difficult to copy, at least in the short term.

Although falling prices for hardware and software and computing and telecommunications standards such as the Internet have made the application of computers to business much easier than in the past, this does not signal the end of innovation or the end of firms developing strategic edges using IT. Far from the end of innovation, commoditization often leads to an explosion in innovation and new markets and products. For example, the abundance and availability of materials such as wood, glass, and steel during the last century made possible a continuing stream of architectural innovation. Likewise, the widespread availability of cloud computing, a good

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example of commodity computing, is leading to thousands of new products and services.

The same can be said with mobile phones and tablets.

Likewise, the development of standards and lowering costs of computer hardware made possible new products and services such as the Apple iPhone, tablet computers, iTunes, online streaming music and video, and the entire online content industry. Entirely new businesses and business models have emerged for the digital distribution of music, books, newspapers, radio, journals, and Hollywood films.

Carr is surely correct in stating that not all investments in IT work out or have strategic value.

Some are just needed to stay in business, to comply with government reporting requirements, and to satisfy the needs of customers and vendors (often raising costs and depressing profits for a period of time). Therefore, yes, not all IT investments lead to strategic advantages. Most IT ­investment is not intended to lead to strategic advantages. Perhaps the more important questions are how much does IT make a difference, in what industries and firms, and where can it best be deployed to make a competitive difference? Why do some firms achieve a strategic edge with information systems, and some firms do not?

We make a major effort in this book to suggest ways you as a manager and potential entrepreneur can use information technology and systems to create differentiation from your competitors and strategic advantage for your firm in the marketplace. As we describe throughout, to achieve any measure of “success,” investment in IT must be accompanied by significant changes in business operations and processes and changes in management culture, attitudes, and behavior. Absent these changes, investment in IT can be a waste of precious investor resources.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 1: Information Systems in Global Business Today

Learning Track 2: Information Systems and Your Career Looking out to 2026, the U.S. economy will create 11.5 million new jobs, and 34 million existing jobs will open up as their occupants retire. More than 95 percent of the new jobs will be created in the service sector, and the fastest growing jobs will be in healthcare services. About 35 percent of the new jobs will require at least a bachelor’s degree, and another 30 percent some post-secondary education. (U.S. Bureau of Labor Statistics, 2019; U.S. Census, 2019).

What this means is that U.S. business firms are looking for candidates who have a broad range of problem-solving skills—the ability to read, write, and present ideas—as well as the technical skills required for specific tasks. Regardless of your business school major, or your future occupation, information systems and technologies will play a major and expanding role in your day-to-day work and your career. Your career opportunities, and your compensation, will in part depend on your ability to help business firms use information systems to achieve their objectives.

How Information Systems Will Affect Business Careers In the following sections, we describe how specific occupations will be affected by information systems and what skills you should be building in order to benefit from this emerging labor market based on the research of the Bureau of Labor Statistics (Bureau of Labor Statistics, 2019; US Census, 2019).

ACCOUNTING There are about 1.4 million accountants in the U.S. labor force today, and the field is expected to expand by 11 percent by the year 2026, adding 140,000 new jobs and twice as many to replace retirees. This above-average growth in accounting is driven in part by new accounting laws for public companies, greater scrutiny of public and private firms by government tax auditors, and a growing demand for management and operational advice.

Accountants rely heavily on information systems to summarize transactions, create financial records, organize data, and perform financial analysis. Because of new public laws, accountants require an intimate knowledge of databases, reporting systems, and networks to trace financial transactions.

Because so many transactions are occurring over the Internet, accountants need to understand online

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transaction and reporting systems and how systems are used to achieve management accounting functions in an online and mobile business environment.

FINANCE If you include financial analysts, stock analysts, brokers, loan officers, budget analysts, financial advisors, and related financial service occupations, there are currently about 2 million managers and employees in finance. These financial occupations are expected to grow on average by about 12 percent by the year 2026 and add more than 130,000 new jobs. Financial advisors will grow by 15 percent in this period.

Financial managers play important roles in planning, organizing, and implementing information system strategies for their firms. Financial managers work directly with a firm’s board of directors and senior management to ensure that investments in information systems help achieve corporate goals and high returns. The relationship between information systems and the practice of modern financial management and services is so strong that many advise finance majors to co-major in information systems (and vice versa).

MARKETING No field has undergone more technology-driven change in the past five years than marketing and advertising. The explosion in e-commerce activity described earlier means that eyeballs are moving rapidly to the Internet. Internet advertising is the fastest-growing form of advertising, reaching $105 billion in 2018. Product branding and customer communication are moving online at a fast pace.

There are about 1.5 million public relations, marketing analysts, and marketing and sales managers in the U.S. labor force. This field is growing faster than average, at about 10 percent, and is expected to add more than 300,000 jobs by 2026. There is a much larger group of 1.2 million nonmanagerial employees in marketing-related occupations (art, design, entertainment, sports, and media) and more than 15.9 million employees in sales. These occupations together are expected to create an additional 2 million jobs by 2026. Marketing and advertising managers and specialists deal with large databases of customer behavior both online and offline in the process of creating brands and selling products and services. They develop reports on product performance, retrieve feedback from customers, and manage product development. These managers need an understanding of how enterprise-wide systems for product management, sales force management, and customer relationship management are used to develop products that consumers want, to manage the customer relationship, and to manage an increasingly mobile sales force.

OPERATIONS MANAGEMENT SERVICES AND MANUFACTURING The growing size and complexity of modern industrial production and the emergence of huge global service companies have created a growing demand for employees who can coordinate and optimize the resources required to produce goods and services. Operations management as a discipline is

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directly relevant to three occupational categories: industrial production managers, administrative service managers, and operations analysts.

Production managers, administrative service managers, and operations analysts will be employing information systems and technologies every day to accomplish their jobs, with extensive use of database and analytical software.

MANAGEMENT Management is the largest single group in the U.S. business labor force with more than 13 million members, not including an additional 612,000 management analysts and consultants. Overall, the management corps in the United States is expected to expand at an average pace of 7 percent, adding about 1 million new jobs by 2026. The Bureau of Labor Statistics tracks more than 20 types of managers, all the way from chief executive officer to human resource managers, production managers, project managers, lodging managers, medical managers, and community service managers.

Arguably, it would be impossible to manage business firms today, even very small firms, without the extensive use of information systems. Nearly all U.S. managers use information systems and technologies every day to accomplish their jobs, from desktop productivity tools to mobile applications coordinating the entire enterprise. Managers today manage through a variety of information technologies without which it would be impossible to control and lead the firm.

INFORMATION SYSTEMS The information systems field is one of the fastest-changing and dynamic of all the business professions because information technologies are among the most important tools for achieving business firms’ key objectives. The explosive growth of business information systems has generated a growing demand for information systems employees and managers who work with other business professionals to design and develop new hardware and software systems to serve the needs of business.

There are about 3.7 million information system managers and employees in the United States, with an estimated growth rate of 13 percent through 2026, expanding the number of new jobs by more than 500,000. As businesses and government agencies increasingly rely on the Internet for communication and computing resources, system and network security management positions are growing very rapidly. The fastest-growing occupations in this category are software developers (up 24 percent) and web developers (up 15 percent).

OUTSOURCING AND OFFSHORING The Internet has created new opportunities for outsourcing many information systems jobs, along with many other service sector and manufacturing jobs. There are two kinds of outsourcing: outsourcing to domestic U.S. firms and offshore outsourcing to low-wage countries such as India, China, and eastern European countries. Even this distinction blurs as domestic service providers develop global outsourcing centers offshore. continued

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The most common and successful offshore outsourcing projects involve production programming and system maintenance programming work, along with call center work related to customer relationship management systems. However, inflation in Indian and Chinese wages for technology work, coupled with the additional management costs incurred in outsourcing projects, is leading to a counter movement of some IT jobs back to the United States. Moreover, although routine technical information systems (IS) jobs such as software maintenance can be outsourced easily, all those management and organizational tasks required in systems development—including business process design, user interface design, and supply chain management—often remain in the United States.

Innovative new products, services, and systems are rarely outsourced either domestically or globally.

The advantage of low-wage countries is their low wages and ready availability of technical talent, not their keen sense of new products, services, and technologies for other countries’ markets. Software outsourcing of routine IS work to low-wage countries lowers the cost of building and maintaining systems in the United States and other high-wage countries. As systems become less expensive, more are built. The net result is that offshore outsourcing likely increases demand domestically for managerial and employment in a wide variety of IS positions.

Given all these factors in the IT labor market, on what kinds of skills should information system majors focus? Following is a list of general skills we believe will optimize employment opportunities. ◆

◆

An in-depth knowledge of how business firms can use new and emerging hardware and software to make them more efficient and effective, enhance customer and supplier intimacy, improve decision making, achieve competitive advantage, and ensure firm survival. This includes an understanding of artificial intelligence, cloud computing, business analytics, databases, system implementation, and mobile application development.

An ability to take a leadership role in the design and implementation of new information systems, work with other business professionals to ensure systems meet business objectives, and work with cloud computing services and software firms providing new system solutions.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 1: Information Systems in Global Business Today

Learning Track 3: The Mobile Digital Platform Today, the primary means of accessing the Internet both in the U.S. and worldwide is through mobile devices like tablet and smartphone computers, and not traditional desktop or laptop PCs. In 2020, 83 percent of adults in the United States accessed the Internet through their mobile phone. This figure is projected to grow to 86.7 percent in 2023.

In 2020, there were 3.5 billion smartphone users around the world. Over 60% of smartphone users have made a purchase on the device. Smartphone users worldwide will reach 3.8 billion in 2021(Statista 2020). This means that the primary platform for e-commerce products and services will also change to a mobile platform.

You can see this sea change in technology platform today whenever you travel and watch business people peck away at their smartphones in airports and train stations; kids in school text away madly to their friends on cell phones, many using Twitter; high school and college kids are often buried in games, movies, TV shows, emails, and text on their smartphones; and people on trains reading the newspaper, magazines, and books on their tablets. Just in case you haven’t noticed, mom and dad are working long hours at home or commuting to the workplace. They’ve learned to shop and work on the way, ordering everything from pizzas to entre dishes. Fashion magazines, books publishers, and online newspapers have received a lift as tablet computers become a very popular platform for viewing and purchasing clothing and other retail goods.

The changing platform has been a challenge for even the dominant Internet players. Google found its desktop-based ad business had to shift to the mobile platform to make up for slowing growth in its traditional search engine-based marketing engine. Apple struggled against the growing popularity of cheaper Samsung Android phones and expanded into mobile apps and services. Microsoft and Intel both struggled to develop mobile hardware and software for the consumer and business market.

HP and Dell experienced declining PC revenues, and failed to develop mobile alternatives for their customers. Amazon initially struggled to encourage customers to purchase retail products using their mobile devices, while dominating ebook sales both with its Kindle reader, and Kindle apps on mobile devices.

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Mobile Is Global The relative surge in smartphones is understandable: they are much less expensive than either PCs or tablets, and in developing countries with limited land-line Internet facilities, cell phones are much more easily and inexpensively deployed. Table 1.1 describes other features of smartphones and tablets that have made them such popular computing and communication tools.

TABLE 1-1 Capabilities of Mobile Devices Mobile Capability

Description

Portability

Able to be used anywhere and on the go; fits into a pocket (smartphone) or purse or briefcase (tablet).

Communication

Telephone, text and video messaging

Personal organizer

Calendars, clocks, reminders

Multimedia

Capable of displaying graphics, text, video, and sound

Apps

Millions of specialized applications for business and personal use

Screen size and resolution

Smartphone and tablet screen size and resolution sufficient to support graphics and video

GPS location

GPS self-locating capability

Web browsing

Browsers can access websites and applications

Source: Based on Laudon and Traver E-commerce 2021, 16th edition.

It Isn’t Just the Technology: Changes in Consumer and Corporate Behavior While the emerging mobile digital platform is certainly a hardware event, it also involves changes in software, as well as changes in our society and culture which sometimes drive the technology in certain directions, and in other cases are driven by the technology to enable and support new kinds of behavior. Soccer moms and dads long preceded the advent of iPhones, but smartphones and tablets enable that style of parenting on the move and sometimes make it more enjoyable. How else would it be possible to coordinate play dates, car pools and dinner on the fly?

Cellular industry experts believe about 60% of the US labor force uses mobile devices as a part of their jobs. Half of the federal labor force uses mobile devices at work. The new mobile workforce is composed of full and part-time knowledge workers who can work at home, at a coffee shop, airport or on a train; extended day workers who don’t stop working when they leave the office; truly mobile workers who live out of briefcases, classic road warriors; and event driven mobile workers who respond to emergency situations where the traditional infrastructure is disabled or non-existent.

What is driving the growth of consumer and business purchases of smartphones? The mobile platform enables changes in work and consuming. Work used to be a place, but today it’s a set of activities continued

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performed anywhere that you get paid for. Consuming used to take place in a marketplace or department store, then it moved to the PC at work and home, and today it’s moving to a mobile device.

Consuming today is a set of activities performed anywhere, every where you spend money on goods and services. Dealing with client requests for delivery dates and price quotes used to be an “I’ll get back to you in a couple of hours” affair. This changed with mobile computing to “I have the dates and prices in my hand.” The speed of both consumer and business information is greatly accelerated with the mobile platform. The quality of managerial and business decision making is improved by more accurate and up-to-date information. These social-technological phenomenon have significant implications for e-commerce now and in the near term future.

The Mobile Platform: Technology Smartphones are a disruptive technology which radically alters the personal computing and e-commerce landscape. Smartphones involve a major shift in computer processors, and software that is disrupting the forty year dual monopolies established by Intel Corporation and Microsoft, whose chips, operating systems and software applications have dominated the PC market since 1982. Virtually no cell phones use Intel chips, which still power most of the world’s PCs; less than 1 percent of smartphones use Microsoft’s operating systems. Today 99 percent of smartphones use either Google’s Android OS or Apple’s iOS (NetMarketShare, September 2020). 90% of the billion cell phones shipped each year use some version of ARM (Advanced RISC Machine) chips, licensed by ARM Inc. and manufactured by many firms. Smartphones and tablets do not need fans because they use so little power. Mobile devices do not use power hungry hard drives, but instead use flash memory chips with storage up to 64 megabytes.

Powerful, energy efficient client devices are only one-half of the emerging digital platform. Without third and fourth generation cellular networks, and Wi-Fi wireless local networks, mobile platforms enabling computing anywhere and anytime would be impossible. Most subscribers are using broadband 3G and 4G networks that enable users to view customized Web pages with a traditional browser, and over a million smartphone apps that do not require a browser. While the US lags behind Asia and Europe in 4G networks, carriers have finally established their basic 4G footprints. Speeds on Verizon’s 4G LTE network realistically are about 8.5 Mps down and 6 Mps, enough to watch TV shows and movies without a hitch. As with all cellular service, speed and reliability depend on a variety of conditions, such as how far you are from a cell tower, how many other users are connected in your vicinity and how much data they’re moving.

Mobile Commerce Up until the introduction of the Apple iPhone smartphone in 2007, and the development of iTunes store where millions of iPod and iPhone users could download songs, mobile e-commerce in the United States was more of a dream than a reality. In Asia and northern Europe (particularly Finland and Sweden) mobile payment systems were developed for cell phones in 2000, but there was very little continued

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shopping or advertising with traditional cell phones and few applications. Mobile e-commerce failed to develop in part because there was no mobile client hardware with sufficient capacity to communicate, work or shop, and in part because existing cell phone networks lacked the capacity to deal with millions of simultaneous users surfing the Web. That’s all changed.

M-commerce has grown rapidly following the introduction of more powerful mobile devices and networks. Mobile commerce sales are projected to reach $2.91 trillion in 2020. Mobile commerce growth has seen an average year-on-year increase of 33.8 percent since 2016.

The share of mobile e-commerce sales in total e-commerce sales is now 67.2 percent. In other words, two out of every three dollars spent on online purchases today is done so through a mobile device (Oberlo, 2020).

It is important to understand what is meant by “m-commerce” and “e-commerce” sales. E-commerce and m-commerce sales include the buying of physical goods and services using a browser or app on a mobile phone, tablet, e-reader, or other handheld device. Other kinds of devices include game boxes and systems. M-commerce includes the sales of mobile apps, as well as sales that take place within an app. Travel and event ticket sales, and payments such as Square, are not included in m-commerce.

Consumers who just shop (browse) from mobile devices are considered “shoppers” and are not included even though online browsing has a very large influence on off-line purchases.

Mobile commerce is growing so rapidly in part because it gives consumers the ability to access information now, buy it now, and pay for it now. Because mobile phones are usually always on, and usually attached to the consumer, they provide to access instant coupons, deals, and flash sales, all of which are powerful motivators to purchase something. Product information, deals and sales, and the power to purchase now are all available with a tap of a fingertip.

Online retailers are finding that consumers might browse on their cell phones, but it’s difficult for them to purchase from phones because of the small screen, and difficulties of keying in credit card information. While not as portable as phones, the larger high resolution screens of tablets are ideal for mobile browsing, and large enough to complete a credit card transaction with ease. For this reason, tablets will play a significant role in the growth m-commerce

M-commerce: Where’s the Money?

There are five major m-commerce revenue streams: software apps, sales of physical goods and services (banking for instance), entertainment (video), music, and books.

Apple and Google together offer nearly 5 million apps in their stores. There are over 200 billion app downloads each year from both services. While most of these apps are free, especially game apps, maps, and apps for online retail stores like Amazon and Macy’s, many of the most useful apps sell from a few dollars to several thousand dollars.

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The relatively slow growth of mobile physical goods and services revenue may result from the fact that consumers do not use their smartphones for purchasing goods, at least not directly. Surveys of smartphone users show people use their phones primarily for “me time” (relaxation, entertainment), socializing, browsing/shopping, managing finances and health, planning, discovery of news and information, and self-expression. Direct purchasing is a very small part of the smartphone user mobile time. There’s also the “fat finger” problem: purchasing on a 4” square screen is difficult, mistakes are common, and clicking on tiny mobile ads is just no fun and often is just a mistake as the user is trying to accomplish something else. While direct phone sales are very small, browsing and shopping is very common, and may very well lead to an Amazon or Macy’s app where purchases are easier. Tablets do not seem to suffer as much from the fat finger effect. Tablet screen size (9.7” for the large screens) is less than half the size of 15” laptop screens, but their higher resolution makes up for this to some extent. For this reason, tablet retail sales will grow much faster than smartphone retail sales of goods.

Mobile eBook sales are expected to grow faster than entertainment revenues (TV and video). In part this is due to the extraordinary success of the Amazon Kindle devices which are both low in cost, and adequate for browsing the Web (Kindle Fire). Small smartphone screens are adequate for books, and large tablet screens are close to ideal book readers. Books are just a better fit with the mobile platform than purchasing goods, or watching movies. The small smartphone screen is a hindrance to experiencing feature length movies. Tablets are much more suited to the task. But most consumers are watching movies and TV series using their full size TV screens and streaming the entertainment from Web services like Netflix. In a pinch, consumers will watch a TV series using their smartphones, but it is not a preferred platform. How about a 50” high definition screen in the living room?

The Mobile Platform Transforms Online Advertising So far we’ve discussed how the mobile platform is changing e-commerce in terms of sales of goods and services. The mobile platform is also having a powerful impact on the marketing and advertising industry. Marketers have to go where consumers go, and increasingly, this means going mobile.

E-commerce marketers, retailers, and service vendors are discovering that smartphones represent a new channel for selling and paying for goods and services, the so-called “fourth screen” (Hollywood movies, television, and personal computers being the first three screens).

Smartphone advertising in the form of banner ads is being developed in a number of ways, including mobile Internet use, email like Google’s Gmail which contains ads, instant messaging, ringtones, games, and music downloads. A new avenue for distinctly app banner advertising is accomplished through proprietary applications which users download. Applications like the VirtualZippo lighter, Audi’s A4 challenge, Kraft fFoods’ iFood Assistant, and Levi’s Dockers Shakeable apps are the vehicle for presenting the brand to users. Charmin (the toilet paper brand) decided not to build an application showing its products at work, but has instead sponsored the popular SitOrSquat application, a user generated public restroom locator Web site. Users create the sites content by rating and commenting on restrooms. Over 50,000 restrooms worldwide have been rated, and the application has been downloaded 80,000 times. continued

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Mobile advertising is growing about four times faster than all online ad spending). By 2020, mobile advertising will be over 70 percent of all online advertising.

Mobile ads come in all the same formats as traditional online Web ads. Examples include banner ads displayed when using applications (not interfering with phone use, SMS or email) and exposure to ads while using smart phones for viewing the Web. There are also product specific applications which are sponsored by firms directly and their marketing firms. But most mobile ads are simply smaller versions of traditional Web ads. To date, display ads on mobile devices, particularly smartphones, have not been very successful. In fact, they are “worth” only one-quarter to one-half of what traditional display ads are worth (which is not much to begin with). Advertisers know that consumers find mobile phone ads are annoying and inconvenient in part because they interfere with use of the phone to read other information and messages on the tiny screen. With the small screen, mobile ads have no right side and the ads have to be put center screen. So your Facebook mobile news feed will be broken up with ads, some so small you can’t understand what they are selling.

The low value and utility of mobile ads poses a challenge for Google, Facebook, and Amazon, and most other online marketing and advertising firms. As users turn away from their traditional large screen Web screens, and switch to mobile devices, the ads just don’t work as well driving customers to shop and purchase products. Once again, the mobile platform is transforming and disrupting to some extent the comfortable market positions that many firms have found in the “big screen” Web experience.

The future of mobile advertising arguably lies in ads displayed within apps. Mobile users spend about 80% of their time using apps and only 20% of their time using their general purpose mobile browsers.

The biggest revenue generating apps for advertising will be games and entertainment (it’s the largest time segment for mobile users), social networks (mostly Facebook), utilities (maps, text, photo sites), discovery and shopping (Yelp, TripAdvisor, Instagram), and brands (like Amazon, Nike, Coke, and scores of others). In-app advertising may well be more acceptable to users, and more lucrative for app makers, because the user has already shown an interest in the app content, and might be more accepting of app-related ads. For instance, when users download the Nike app to play a game, or browse for Nike shoes, an advertisement for a new Nike shoe might be perceived as acceptable, even helpful.

Users may come to expect ads inside apps, whereas they are annoyed when ads pop up on their mobile browser screens and interfere with their activities.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 2: Global E-business and Collaboration

Learning Track 1: Systems from a Functional Perspective We will start by describing systems using a functional perspective because this is the most straightforward approach, and, in fact, because this is how you will likely first encounter systems in a business.

For instance, if you are a marketing major and take a job in marketing, you will be working on the job first with marketing information systems. If you are an accounting major, you will be working with accounting and financial systems first. From a historical perspective, functional systems were the first kinds of systems developed by business firms. These systems were located in specific departments, such as accounting, marketing and sales, production, and human resources. Let’s take a close look at systems from this functional perspective.

Sales and Marketing Systems The sales and marketing function is responsible for selling the organization’s products or services.

Marketing is concerned with identifying the customers for the firm’s products or services, determining what customers need or want, planning and developing products and services to meet their needs, and advertising and promoting these products and services. Sales is concerned with contacting customers, selling the products and services, taking orders, and following up on sales. Sales and marketing information systems support these activities.

Table 2-1 shows that information systems are used in sales and marketing in a number of ways.

Sales and marketing systems help senior management monitor trends affecting new products and sales opportunities, support planning for new products and services, and monitor the performance of competitors. Sales and marketing systems aid middle management by supporting market research and by analyzing advertising and promotional campaigns, pricing decisions, and sales performance.

Sales and marketing systems assist operational management and employees in locating and contacting prospective customers, tracking sales, processing orders, and providing customer service support.

Figure 2-1 illustrates a sales information system used by retailers, such as The Gap or Target.

Point-of-sale devices (usually handheld scanners at the checkout counter) capture data about each item sold, which update the sales system’s figures about sales and send data about items sold to related systems dealing with items remaining in inventory and with production. These businesses use this information to track which items have been sold, to determine sales revenue, and to identify hot-selling items and other sales trends.

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TABLE 2-1 Examples of Sales and Marketing Information Systems System

Description

Groups Served

Order processing

Enter, process, and track orders

Operational management Employees

Pricing analysis

Determine prices for products and services

Middle management

Sales trend forecasting

Prepare five-year sales forecasts

Senior management

FIGURE 2-1 Example of a Sales Information System

This system captures sales data at the moment the sale takes place to help the business monitor sales transactions and to provide information to help management analyze sales trends and the effectiveness of marketing campaigns.

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Manufacturing and Production Systems The manufacturing and production function is responsible for actually producing the firm’s goods and services. Manufacturing and production systems deal with the planning, development, and maintenance of production facilities; the establishment of production goals; the acquisition, storage, and availability of production materials; and the scheduling of equipment, facilities, materials, and labor required to fashion finished products. Manufacturing and production information systems support these activities.

Table 2-2 shows some typical manufacturing and production information systems for each major organizational group. Senior management uses manufacturing and production systems that deal with the firm’s long-term manufacturing goals, such as where to locate new plants or whether to invest in new manufacturing technology.

TABLE 2-2 Examples of Manufacturing and Production Information systems System

Description

Groups Served

Machine control

Controls the actions of machines

Operational management and equipment

Production planning

Decides when and how many products

Middle management should be produced

Facilities location

Decides where to locate new production

Senior management facilities

Manufacturing and production systems for middle management analyze and monitor manufacturing and production costs and resources. Operational management uses manufacturing and production systems that deal with the status of production tasks.

Most manufacturing and production systems use some sort of inventory system, as illustrated in Figure 2-2. Data about each item in inventory, such as the number of units depleted because of a shipment or purchase or the number of units replenished by reordering or returns, are either scanned or keyed into the system. The inventory master file contains basic data about each item, including the unique identification code for each item, a description of the item, the number of units on hand, the number of units on order, and the reorder point (the number of units in inventory that triggers a decision to reorder to prevent a stockout). Companies can estimate the number of items to reorder, or they can use a formula for calculating the least expensive quantity to reorder called the economic order quantity. The system produces reports that give information about such things as the number of each item available in inventory, the number of units of each item to reorder, or items in inventory that must be replenished.

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FIGURE 2-2 Overview of an Inventory System

This system provides information about the number of items available in inventory to support manufacturing and production activities.

Finance and Accounting Systems The finance function is responsible for managing the firm’s financial assets, such as cash, stocks, bonds, and other investments, to maximize the return on these financial assets. The finance function is also in charge of managing the capitalization of the firm (finding new financial assets in stocks, bonds, or other forms of debt). To determine whether the firm is getting the best return on its investments, the finance function must obtain a considerable amount of information from sources external to the firm.

The accounting function is responsible for maintaining and managing the firm’s financial records— receipts, disbursements, depreciation, payroll—to account for the flow of funds in a firm. Finance and accounting share related problems—how to keep track of a firm’s financial assets and fund flows.

They provide answers to questions such as these: What is the current inventory of financial assets?

What records exist for disbursements, receipts, payroll, and other fund flows?

Table 2-3 shows some of the typical finance and accounting information systems found in large organizations. Senior management uses finance and accounting systems to establish long-term investment goals for the firm and to provide long-range forecasts of the firm’s financial performance. Middle management uses systems to oversee and control firm’s financial resources. Operational management uses finance and accounting systems to track the flow of funds in the firm through transactions, such as paychecks, payments to vendors, securities reports, and receipts.

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TABLE 2-3 Examples of Finance and Accounting Information Systems System

Description

Groups Served

Accounts receivable

Tracks money owed the firm

Operational management

Budgeting

Prepares short-term budgets

Middle management

Profit planning

Plans long-term profits

Senior management

Figure 2-3 illustrates an accounts receivable system, which keeps track of what customers who have made purchases on credit owe to a company. Every invoice generates an “account receivable”—that is, the customer owes the firm money. Some customers pay immediately in cash, but others are granted credit. The accounts receivable system records each invoice in a master file that also contains information on each customer, including that person’s credit rating. The system also keeps track of all the bills outstanding and can produce a variety of output reports, both on paper and on the computer screen, to help the business collect bills. The system also answers queries about a customer’s credit rating and payment history.

FIGURE 2-3 An Accounts Receivable System

An accounts receivable system tracks and stores important customer data, such as payment history, credit rating, and billing history.

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Human Resources Systems The human resources function is responsible for attracting, developing, and maintaining the firm’s workforce. Human resources information systems support activities such as identifying potential employees, maintaining complete records on existing employees, and creating programs to develop employees’ talents and skills.

Human resources systems help senior management identify the manpower requirements (skills, educational level, types of positions, number of positions, and cost) for meeting the firm’s long-term business plans. Middle management uses human resources systems to monitor and analyze the recruitment, allocation, and compensation of employees. Operational management uses human resources systems to track the recruitment and placement of the firm’s employees (see Table 2-4).

TABLE 2-4 Examples of Human Resources Information Systems System

Description

Groups Served

Training and development

Tracks employee training, skills, and performance appraisals

Operational management

Compensation analysis

Monitors the range and distribution of employee wages, salaries, and benefits

Middle management

Human resources planning

Plans the long-term labor force needs of the organization

Senior management

Figure 2-4 illustrates a typical human resources system for employee record keeping. It maintains basic employee data, such as the employee’s name, age, sex, marital status, address, educational background, salary, job title, date of hire, and date of termination. The system can produce a variety of reports, such as lists of newly hired employees, employees who are terminated or on leaves of absence, employees classified by job type or educational level, or employee job performance evaluations.

Such systems are typically designed to provide data that can satisfy federal and state record keeping requirements for Equal Employment Opportunity (EEO) and other purposes.

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FIGURE 2-4 An Employee Record Keeping System

This system maintains data on the firm’s employees to support the human resources function.

Google is an example of a company using a human resources system with a strategic orientation.

Google is one of the world’s most leading-edge, rapidly growing companies. It is best known for its powerful Internet search engine, but it is also the source of numerous other technology-based products and services. Innovation and knowledge are key business drivers. Google obviously has very special human resources requirements and prizes highly intelligent employees who can work in teams yet think outside the box.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 2: Global E-business and Collaboration

Learning Track 2: IT Enables Collaboration and Teamwork

Outline Introduction: It’s a Collaborative World 1.0 Why Are Collaboration and Teamwork So Important Today?

2.0 What Are the Business Benefts of Collaboration?

3.0 What Makes a Good Team Member And Collaborator?

4.0 What Makes a Good Team Leader?

5.0 Building and Managing Teams 6.0 Building a Collaborative Organizational Culture 7.0 IT Systems Enable Collaboration and Teamwork 8.0 Choosing Collaboration Tools: Management To-Do List

Introduction: It’s a Collaborative World It’s a collaborative world that depends on teams of people working together across time zones and continents. It’s a world of high bandwidth and “rich” communications, and “interaction” jobs where the value added by the employee is the ability to talk, write, present, persuade, sell and empathize with others. Over 40% of the labor force now has these kinds of jobs.

So what is collaboration, and what’s the diference between cooperation, collaboration, and team work (project teams)? Figure 1-1 illustrates the diferences and their relationship.

Cooperation (also referred to as “coordination”) is working with others to achieve some shared (but not necessarily stated) goals. Cooperation comes from the fact that we are dependent on others, and we need to manage those dependencies somehow. For instance, you cooperate with your neighbors in keeping the neighborhood sidewalks clean; keeping an eye out for strangers; or deciding how to paint a fence that divides your property or a shared entrance. You cooperate with your spouse by putting dirty laundry in the washing machine. You help with the cooking and dishes. You cooperate with complete strangers on the street by passing on the right, and you always go through revolving doors in the “right” way. Cooperation is general, broad, and the foundation of any organized social life. It occurs most often without anyone saying anything to one another.

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FIGURE 1-1 Cooperation, Collaboration, and Team work

Without it, we would not have villages, towns, cities or countries. Or business frms. Now let’s take it up a step.

Collaboration is cooperation that’s more focused on task or mission accomplishment and usually takes place in a business, or other organization, and between businesses. It is explicit: we generally do talk about, plan and manage collaboration with one another.

You collaborate with a colleague in Tokyo looking for expertise on a topic you know nothing about.

You collaborate with many colleagues in publishing a company blog. If you’re in a law frm, you collaborate with accountants working in an accounting frm in servicing the needs of a client with tax problems. Collaboration can be short-lived, lasting a few minutes, or longer term if the dependency among participants remains constant. You can collaborate informally with colleagues many times over a period of years through e-mail, voice mail, instant messaging, wikis (collections of documents), and bulletin boards. Collaboration can be one-to-one (among individuals), and manyto-many (collaboration among a number of people). Such collaborative groups are generally not a formal part of the business frm’s organizational structure, but are rather informal groups. Now let’s step it up one more time to talk about teams.

Teams take all this one step further. Teams are part of the organization’s business structure for getting things done. Teams and project groups are interchangeable terms. Teams have a specifc

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mission that someone in the business assigned to them. Tey have a job to complete. Te members of the team need to collaborate on the accomplishment of specifc tasks and collectively achieve the team mission. Te team mission might be to “win the game,” or “increase online sales by 10%,” or “prevent insulating foam from falling of a space shuttle.” Teams are often short-lived, depending on the problems they tackle and the length of time needed to fnd a solution and accomplish the mission. Teams often involve people in very diferent parts of a business frm, often in other time zones.

1.0 Why Are Collaboration and Teamwork So Important Today?

Collaboration and team work are more important today than ever for a variety of reasons. ◆

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Changing nature of work. Te nature of work has changed from factory manufacturing and pre-computer ofce work where each stage in the production process occurred independently of one another, and was coordinated by supervisors. Worked was organized into silos. Within a silo, work passed from one machine tool station to another, from one desktop to another, until the fnished product was completed. Today the kinds of jobs we have require much closer coordination among the parties involved in producing the service or product. Tese so-called “interaction” jobs tend to be professional jobs in the service sector that require close coordination, and collaboration. But even in factories, workers today often work in production groups, or pods. Interaction jobs include most ofce jobs that require close coordination of many diferent people in order to complete the work. For instance, creating a Web site for a frm requires collaboration among senior management, marketing professionals, Web designers, and information technology specialists who can implement the site; delivering legal services requires a team of lawyers and accountants working together on a single case.

Growth of professional work. In the last 50 years, the professional nature of work has greatly expanded. Professional jobs require substantial education, and the sharing of information and opinions to get work done. Each actor on the job brings specialized expertise to the problem, and all the actors need to take one another into account in order to accomplish the job.

Changing organization of the frm. For most of the industrial age managers organized work in a hierarchical fashion. Orders came down the hierarchy, and responses moved back up the hierarchy. Today, more work is organized into groups and teams, who are expected to develop their own methods for accomplishing the task. Senior managers observe and measure results, but are much less likely to issue detailed orders or operating procedures. In part this is because expertise has been pushed down in the organization, as have decision making powers.

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Changing scope of the frm. Te organization of the frm has changed from work at a single location, to work taking place in ofces or factories throughout a region, a nation, or even around the globe. For instance, Henry Ford developed the frst mass production automobile plant at a single Dearborn, Michigan factory. In 2012, Ford employed about 199,000 employees at 61 plants and facilities worldwide. More than half of its sales come from outside North America, as do one third of its revenues. With this kind of global presence, the need for close coordination of design, production, marketing, distribution and service obviously takes on new importance and scale. Large global need to have teams working on a global basis.

Emphasis on innovation. While we tend to think of innovations in business and science as coming from great individuals, but more common is that these great individuals are working with a team of brilliant colleagues, and all have been preceded by a long line of earlier innovators and innovations. Tink of Bill Gates and Steve Jobs (founders of Microsoft and Apple) both of whom are highly regarded innovators, and both of whom built strong collaborative teams to nurture and support innovation in their frms. Teir initial innovations derived from close collaboration with colleagues and partners. Innovation in other words is a group and social process, and most innovations derive from collaboration among individuals in a lab, a business, or government agencies. Strong collaborative practices and technologies are believed to increase the rate and quality of innovation.

Changing culture of work and business. Tere is growing support for the proposition that collaboration and team work produce better results, faster, than a similar number of people working in isolation from one another. Most research on collaboration supports the notion that diverse teams produce better outputs, faster, than individuals working on their own. Popular notions of the crowd (“crowdsourcing,” and the “wisdom of crowds”) also provide cultural support for collaboration and team work.

Briefy, collaboration and social networking have become a growing theme of social, political, and business organization in the age of the Internet. Economies, organizations and frms, along with their employees are becoming more informational, more global and above all more networked.

Information technologies-from smart phones, netbooks and inexpensive servers, to high capacity broadband and large data centers, are all key components and enablers of collaboration practices.

2.0 What are the Business Benefits of Collaboration?

Tere are many articles and books that have been written about collaboration, some of them by business executives and consultants, and a great many by academic researchers in a variety of businesses. Nearly all of this research is anecdotal and testimonial rather than empirical assessments of collaboration within or between organizations. Among both business and academic communities there is a general belief that the more a business frm is “collaborative,” the more successful it will

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be. Nearly all writers agree that collaboration is now more required within and between frms than was true in the past (for reasons outlined above).

Table 1-1 summarizes some of the benefts of collaboration identifed by previous writers and scholars.

TABLE 1-1 Business Benefits of Collaboration and Their Rationale Benefit

Rationale

Productivity

People working together can complete a complex task faster than the same number of people working in isolation from one another; there will be fewer errors.

Quality

People who work collaboratively can communicate errors, and take corrective actions faster, when they work together than if they worked in isolation.

Reduction in buffers and time delay among production units.

Innovation

People working collaboratively in groups can come up with more innovative ideas for products, services, and administration than the same number working in isolation from one another. Advantages to diversity and the “wisdom of crowds.”

Customer service

People working together in teams can solve customer complaints and issues faster and more effectively than if they were working in isolation from one another.

Financial performance (profitability, sales, and sales growth)

As a result of all of the above, collaborative firms have superior financial performance

One of the difculties of obtaining solid empirical evidence of the business benefts of collaboration involves the difculties in measuring “extent of collaboration.” One empirical study sponsored

by Verizon Business and Microsoft created a collaboration index to measure the impact of communications culture, and deployment of collaborative technologies. Tat study concluded that “collaboration is a key driver of overall performance of companies around the world. Its impact is twice as signifcant as a company’s aggressiveness in pursuing new market opportunities (strategic orientation) and fve times as signifcant as the external market environment (market turbulence)… Te results show that collaboration can positively impact each of the gold standards of performance proftability, proft growth and sales growth - to determine a company’s overall performance in the marketplace,” according to Jaclyn Kostner, Ph.D., best-selling author, and expert on high-performance virtual collaboration. “As a general rule, global companies that collaborate better, perform better. Tose that collaborate less, do not perform as well. It’s just that simple.”

A more rigorous empirical analysis of the difusion of information in a single corporation found that social networks--the foundation of collaboration-- were exceptionally powerful in moving

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news information up and down the hierarchy of a frm, while discussions of topics were expedited among peers at that same level in an organization. Te overall economic beneft of collaboration was signfcicant: for every word seen by an employee in emails from others, $70 of additional revenue was generated (Aral, Brynjolfsson, and Van Alstyne, 2007).

Figure 1-2 depicts the model which the researchers came up with to explain their fndings.

FIGURE 1-2 A Model of Collaboration

While there are many presumed benefts to collaboration, as you can see in Figure 1-2, you really need the right business frm culture and the right decentralized structure before you can achieve meaningful collaboration. And you also need a health investment in collaborative technologies. We talk about these requirements below.

3.0 What Makes a Good Collaborator a Good Team Member?

So what does it take to be a good collaborator, a so-called “team player?” Tink about some of the teams and groups you’ve been a member of, and consider the kinds of qualities of participants you respected. Table 1-2 provides a list of the eleven most important characteristics which are commonly found in the research literature on the qualities of good collaborators. Tis list is not

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exhaustive, but seeks to capture the central themes found in discussions of collaboration. Tese characteristics are in alphabetical order, not in order of importance.

TABLE 1-2 Eleven Important Individual Characteristics for Collaboration Characteristic

Description

Adaptable

Ability to learn; creative; works with a variety of others; mitigates problems; finds solutions.

Believe in collaboration

See teammates as collaborators; focused on team not self; selfless

Committed

Passionately believes in the mission and success of the team; enthusiastic; persistent.

Communicative

Ability to write, present, support; candid; truthful; believable; relates to others’ needs; empathic.

Competent

Ability to complete assigned tasks; detail oriented; consistent

Dependable

Responds consistently to team requirements; individual requests

Disciplined

Hitting schedules, targets; persistence; tenacious

Value adder

Enhancing the abilities of others; teaching; exemplary.

Mission conscious

Big picture orientation; putting details into perspective.

Solutions orientation

Ability to come up with alternative solutions; brainstorming; thinking afresh.

Mission conscious

Big picture orientation; putting details into perspective.

Trustworthy

Dependable; discrete; reliable; integrity.

Te characteristics of a good collaborator may seem a little abstract, but think of a basketball, football, or soccer team that you might have played on. Are these the characteristics you would want of your teammates? Are these characteristics they would want of you? Teams in business are not that diferent from teams in sports.

But this list is an “ideal” list. It’s not what really happens in the real world of business (or sports teams). In fact, it would be a rare individual indeed who ranked number 1 on all these characteristics. Most of us might be passable on some, pretty good on others, and a star on a few. However, a good team has diversity: one or more people who are excellent on a few diferent characteristics.

On a team of ten people, you might have two or three excellent learners; two really good communicators; a couple of solutions thinkers; most are highly competent for the mission although in diferent specialties, and most are committed, dependable, and mission conscious. Tese last

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three qualities-committed, dependable, and mission or goal oriented-seem to be absolute minimal requirements for good team members.

Te signifcance of this fnding is that it takes a diverse group of people to make a really successful team. You need a lot of diferent talents to make a team work. Sometimes this is also called synergy: the strengths of each of us complementing the strengths of others on the team. Tere are also management consequences discussed later. With a diverse group of talented people, it’s possible for the output of a team to be much larger than the output of all the individuals in a group.

In this case, the whole is greater than the sum of the parts.

TEAM BUILDING EXERCISE With a team of 3-5 students, ask each member working alone to rank order the list in Table 1-1 in terms of importance to collaboration based on their own personal experience either in business or sports. Next, ask everyone to rate themselves on each characteristic using a 1 (weak) to 5 (very strong) scale. Come together and compare the rank orders that each person produced. You might fnd out how many people chose each feature as #1. If you have quantitative skills, you might calculate the rank order correlation coefcient for the rankings. What do you fnd? Next, compare the lists of individual strengths. What do you fnd?

From a business point of view, the meaning is obvious. If you could get all your people working together efectively on teams, you would greatly increase the total output, and the productivity of the frm would grow, all without hiring new people. So teamwork becomes integral to having a successful frm.

4.0 Leadership: What Makes a Good Team Leader?

All teams require some kind of leadership, some person or persons who take charge, to get things done and accomplish the mission. When we think of sports teams, from basketball to hockey, they all have leaders, people who call the plays and issue directions. Leaders are very important for collaboration on any team: they keep the team focused, support team work, and provide direction.

What makes for a good team leader? Tousands of books and an even larger number of articles have been written about leadership in business and elsewhere. Some “leaders” are appointed by their superiors (formal leaders like generals, and managers). Other leaders emerge spontaneously among a group of people working together (informal leaders). Quite often the formal leaders and the informal leaders are two diferent kinds of individuals: formal leaders are chosen by a hierarchy to serve the interests of those who appointed them, and informal leaders are chosen by the members of the team or business to represent the group or team to the larger world. continued

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One way to think about both kinds of leaders is to consider that they generally are thought to have “more” of the key eleven characteristics that make for good team members, or more of the really important characteristics (Table 1-3).

TABLE 1-3 Qualities of Leaders Adaptable Believe in collaboration Committed Communicative Competent Dependable Disciplined Value adder Mission conscious Solutions orientation Mission conscious Trustworthy

For instance, if you ask real world managers how they choose leaders for the teams needed by their business, they will tend to emphasize competence (does this person have the skills to get the job done), and communications capability (can this person talk and/or write, present, and listen).

Te other qualities are either assumed to be true, or as derived from superior competence and communications ability.

LEADERSHIP EXERCISE With a team of 3-5 students, ask each member working alone to rank order the list in Table 1-3 in terms of the qualities of leadership they would use as managers when appointing leaders for their teams. You can score the team's performance by asking how people chose each characteristic as number 1. For instance, how many people in your group chose Adaptability as the number 1 quality they would use in choosing a leader. Do this for each characteristic. When fnished, compare notes with one another, and examine the list of most favored characteristics. What kind of agreement is observed across members of the team?

Studies of teams and other social networks show that leaders-both formal and informal-are at the center of communications for their team, and also highly connected to other social teams and networks. Leaders are connected people (Figure 1-3). continued

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FIGURE 1-3 Social Networks in Crisis: E-mail Analysis Following the missed deadline of an important project, a social network analysis company developed the above map of e-mail communications in the frm. One goal of the study was to identify the leaders in the company who potentially could get the project back on track, and another goal was discover how the various groups were linked together and the identity of these key people (so-called “bridges”) across groups. There are fve different colors of nodes (people): blue, grey, red, green, yellow) which represent members of fve different groups or teams.

Source: mailchimp.com/blog/using-emailto-uncover-hidden-social-networks.

Examining Figure 1-3, you can see some interesting patterns. Te groups blue, red, and green each have real “centers” where a small number of people receive and send a great deal of communications. Tese people are “leaders” of their teams because they are near the center of communication. You can also see some of these leaders are closely connected to other teams. Tese leaders are especially important as “bridges” across the organization: they communicate with a lot of people throughout the company as well as with their own members. Tese people tend to be the ones who can get additional resources for their teams. Tey are connected not just to people like themselves, but to others in diferent groups. Yellows, and grays, appear to talk more with other teams than they do among themselves. If you need leaders who can get the organization moving, these very highly connected individuals will be very infuential.

5.0 How to Build and Manage a Collaborative Team As a manager you will fnd that your success in large part will depend on the success of the teams you build and manage (Cohen and Prusak, 2001). Learning how to form successful teams in business is very important. Unfortunately, very little is written about how managers should form and manage teams. Tere are six steps to forming efective, collaborative, business teams.

1. Identify the mission and teams. As a manager you have some overarching objectives such as increasing sales to a new market, reducing costs in one part of the frm, or implementing continued

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a new information system. Your job is to break this larger mission down into sub-objectives that smaller teams can be responsible for. Your next job is for the life of the project to integrate (coordinate) the work of all the teams until you achieve the larger mission. For instance, if the mission is to build a new sales force customer relationship management system (CRM), then you will want at least fve teams including a systems analysis team to identify the business information requirements; a design team to select from a variety of diferent technical solutions; a programming team that builds the system (or adapts a packaged system to your frm); a testing team that ensures the system works; and an implementation team that handles the roll out of the system (Figure 1-4). Even if the technology solution involves purchasing a license to use an online CRM system, you may still need a group of technically competent people on staf who can build customized adaptations (e.g. programmers).

FIGURE 1-4 Missions and Teams

2. Identify the skills required for each team. Once you have identifed the sub-objectives, and the teams, you will need to identify the skills needed for each team. Not all teams have the same requirements. Te systems analysis and implementation teams interface directly with users and other business units, generally at a fairly high, middle management level. For these interaction jobs, communications skills are the most important, along with competence. Te design, programming, and testing teams require technical competence frst, and then the ability to communicate. Some members could be foremost in competence, others will need to be foremost in communication skills. It’s the mix that counts. Just because some people don’t communicate well does not mean they will not be valuable members of the team, and well respected for the things they can do really well. continued

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3. Choose people who have the right qualities. In all the teams you will need diversity of talent. In choosing people, you can rely on your own past experience with individuals, the recommendations of colleagues or other members of the team. You can choose a Team Leader and ask the Team Leader to choose people who will best help achieve their objectives. If you’ve been in the frm for a few years, you will know from your personal experience who to choose and why.

4. Oversight. Your job as a manager is to hold the team leaders and their teams accountable for meeting their objectives on schedule, and on budget. Call regular meetings with each team leader individually, and with all team leaders meeting as a group to review progress, identify blockages, and come up with solutions. Provide a support collaborative culture by rewarding team work, and providing incentives for teams to succeed. Incentives might something simple like a party celebrating a team success, or a reward ceremony.

In order to build efective teams in a frm, you will need two more elements. You will need a supportive collaborative culture. And you will need a suite of information technology tools and systems to enable the teamwork and collaboration.

6.0 Building a Collaborative Organizational Culture Collaboration won’t take place spontaneously in a business frm, especially if there is no supportive culture. If people are afraid to speak up, there might not even be cooperation, let along working together collaboratively. Business frms, especially large frms, had in the past a reputation for being “command and control” organizations where the top leaders thought up all the really important matters, and then ordered lower level employees to execute senior management plans. Tere often was a senior management Planning Group that spent most of each year just planning what lower level people should do. Te job of middle management supposedly was to pass messages back and forth, up and down the hierarchy.

To some extent this is a caricature of how frms used to behave in the 1950s to1990s, but caricatures often have some truth. Command and control frms required lower level employees to carry out orders without asking too many questions, with no responsibility to improve processes, and with no rewards for teamwork or team performance. If your work group needed help from another work group, that was something for the bosses to fgure out. You never communicated horizontally, always vertically, so management could control the process. As long employees showed up for work, and performed the job satisfactorily, that’s all that was required. Together the expectations of management and employees formed a culture, a set of assumptions about how things really are. It is surprising how many business frms still operate this way.

A collaborative business culture is very diferent. Senior managers are responsible for achieving results, but rely on teams of employees to achieve and implement the results. Teams have some decision making power. Policies, products, designs, processes, and systems are much more dependent on teams at all levels of the organization to devise, to create, and to build. Teams are rewarded continued

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for their performance, and individuals are rewarded for their performance in a team. You might be a brilliant star on a failed team and receive only half the rewards. Te function of middle managers is to build the teams, coordinate their work, and monitor their performance. Tat’s a far cry from the old style middle manager who was primarily a message processor.

In a collaborative culture, senior management establishes collaboration and teamwork as vital to the organization, and they actually implement collaboration for the senior ranks of the business as well.

You can tell if you work in a collaborative culture by answering six questions: 1. Is it easy to talk with just about anyone in your frm (ease of cooperation) regardless of their position?

2. Does your unit cooperate regularly with other units at work? (frequency of cooperation). You can substitute ofce, or department, depending on how your frm organizes itself.

3. Are people in other departments easy to access and communicate with?

4. Does your frm reward individuals only, or does it reward teams and individuals?

5. Does your frm extol the virtues of teamwork in public and private conversations?

6. Do your managers and executives work as a team?

7.0 Information Technology and Systems to Enable Collaboration and Team Work Building a collaborative, team oriented culture will do little good if you don’t have the information systems in place to enable that collaboration. Tis would be like having a house without the plumbing and electrical infrastructure.

Today with the Internet, it is possible for nearly the entire labor force of frms to be online and to collaborate with their respective fellow employees, customers, and suppliers. Research on the various ways in which information technology supports collaboration has been going on since the late 1980s when the Internet was in its infancy, and the frst software tools began to appear that supported what was call “group work.” Tese early tools were called “groupware,” and the feld of study was called “computer supported cooperative work” (CSCW). Groupware included capabilities for sharing calendars, collective writing, e-mail, shared database access, and electronic meetings with each participant able to see and display information to others, and other activities. Today, there are many other software tools and applications for supporting and enhancing collaboration, many of which are Internet-enabled.

Currently there are literally hundreds of tools designed to deal with the fact that, in order to succeed in our jobs, we are all much more dependent on one another, our fellow employees, continued

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customers, suppliers and managers. For instance, one company enlisted the talents of over 100 groupware experts at a conference and produced a map listing 150 free (or nearly free) online collaborative tools in ffteen categories (Table 1-4 lists the categories or types of collaboration software identifed by experts in the feld).

TABLE 1-4 Fifteen Categories of Collaborative Software Tools Collaborative writing Collaborative reviewing Event scheduling Instant messaging VoIP audio conferencing Screen sharing Video conferencing White boarding Web presenting Work grouping Document sharing (including wikis) File sharing Mind mapping Large audience Webinars Co-browsing

Some of the high-end tools like IBM Notes are expensive, but powerful enough for global frms.

Others are available online for free (often with premium versions for a modest fee) and are suitable for small businesses.

For example, one of the most widely used “free” online services is Google Workspace/Google Sites. Google Sites is a tool that allows users to quickly and easily design group-editable Web sites.

Google Sites users can put up Web sites in minutes and can, without any advanced technical skills, post a variety of fles including calendars, text, spreadsheets, and videos for private, group, or public viewing and editing.

Google Workspace includes the typical desktop productivity software tools (word processing, spreadsheets, calendar, contact management and mail).

Microsoft SharePoint is a collection of products and technologies that provide an enterprise-level environment for Web-based collaboration. SharePoint can be used to host Web sites that organize and store information in one central location to enable teams to coordinate work activities,

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collaborate on and publish documents, maintain task lists, implement workfows, and share information via wikis and blogs. Sharepoint has a Web-based interface and close integration with everyday tools such as Microsoft Ofce desktop software products. Site content is accessible from both a Web browser and client-supported Web services. Because SharePoint stores and organizes information in one place, users can fnd relevant information quickly and efciently while working together closely on tasks, projects, and documents.

Here is a list of SharePoint’s major capabilities: ◆

◆

◆

◆

◆ ◆

◆

Provides a single workspace for teams to coordinate schedules, organize documents, and participate in discussions, within the organization or over an extranet.

Facilitates creation and management of documents with the ability to control versions, view past revisions, and enforce document-specifc security and maintain document libraries.

Provides announcements, alerts, and discussion boards to inform users when actions are required or changes are made to existing documentation or information.

Supports personalized content and both personal and public views of documents and applications Provides templates for blogs and wikis to help teams share information and brainstorm.

Provides tools to manage document libraries, lists, calendars, tasks, and discussion boards ofine, and to synchronize changes when reconnected to the network.

Provides enterprise search tools for locating people, expertise, and content.

IBM (formerly Lotus) Notes is a client-server, collaborative application developed and sold by IBM Software Group. IBM defnes the software as an “integrated desktop client option for accessing business e-mail, calendars and applications on an IBM Lotus Domino server.” Te Notes client is mainly used as an email client, but also acts as an instant messaging client (for Lotus Sametime), browser, notebook, and calendar/resource reservation client, as well as a platform for interacting with collaborative applications. Today Notes also provides blogs, wikis, RSS aggregators, CRM and Help Desk systems.

Very large frms adopt IBM Lotus Notes because of the promised higher level of security, and the sense that the frm retains control over sensitive information. Large frms in general do not feel secure using popular software-as-a-service (SaaS) applications for “strategic” applications because of the implicit security concerns, and the dependency on external servers controlled by, and subject to the fate of, other frms. Most experts agree, however, that these concerns perhaps will lessen as experience with online tools grows, and the sophistication of online software service suppliers increases to protect security and reduce vulnerability.

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MAKING SENSE OUT OF COLLABORATION TOOLS We have avoided trying to formally defne contemporary collaboration and team work software tools. Instead we have gathered lists of many popular software tools (both online as a service and as installed client-server applications), and described their capabilities. We have pointed at examples. While these lists help you understand the broad range of tools that are available in the marketplace, how do you choose the right tool for your frm? Are these software tools just solutions looking for a problem to solve? What problems do they solve?

To answer these questions you need a framework for understanding just what problems these tools help solve. One framework that has been helpful for us to talk about collaboration tools is the time/ space groupware matrix developed in the early 1990s by a number of collaborative work scholars (Figure 1-5).

FIGURE 1-5 The Time/Space Groupware Matrix

Te Time/Space matrix focuses on two dimensions of the collaboration problem: time and space.

For instance, you need to collaborate with people in diferent time zones and you cannot all meet at the same time. Midnight in New York is Noon in Bombay, so this makes it difcult to have a video conference (the people in New York are too tired). So time is a problem inhibiting collaboration on a global scale.

Place (location) is also a problem that inhibits collaboration in large global or even national and regional frms. Getting people together for a physical meeting is made difcult by the physical dispersion of distributed frms (frms with more than one location), the cost of travel, and the time limitations of managers.

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One way to think about software collaboration tools is to see them as ways of overcoming the limitations of time and space. Table 1-7 above shows four kinds of time/space scenarios (the intersections of the two dimensions in Figure 1-5).

TABLE 1-5 Collaboration Challenges and Generic Solutions Scenario

Solution Types

Same time/same place

Face to face meetings; decision rooms; whiteboards; telepresence

Same time/different place

Remote interactions; video conferencing; IM and Twitter; telepresence $5/project/month for premium service.

Different time/same place

Continuous tasks, digital team rooms; project management; asynchronous communication

Different time/different place

Asynchronous communication and coordination; workflow; project management tools; blogs; wikis

You can use this classifcation scheme to categorize the diferent collaboration and team work software applications.

8.0 Choosing Collaboration Tools: Management To-Do List Now let’s apply these frameworks. You can use these classifcation tools to start thinking about how to choose collaboration and team work tools for your frm. As a manager, you will want to purchase and use the tools that solve the issues your frm is facing. Here’s a To-Do list to get started: 1. What are the collaboration challenges facing the frm in terms of time and space? Locate your frm in the Time/Space matrix. Your frm can occupy more than one cell in the matrix.

Diferent collaboration tools will be needed for each situation.

2. Within each cell of the matrix where your frm faces challenges, exactly what kinds of solutions are available? Make a list of vendor products.

3. Analyze each of the products in terms of their cost and benefts to your frm. Be sure to include the costs of training in your cost estimates, and the costs of involving the Information Systems Department if needed.

4. Identify the risks to security and vulnerability involved with each of the products. Is your frm willing to put proprietary information into the hands of external service providers over the Internet? Is your frm willing to risk its important operations to systems controlled by other frms? What are the fnancial risks facing your vendors? Will they be here in three to fve years?

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What would be the cost of making a switch to another vendor in the event the vendor frm fails?

5. Seek out the help of potential users to identify implementation and training issues. Some of these tools are easier to use than others; 6. Make your selection of candidate tools, and invite the vendors to make presentations.

If you follow these six steps, you should be led to investing in the correct software for your frm at a price you can aford, and within your risk tolerance.

REFERENCES: Aral, Sinan; Erik Brynjolfsson; and Marshall Van Alstyne, “Productivity Efects of Information Difusion in Networks,” MIT Center for Digital Business, July 2007. Baecker, R.M., et. al. Readings in human-computer interaction: toward the year 2000. Morgan Kaufmann Publishers. (1995). Beyerlein, Michael M.; Susan Freedman; Craig McGee; and Linda Moran. Beyond Teams: Building the Collaborative Organization. John Wiley: New York, 2003. Boddy, David; Douglas Macbeth; and Beverly Wagner. “Implementing Collaboration Between Organizations: An Empirical Study Of Supply Chain Partnering.” Journal of Management Studies, Volume 37 Issue 7, Pages 1003 - 1018, 2002. Castells, Manual. Te Information Age: Economy, Society and Culture. Vol I: Te Rise of the Network Society.

Oxford: Blackwell. 1996. Cohen, Donald J. and Laurence Prusak. “In good company: how social capital makes organizations work.” Communications of the ACM, Volume 1 , Issue 42 (January 2001) Kling, Rob, and Roberta Lamb.

“From Users to Social Actors: Reconceptualizing Socially Rich Interaction Trough Information and Communication Technology.” Indiana University, SLIS, Center for Social Informatics. No. WP- 02-11. 2002. Kossinets, Guerorgi, and Duncan J. Watts. “Empirical Analysis of an Evolving Social Network.” Science. January 6, 2006. Malone, Tomas W.; Crowston, Kevin. “Toward an interdisciplinary theory of coordination” Sloan School of Management. Center for Coordination Science, Sloan School of Management, Massachusetts Institute of Technology.1991 Malone, Tomas W. and Kevin Crowston. “Computer Supported Collaborative Work.” Proceedings of the 1990 ACM Conference on Computer supported Cooperative Work, Los Angeles, 1990. Malone, Tomas W. and Kevin Crowston. “Te Interdisciplinary Study of Coordination.” ACM Computing Surveys (CSUR). March, 1994. Scarnati, James T. “On becoming a team player.” Team Performance Management, 2001. Simonin, Bernard. “Te Importance of Collaborative Know How: An Empirical Test of the Learning Organization.” American Academy of Management, 1997, Vol. 40, No. 5.

Frost and Sullivan. “New Research Reveals Collaboration Is a Key Driver of Business Performance Around the World.”

Whitepaper. Microsoft Press Release. Redmond, Washington, June 5, 2006.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 2: Global E-Business and Collaboration

Learning Track 3: Challenges of Using Business Information Systems Organizations still need different types of information systems serving various organizational levels, functions, and business processes, and they increasingly need systems providing enterprise-wide integration. These needs create both opportunities and challenges.

Opportunities Businesses face extraordinary opportunities to apply information systems throughout the firm to achieve higher levels of productivity, earnings, and ultimately advance share prices. Today information systems support virtually all levels and functions in the firm. In addition they enhance decision making of both managers and employees, providing information where and when it is needed in a format that is easily integrated into everyday business life.

Management Challenges There are challenges to achieving these objectives.

INTEGRATION AND THE WHOLE FIRM VIEW In the past, information systems were built to serve the narrow interests of different business functions (such as marketing, finance, or operations) or to serve a specific group of decision makers (such as middle managers). The problem with this approach is that it results in the building of thousands of systems that cannot share information with one another and, worse, makes it difficult for managers to obtain the information they need to operate the whole firm. Building systems that both serve specific interests in the firm, but also can be integrated to provide firmwide information is a challenge.

MANAGEMENT AND EMPLOYEE TRAINING With so many systems in a large business firm, and with fairly high employee turnover typical of the last few years, training people how to use the existing systems, and learn new systems, turns out to be a major challenge. Obviously, without training or when training is limited, employees and managers cannot use information systems to maximum advantage, and the result can be a low return on investment in systems. continued

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ACCOUNTING FOR THE COST OF SYSTEMS AND MANAGING DEMAND FOR SYSTEMS As the cost of information falls because of the power of information technology, demands for information and technology services proliferate throughout the firm. Unfortunately, if employees and managers believe information services are free, their demands will be infinite. One of the challenges facing business managers is understanding which systems are truly necessary, truly productive with high returns on investment, and which are merely conveniences that cost a great deal but deliver little.

Solution Guidelines A number of solutions exist to the challenges we have just described.

INVENTORYING THE FIRM’S INFORMATION SYSTEMS FOR A 360-DEGREE VIEW OF INFORMATION You should develop a list of firmwide information requirements to get a 360-degree view of the most important information needs for your company as a whole. Once you have this list developed, examine how your existing systems—most built to service specific groups and levels in the firm—provide this information to corporate-wide systems. You’ll need to inventory your firm’s existing information systems and those under construction. (Many firms have no idea of all the systems in their firm, or what information they contain.) Identify each system and understand which group or level in the firm benefits from the system.

EMPLOYEE AND MANAGEMENT EDUCATION Systems are usually not obvious or self-taught for most people. You will need to ensure that you understand how much training is required to support new systems, and budget accordingly. Once you have an inventory of just the major systems in a firm that are used every day by thousands of employees, try to identify how they learn how to use the system, how effective their training is, and how well they use the systems. Do they exploit all the potential value built into the systems?

ACCOUNTING FOR THE COSTS AND BENEFITS OF INFORMATION SYSTEMS To manage the demand for information services, you’ll need an accounting system for information services. It is worthwhile to examine the methods used in your industry and by industry competitors to account for their information systems budgets. Your system should use some method for charging the budgets of various divisions, departments, and groups that directly benefit from a system. And there are other services that should not be charged to any group because they are a part of the firm’s general information technology (IT) infrastructure and serve everyone. For instance, you would not want to charge various groups for Internet or intranet services because they are services provided to everyone in the firm, but you would want to charge the manufacturing division for a production

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control system because it benefits that division exclusively. Equally important, management should establish priorities on which systems most deserve funding and corporate attention.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 2: Global E-business and Collaboration

Learning Track 4: Organizing the Information Systems Function There are many types of business firms, and there are many ways in which the IT ­function is ­organized within the firm (see Figure 1-1). A very small company will not have a formal ­information systems group. It might have one employee who is responsible for keeping its networks and applications running, or it might use consultants for these services. Larger companies will have a separate information systems department, which may be organized along several different lines, depending on the nature and interests of the firm.

Sometimes you’ll see a decentralized arrangement where each functional area of the business has its own information systems department and management that typically reports to a senior manager or chief information officer. In other words, the marketing department would have its own information systems group as would manufacturing and each of the other business functions. The job of the CIO is to review information technology investments and decisions in the f­ unctional areas. The advantage of this approach is that systems are built that directly address the b­ usiness needs of the functional areas.

However, central guidance is weak and the danger is high that many incompatible systems will be built, increasing costs as each group makes its own ­technology purchases.

In another arrangement, the information systems function operates as a separate department similar to the other functional departments with a large staff, a group of middle managers, and a senior management group that fights for its share of the company’s resources. You’ll see this approach in many large firms. This central information systems department makes technology decisions for the entire company, which is more likely to produce more compatible systems and more coherent long-term systems development plans.

Very large “Fortune 1,000”-size firms with multiple divisions and product lines might allow each division (such as the Consumer Products Division or the Chemicals and Additives Division) to have its own information systems group. All of these divisional information systems groups report to a highlevel central information systems group and CIO. The central IS group ­establishes corporate-wide standards, centralizes purchasing, and develops long-term plans for evolving the corporate computing platform. This model combines some divisional independence with some centralization.

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FIGURE 1-1 Organization of the Information Systems Function

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FIGURE 1-1 Organization of the Information Systems Function (continued)

There are alternative ways of organizing the information systems function within the business.: within each functional area (A), as a separate department under central control (B), or represented in each ­division of a large multidivisional company but under centralized control (C).

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 3: Information Systems, Organizations and Strategy

Learning Track 1: The Changing Business Environment of Information Technology A combination of information technology innovations and a changing domestic and global b­ usiness environment makes the role of IT in business even more important for managers than just a few years ago. The Internet revolution is not something that happened and then burst, but instead has turned out to be an ongoing, powerful source of new technologies with significant business implications for much of this century.

There are five factors to consider when assessing the growing impact of IT in business firms both today and over the next ten years. ◆

Internet growth and emergence of the mobile platform

◆

Transformation of the business enterprise

◆

Growth of a globally connected economy

◆

Growth of knowledge and information-based economies

◆

Emergence of the digital firm

These changes in the business environment, summarized in Table 1-1, pose a number of new ­challenges and opportunities for business firms and their managements.

The Internet, Mobile Platform, and Technology Convergence One of the most frequently asked questions by Wall Street investors, journalists, and business entrepreneurs is, “What’s the next big thing?” As it turns out, the next big thing is in front of us: We are in the midst of a networking and communications revolution driven by the growth of the Internet, the ascendant mobile platform, and new business models and processes that leverage the new technologies. Today, more than half of Internet access occurs through smartphones and tablet computers.

Although “digital convergence” was predicted a decade ago, it is now an undeniable reality. Four massive industries are moving toward a common platform: the computer hardware and software industry, the consumer electronics industry, the communications industry (traditional and wireless continued

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telephone networks), and the content industry (from Hollywood movies, to music, text, and research industries).

TABLE 1-1 The Changing Contemporary Business Environment INTERNET GROWTH AND TECHNOLOGY CONVERGENCE New business technologies with favorable costs Explosive growth of the mobile platform E-business, e-commerce, and e-government Rapid changes in markets and market structure Increased obsolescence of traditional business models TRANSFORMATION OF THE BUSINESS ENTERPRISE Flattening Decentralization Flexibility Location independence Low transaction and coordination costs Empowerment Collaborative work and teamwork GLOBALIZATION Management and control in a global marketplace Competition in world markets Global workgroups Global delivery systems RISE OF THE INFORMATION ECONOMY Knowledge- and information-based economies New products and services Knowledge as a central productive and strategic asset Time-based competition Shorter product life Turbulent environment Limited employee knowledge base EMERGENCE OF THE DIGITAL FIRM Digitally enabled relationships with customers, suppliers, and employees Core business processes accomplished using digital networks Digital management of key corporate assets Agile sensing and responding to environmental changes

Although each industry has its favored platform, the outlines of the future are clear: a world of near universal, online, on-demand, and personalized information services from text messaging on cell phones, to games, education, and entertainment. continued

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The Internet is bringing about a convergence of technologies, roiling markets, entire in­dustries, and firms in the process. Traditional boundaries and business relationships are breaking down, even as new ones spring up. Telephone networks are merging into the Internet, and cellular phones are becoming Internet access devices. Handheld devices such as iPhones are emerging as potential portable game and entertainment centers. The Internet-connected personal computer is moving toward a role as home entertainment control center.

Traditional markets and distribution channels are weakening and new markets are being created. For instance, the markets for music CDs and video DVDs and the music and video store industries are undergoing rapid change. New markets for online streaming media and for music and video downloads have materialized. DVD movie sales, and CD music sales, have plunged by 50% since their heyday in 2005.

Today, networking and the Internet are nearly synonymous with doing business. Firms’ relationships with customers, employees, suppliers, and logistic partners are becoming digital relationships. As a supplier, you cannot do business with Wal-Mart, or Sears, or most national retailers unless you adopt their well-defined digital technologies. As a consumer, you will increasingly interact with sellers in a digital environment. As an employer, you’ll be interacting more electronically with your employees and giving them new digital tools to accomplish their work.

So much business is now enabled by or based upon digital networks that we use the terms electronic business and electronic commerce frequently throughout this text. Electronic business, or e-business, designates the use of Internet and digital technology to execute all of the activities in the enterprise. E-business includes activities for the internal management of the firm and for coordination with suppliers and other business partners. It also includes electronic commerce, or e-commerce.

E-commerce is the part of e-business that deals with the buying and selling of goods and services electronically with computerized business transactions using the Internet, networks, and other digital technologies. It also encompasses activities supporting those market transactions, such as advertising, marketing, customer support, delivery, and payment.

The technologies associated with e-commerce and e-business have also brought about similar changes in the public sector. Governments on all levels are using Internet tech­nology to deliver information and services to citizens, employees, and businesses with which they work. E-government is the application of the Internet and related technologies to digitally enable government and public sector agencies’ relationships with citizens, businesses, and other arms of government. In addition to improving delivery of government services, e-government can make government operations more efficient and also empower citizens by giving them easier access to information and the ability to network electronically with other citizens. For example, citizens in some states can renew their ­driver’s licenses or apply for unemployment benefits online, and the Internet has become a powerful tool for instantly mobilizing interest groups for political action and fund-raising.

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Transformation of the Business Enterprise Along with rapid changes in markets and competitive advantage are changes in the firms themselves.

The Internet and the new markets are changing the cost and revenue structure of traditional firms and are hastening the demise of traditional business models.

For instance, in the United States, in 2013, 55% percent of travel sales are made online, and experts believe that 70 percent of travel sales will be online within a decade. Realtors have had to reduce commissions on home sales because of competition from Internet real estate sites. The business model of traditional local telephone companies, and the value of their copper-based networks, is rapidly declining as millions of consumers switch to cellular and Internet telephones.

At the Orbitz Web site, visitors can make online reservations for airlines, hotels, rental cars, cruises, and vacation packages and obtain information on travel and leisure topics. Such online travel services are supplanting traditional travel agencies.

The Internet and related technologies make it possible to conduct business across firm boundaries almost as efficiently and effectively as it is to conduct business within the firm. This means that firms are no longer limited by traditional organizational boundaries or physical locations in how they design, develop, and produce goods and services. It is possible to maintain close relationships with suppliers and other business partners at great distances and outsource work that firms formerly did themselves to other companies.

For example, Cisco Systems does not manufacture the networking products it sells; it uses other companies, such as Flextronics, for this purpose. Cisco uses the Internet to transmit orders to Flextronics and to monitor the status of orders as they are shipped. GKN Aerospace North America, which fabricates engine parts for aircraft and aerospace vehicles, uses a system called Sentinel with a Web interface to monitor key indicators of the production systems of Boeing Corporation, its main customer. Sentinel responds automatically to Boeing’s need for parts by increasing, decreasing, or shutting down GKN’s systems according to parts usage (Mayor, 2004). continued

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In addition to these changes, there has also been a transformation in the management of the enterprise.

The traditional business firm was—and still is—a hierarchical, centralized, structured arrangement of specialists who typically relied on a fixed set of standard operating procedures to deliver a massproduced product (or service). The new style of business firm is a flattened (less hierarchical), decentralized, flexible arrangement of generalists who rely on nearly instant information to deliver masscustomized products and services uniquely suited to specific markets or customers.

The traditional management group relied—and still relies—on formal plans, a rigid division of labor, and formal rules. The new manager relies on informal commitments and networks to establish goals (rather than formal planning), a flexible arrangement of teams and individuals working in task forces, and a customer orientation to achieve coordination among employees. The new manager appeals to the knowledge, learning, and decision making of individual employees to ensure proper operation of the firm. Once again, information technology makes this style of management possible.

Globalization A growing percentage of the American economy—and other advanced industrial economies in Europe and Asia—depends on imports and exports. Foreign trade, both exports and imports, accounts for more than 25 percent of the goods and services produced in the United States, and even more in countries such as Japan and Germany. Companies are also distributing core business functions in product design, manufacturing, finance, and customer support to locations in other countries where the work can be performed more cost effectively. The success of firms today and in the future depends on their ability to operate globally.

Today, information systems provide the communication and analytic power that firms need to conduct trade and manage businesses on a global scale. Controlling the far-flung global corporation—communicating with distributors and suppliers, operating 24 hours a day in different national environments, coordinating global work teams, and servicing local and international reporting needs—is a major business challenge that requires powerful information system responses.

Globalization and information technology also bring new threats to domestic business firms: Because of global communication and management systems, customers now can shop in a worldwide marketplace, obtaining price and quality information reliably 24 hours a day. To become competitive participants in international markets, firms need powerful information and communication systems.

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Rise of the Information Economy The United States, Japan, Germany, and other major industrial powers are being transformed from industrial economies to knowledge- and information-based service economies, whereas manufacturing has been moving to lower-wage countries. In a knowledge- and information-based economy, knowledge and information are key ingredients in creating wealth.

The knowledge and information revolution began at the turn of the twentieth century and has gradually accelerated. By 1976, the number of white-collar workers employed in offices surpassed the number of farm workers, service workers, and blue-collar workers employed in manufacturing (see Figure 1-1). Today, most people no longer work on farms or in factories but instead are found in sales, education, health care, banks, insurance firms, and law firms; they also provide business services, such as copying, computer programming, or making deliveries. These jobs primarily involve working with, distributing, or creating new knowledge and information. In fact, knowledge and information work now account for a significant 60 percent of the U.S. gross national product and nearly 55 percent of the labor force.

FIGURE 1-1 The Growth of the Information Economy.

Since the beginning of the twentieth century, the United States has experienced a steady decline in the number of farm workers and blue-collar workers who are employed in factories. At the same time, the country is experiencing a rise in the number of white-collar workers who produce economic value using knowledge and information.

Sources: U.S. Department of Commerce, Bureau of the Census, Statistical Abstract of the United States, 2003, Table 615; and Historical Statistics of the United States, Colonial Times to 1970, Vol. 1, Series D, pp. 182–232.

In knowledge- and information-based economies, the market value of many firms is based largely on intangible assets, such as proprietary knowledge, information, unique business methods, brands, and other “intellectual capital.” Physical assets, such as buildings, machinery, tools, and inventory, now

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account for less than 20 percent of the market value of many public firms in the United States (Lev, 2001).

Knowledge and information provide the foundation for valuable new products and services, such as credit cards, overnight package delivery, or worldwide reservation systems. Knowledge- and ­information-intense products, such as computer games, require a great deal of knowledge to produce, and knowledge is used more intensively in the production of traditional products as well. In the automobile industry, for instance, both design and production now rely heavily on knowledge and information technology.

Emergence of the Digital Firm All of the changes we have just described, coupled with equally significant organizational redesign, have created the conditions for a fully digital firm. The digital firm can be defined along several dimensions. A digital firm is one in which nearly all of the organization’s sig­nificant business relationships with customers, suppliers, and employees are digitally enabled and mediated. Core business processes are accomplished through digital networks spanning the entire organization or linking multiple organizations.

Business processes refer to the set of logically related tasks and behaviors that organizations develop over time to produce specific business results and the unique manner in which these activities are organized and coordinated. Developing a new product, generating and fulfilling an order, creating a marketing plan, and hiring an employee are examples of business processes, and the ways organizations accomplish their business processes can be a source of competitive strength.

Key corporate assets—intellectual property, core competencies, and financial and human assets—are managed through digital means. In a digital firm, any piece of information required to support key business decisions is available at any time and anywhere in the firm.

Digital firms sense and respond to their environments far more rapidly than traditional firms, giving them more flexibility to survive in turbulent times. Digital firms offer extraordinary opportunities for more global organization and management. By digitally enabling and streamlining their work, digital firms have the potential to achieve unprecedented levels of profitability and competitiveness.

DaimlerChrysler, described earlier, illustrates some of these qualities. Electronically integrating key business processes with suppliers has made this company much more agile and adaptive to customer demands and changes in its supplier network.

Figure 1-2 illustrates a digital firm making intensive use of Internet and digital tech­nology for electronic business. Information can flow seamlessly among different parts of the company and between the company and external entities—its customers, suppliers, and business partners. More and more organizations are moving toward this digital firm vision.

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FIGURE 1-2 Electronic Business and Electronic Commerce in the Emerging Digital Firm.

Companies can use Internet technology for e-commerce transactions with customers and suppliers, for managing internal business processes, and for coordinating with suppliers and other business partners.

E-business includes e-commerce as well the management and coordination of the enterprise.

A few firms, such as Cisco Systems or Dell Computers, are close to becoming fully digi­tal firms, using the Internet to drive every aspect of their business. In most other companies, a fully digital firm is still more vision than reality, but this vision is driving them toward digital integration. Firms are continuing to invest heavily in information systems that integrate internal business processes and build closer links with suppliers and customers.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 4: Ethical and Social Issues in Information Systems

Learning Track 1: Developing a Corporate Code of Ethics for IT As a manager, you will be responsible for developing, enforcing, and explaining corporate ethics policies. Historically, corporate management has paid much more attention to financial integrity and personnel policies than to the information systems area. But based on what you will have learned after reading this chapter, it will be clear your corporation should have an ethics policy in the information systems (IS) area covering such issues as privacy, property, accountability, system quality, and quality of life. The challenge will be in educating non-IS managers about the need for these policies, as well as educating your workforce.

Some corporations have developed far-reaching corporate IS codes of ethics, including FedEx, IBM, American Express, and Merck & Co. Most firms, however, have not developed these codes of ethics, leaving their employees unsure about expected correct behavior. There is some dispute concerning a general code of ethics versus a specific information systems code of ethics. As managers, you should strive to develop an IS-specific set of ethical standards for each of the five moral dimensions: ◆

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Information rights and obligations. A code should cover topics such as employee e-mail and Internet privacy, workplace monitoring, treatment of corporate information, and policies on customer information.

Property rights and obligations. A code should cover topics such as software licenses, ownership of firm data and facilities, ownership of software created by employees on company hardware, and software copyrights. Specific guidelines for contractual relationships with third parties should be covered as well.

System quality. The code should describe the general levels of data quality and system error that can be tolerated, with detailed specifications left to specific projects. The code should require that all systems attempt to estimate data quality and system error probabilities.

Quality of life. The code should state that the purpose of systems is to improve the quality of life for customers and for employees by achieving high levels of product quality, customer service, and employee satisfaction and human dignity through proper ergonomics, job and workflow design, and human resources development.

Accountability and control. The code should specify a single individual responsible for all information systems, and reporting to this individual should be others who are responsible for individual rights, the protection of property rights, system quality, and quality of life (e.g., job design, ergonomics, and employee satisfaction). Responsibilities for control of systems, audits, and management continued

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should be clearly defined. The potential liabilities of systems officers and the corporation should be detailed in a separate document.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 5: IT Infrastructure and Emerging Technologies

Learning Track 1: How Computer Hardware and Software Work Although managers and business professionals do not need to be computer technology experts, they should have a basic understanding of the role of hardware and software in the organization’s information technology (IT) infrastructure so that they can make technology decisions that promote organizational performance and productivity. This Learning Track surveys the capabilities of computer hardware and computer software.

Computer Hardware and Information Technology Infrastructure Computer hardware provides the underlying physical foundation for the firm’s IT infrastructure. Other infrastructure components—software, data, and networks—require computer hardware for their storage or operation.

The Computer System A contemporary computer system consists of a central processing unit, primary storage, secondary storage, input devices, output devices, and communications devices (see Figure 5-1). The central processing unit manipulates raw data into a more useful form and controls the other parts of the computer system. Primary storage temporarily stores data and program instructions during processing, whereas secondary storage devices (magnetic and optical disks, solid state drives (SSDs), and magnetic tape) store data and programs when they are not being used in processing. Input devices, such as a keyboard or mouse, convert data and instructions into electronic form for input into the computer. Output devices, such as printers and video display terminals, convert electronic data produced by the computer system and display them in a form that people can understand.

Communications devices provide connections between the computer and communications networks.

Buses are circuitry paths for transmitting data and signals among the parts of the computer system.

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FIGURE 5-1 Hardware Components of a Computer System.

A contemporary computer system can be categorized into six major components. The central processing unit manipulates data and controls the other parts of the computer system; primary storage temporarily stores data and program instructions during processing; secondary storage stores data and instructions when they are not used in processing; input devices convert data and instructions for processing in the computer; output devices present data in a form that people can understand; and communications devices control the passing of information to and from communications networks.

In order for information to flow through a computer system and be in a form suitable for processing, all symbols, pictures, or words must be reduced to a string of binary digits. A binary digit is called a bit and represents either a 0 or a 1. In the computer, the presence of an electronic or magnetic signal means one, and its absence signifies zero. Digital computers operate directly with binary digits, either singly or strung together to form bytes. A string of eight bits that the computer stores as a unit is called a byte. Each byte can be used to store a decimal number, a symbol, a character, or part of a picture (see Figure 5-2).

FIGURE 5-2 Bits and Bytes.

Bits are represented by either a 0 or 1. A string of eight bits constitutes a byte, which represents a character or number. Illustrated here is a byte representing the letter “A” using the ASCII binary coding standard.

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Computers can represent pictures by creating a grid overlay of the picture. Each single point in this grid or matrix is called a pixel (picture element) and consists of a number of bits. The computer then stores this information on each pixel.

The CPU and Primary Storage The central processing unit (CPU) is the part of the computer system where the manipulation of symbols, numbers, and letters occurs, and it controls the other parts of the computer system (see Figure 5-3). Located near the CPU is primary storage (sometimes called primary memory or main memory), where data and program instructions are stored temporarily during processing. Buses provide pathways for transmitting data and signals between the CPU, primary storage, and the other devices in the computer system. The characteristics of the CPU and primary storage are very important in determining a computer’s speed and capabilities.

THE ARITHMETIC-LOGIC UNIT AND CONTROL UNIT Figure 5-3 also shows that the CPU consists of an arithmetic-logic unit and a control unit. The arithmetic-logic unit (ALU) performs the computer’s principal logical and arithmetic operations. It adds, subtracts, multiplies, and divides, determining whether a number is positive, negative, or zero. In addition to performing arithmetic functions, an ALU must be able to determine when one quantity is greater than or less than another and when two quantities are equal. The ALU can perform logic operations on letters as well as numbers.

FIGURE 5-3 The CPU and Primary Storage.

The CPU contains an arithmetic-logic unit and a control unit. Data and instructions are stored in unique addresses in primary storage that the CPU can access during processing. The data bus, address bus, and control bus transmit signals between the central processing unit, primary storage, and other devices in the computer system.

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The control unit coordinates and controls the other parts of the computer system. It reads a stored program, one instruction at a time, and directs other components of the computer system to perform the program’s required tasks. The series of operations required to process a single machine instruction is called the machine cycle. Older computers and PCs have machine cycle times measured in microseconds (millionths of a second). More powerful machines have machine cycle times measured in nanoseconds (billionths of a second) or picoseconds (trillionths of a second). Another measure of machine cycle time is by MIPS, or millions of instructions per second.

PRIMARY STORAGE Primary storage has three functions. It stores all or part of the software program that is being executed. Primary storage also stores the operating system programs that manage the operation of the computer. Finally, the primary storage area holds data that the program is using. Internal primary storage is often called RAM, or random access memory. It is called RAM because it can directly access any randomly chosen location in the same amount of time.

Primary memory is divided into storage locations called bytes. Each location contains a set of eight binary switches or devices, each of which can store one bit of information. The set of eight bits found in each storage location is sufficient to store one letter, one digit, or one special symbol (such as $). Each byte has a unique address, similar to a mailbox, indicating where it is located in RAM. The computer can remember where the data in all of the bytes are located simply by keeping track of these addresses.

Computer storage capacity is measured in bytes. Table 5-1 lists computer storage capacity measurements. One thousand bytes (actually 1,024 storage positions) is called a kilobyte. One million bytes is called a megabyte, one billion bytes is called a gigabyte, and one trillion bytes is called a terabyte.

TABLE 5-1 Computer Storage Capacity Byte

String of eight bits

Kilobyte

1,000 bytes*

Megabyte

1,000,000 bytes

Gigabyte

1,000,000,000 bytes

Terabyte

1,000,000,000,000 bytes

*Actually 1024 storage positions.

Primary storage is composed of semiconductors, which are integrated circuits made by printing thousands and even millions of tiny transistors on small silicon chips. There are several different kinds of semiconductor memory used in primary storage. RAM is used for short-term storage of data or program instructions. RAM is volatile: Its contents will be lost when the computer’s electric supply is disrupted by a power outage or when the computer is turned off. ROM, or read-only memory, can only be read from; it cannot be written to. ROM chips come from the manufacturer with programs already

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burned in, or stored. ROM is used in general-purpose computers to store important or frequently used programs.

Computer Processing The processing capability of the CPU plays a large role in determining the amount of work that a computer system can accomplish.

MICROPROCESSORS AND PROCESSING POWER Contemporary CPUs use semiconductor chips called microprocessors, which integrate all of the memory, logic, and control circuits for an entire CPU onto a single chip. The speed and performance of a computer’s microprocessors help determine a computer’s processing power and are based on the microprocessor’s word length, cycle speed, and data bus width. Word length refers to the number of bits that the computer can process at one time. A 32-bit chip can process 32 bits, or 4 bytes, of data in a single machine cycle. A 64-bit chip can process 64 bits or 8 bytes in a single cycle. The larger the word length, the greater the computer’s speed.

A second factor affecting chip speed is cycle speed. Every event in a computer must be sequenced so that one step logically follows another. The control unit sets a beat to the chip. This beat is established by an internal clock and is measured in megahertz (abbreviated MHz, which stands for millions of cycles per second). The Intel 8088 chip, for instance, originally had a clock speed of 4.47 megahertz, whereas an Intel i7 chip often found in PCs might have four processors (quad core) operating at around 3 gigahertz.

A third factor affecting speed is the data bus width. The data bus acts as a highway between the CPU, primary storage, and other devices, determining how much data can be moved at one time. The 8088 chip used in the original IBM personal computer, for example, had a 16-bit word length but only an 8-bit data bus width. This meant that data were processed within the CPU chip itself in 16-bit chunks but could only be moved 8 bits at a time between the CPU, primary storage, and external devices. On the other hand, Intel’s i7 chip has both a 64-bit word length and a 64-bit data bus width. To have a computer execute more instructions per second and work through programs or handle users expeditiously, it is necessary to increase the processor’s word length, the data bus width, or the cycle speed— or all three.

Microprocessors can be made faster by using reduced instruction set computing (RISC) in their design. Conventional chips, based on complex instruction set computing, have several hundred or more instructions hard-wired into their circuitry, and they may take several clock cycles to execute a single instruction. If the little-used instructions are eliminated, the remaining instructions can execute much faster. RISC processors have only the most frequently used instructions embedded in them. A RISC CPU can execute most instructions in a single machine cycle and sometimes multiple instructions at the same time. RISC is often used in scientific and workstation computing. continued

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MULTI-CORE PROCESSORS Microprocessors were originally designed and manufactured as a single core processing unit with a single logic unit, a local memory cache, and communications bridge from the processor to memory, and from memory to various output devices. As more and more transistors were added to the chip surface, and as the clock speed was advanced from 4.77 Mhz on the original Intel 8088 PC chip in 1981, to 3 Ghz for a Pentium 4 chip in 2005, more and more heat and power loss was introduced.

The heat required a fan to cool these high speed chips, and if the fan failed, the chip melted! One way around this performance barrier was to put more than two or processors on each chip.

A multi-core processor is a single chip with two, four, eight or more cores which execute the instructions of computer programs. Generally they operate at 2 Ghz or above. They achieve much higher performance by dividing program instructions into separate multiple instructions, and executing the instructions in parallel, simultaneously on the multiple cores., and then combining the results after the set of instructions have been completed. In this manner, the processing power of the chip has been expanded greatly d(often doubling throughput or more) without creating heat and power issues than a single processor operating at, say, 6-10 Ghz.

PARALLEL PROCESSING Processing can also be sped up by linking several processors to work simultaneously on the same task.

Figure 5-4 compares parallel processing to serial processing used in conventional computers. In parallel processing, multiple processing units (CPUs) break down a problem into smaller parts and work on it simultaneously. Getting a group of processors to attack the same problem at once requires both rethinking the problems and special software that can divide problems among different processors in the most efficient way possible, providing the needed data, and reassembling the many subtasks to reach an appropriate solution.

FIGURE 5-4 Sequential and Parallel Processing.

During sequential processing, each task is assigned to one CPU that processes one instruction at a time.

In parallel processing, multiple tasks are assigned to multiple processing units to expedite the result.

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Massively parallel computers have huge networks of hundreds or even thousands of processor chips interwoven in complex and flexible ways to attack large computing problems. As opposed to parallel processing, where small numbers of powerful but expensive specialized chips are linked together, massively parallel machines link hundreds or even thousands of inexpensive, commonly used chips to break problems into many small pieces and solve them.

Storage, Input and Output Technology The capabilities of computer systems depend not only on the speed and capacity of the CPU but also on the speed, capacity, and design of storage, input and output technology. Storage, input and output devices are called peripheral devices because they are outside the main computer system unit.

Secondary Storage Technology The rise of digital firms has made storage a strategic technology. Although electronic commerce and electronic business are reducing manual processes, data of all types must be stored electronically and available whenever needed. Most of the information used by a computer application is stored on secondary storage devices located outside of the primary storage area. Secondary storage is used for relatively long term storage of data outside the CPU. Secondary storage is nonvolatile and retains data even when the computer is turned off. The most important secondary storage technologies are magnetic disk, solid state memory, and optical disk.

Secondary storage devices such as solid state drives (SSDs), optical disks, and hard disks are used to store large quantities of data outside the CPU and primary storage. They provide direct access to data for easy retrieval.

MAGNETIC DISK The most widely used secondary storage medium today is magnetic disk. Large mainframe or midrange computer systems have multiple hard disk drives because they require immense disk storage capacity in the gigabyte and terabyte range. PCs often use solid state drives (SSDs), providing up to 1 terabyte of storage capacity for notebook computers and up to 4 terabytes for desktop computers. continued

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Removable disk drives are popular backup storage alternatives for PC systems. Magnetic disks on both large and small computers permit direct access to individual records so that data stored on the disk can be directly accessed regardless of the order in which the data were originally recorded. Disk technology is useful for systems requiring rapid and direct access to data.

Disk drive performance can be further enhanced by using a disk technology called RAID (Redundant Array of Inexpensive Disks). RAID devices package more than a hundred disk drives, a controller chip, and specialized software into a single large unit. Traditional disk drives deliver data from the disk drive along a single path, but RAID delivers data over multiple paths simultaneously, improving disk access time and reliability. For most RAID systems, data on a failed disk can be restored automatically without the computer system having to be shut down.

Solid state memory is what makes smartphones and tablet computers possible. Rather than use magnetic disks that require considerable power to keep spinning and accessing, solid state memory (sometimes called “flash memory”) is made of solid chips with no moving parts. Solid state memory requires 1/50th of the power used by even the smallest disk drives. It is far more durable, and light in weight. Without solid state memory, cell phones, smart phones, and tablet computers would not exist.

SOLID STATE MEMORY Solid state memory uses transistors to store information, rather than spinning magnetic disks and optical CDs. As a result, they use much less power than a motor driven magnetic disk, they generate no heat, and they can access information much faster. The limitation of solid state memory is storage capacity, which is much less than that of a hard drive.

Solid state memory comes in several form factors. Solid state memories have been used in computers since the first microprocessors of the 1970s. But solid state memory was very expensive and was used sparingly as high speed RAM (random access memory) to store the processors inputs and outputs.

But after 2000, the cost of solid state memory had drastically fallen, and it became possible to offer consumers additional or portable solid state memory devices in the convenient form of a USB flash drives that could be plug into a computer’s USB ports. Solid state memory became one key element in the Apple iPhone, and all smartphones thereafter. While early solid state memories had limited storage capacity (a few megabytes), today’s smartphones come with 16 up to 256 GB of memory.

OPTICAL DISKS Optical disks, also called compact disks or laser optical disks, user laser technology to store massive quantities of data in a highly compact form. They are available for both PCs and large computers, although they are no longer used widely in PCs. The most common optical disk system used with PCs is called CD-ROM (compact disk read-only memory). A 4.75-inch compact disk for PCs can store around 700 megabytes of data. Optical disks are most appropriate for applications where enormous quantities of unchanging data must be stored compactly for easy retrieval or for applications combining text, sound, and images. continued

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CD-ROM is read-only storage. No new data can be written to it; it can only be read. CD-RW (CD-ReWritable) technology has been developed to allow users to create rewritable optical disks for applications requiring large volumes of storage where the information is only occasionally updated.

Digital video disks (DVDs), also called digital versatile disks, are optical disks the same size as CD-ROMs but of even higher capacity. They can hold a minimum of 4.7 gigabytes of data, enough to store a full-length, high-quality motion picture. DVDs were used to store movies and multimedia applications using large amounts of video and graphics, but they have largely been replaced by streaming audio and video services for entertainment.

Multimedia combines text, graphics, sound, and video into a computer-based experience that permits two-way communication. Many organizations use this technology for interactive training.

MAGNETIC TAPE Magnetic tape is an older storage technology that still is employed for secondary storage of large quantities of data that are needed rapidly but not instantly. Magnetic tape stores data sequentially and is relatively slow compared to the speed of other secondary storage media.

NEW STORAGE ALTERNATIVES: STORAGE AREA NETWORKS (SANS) To meet the escalating demand for data-intensive multimedia, Web, and other services, the amount of data that companies need to store is increasing from 75 to 150 percent every year. Companies are turning to new kinds of storage infrastructures to deal with their mushrooming storage requirements and their difficulties managing large volumes of data.

Storage area networks (SANs) can provide a solution for companies with the need to share information across applications and computing platforms. A storage area network (SAN) is a high-speed network dedicated to storage that connects different kinds of storage devices, such as tape libraries and disk arrays. The network moves data among pools of servers and storage devices, creating an enterprise-wide infrastructure for data storage. The SAN creates a large central pool of storage that can be shared by multiple servers so that users can rapidly share data across the SAN. Every user in a company can access data from any server in the organization. Figure 5-5 illustrates how a SAN works.

The SAN storage devices are located on their own network and connected using a high-transmission

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technology such as Fibre Channel. SANs can be expensive and difficult to manage, but they are very useful for companies that can benefit from consolidating their storage resources and providing rapid data access to widely distributed users.

FIGURE 5-5 A Storage Area Network (SAN).

The SAN stores data on many different types of storage devices, providing data to the enterprise. The SAN supports communication between any server and the storage unit as well as between different storage devices in the network.

Input and Output Devices Human beings interact with computer systems largely through input and output devices. Input devices gather data and convert them into electronic form for use by the computer, whereas output devices display data after they have been processed. Table 5-2 describes the principal input devices, and Table 5-3 describes the major output devices.

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TABLE 5-2 Principal Input Devices Input Device

Description

Keyboard

Principal method of data entry for text and numerical data.

Computer mouse

Handheld device with point-and-click capabilities that is usually connected to the computer by a cable. The computer user can move the mouse around on a desktop to control the cursor’s position on a computer display screen, pushing a button to select a command. Trackballs and touch pads often are used in place of the mouse as pointing devices on laptop PCs.

Touch screen

Allows user to enter limited amounts of data by touching the surface of a sensitized video display monitor with a finger or a pointer. Often found in information kiosks in retail stores, restaurants, and shopping malls.

Optical character recognition

Devices that can translate specially designed marks, characters, and codes into digital form. The most widely used optical code is the bar code, which is used in point-of-sale systems in supermarkets and retail stores. The codes can include time, date, and location data in addition to identification data.

Magnetic ink character recognition (MICR)

Used primarily in check processing for the banking industry.

Characters on the bottom of a check identify the bank, checking account, and check number and are preprinted using a special magnetic ink. A MICR reader translates these characters into digital form for the computer.

Pen-based input

Handwriting-recognition devices such as pen-based tablets, notebooks, and notepads convert the motion made by an electronic stylus pressing on a touch-sensitive screen into digital format.

Digital scanner

Translates images such as pictures or documents into digital form and are an essential component of image-processing systems.

Audio input

Voice input devices that convert spoken words into digital form for processing by the computer. Microphones and tape cassette players can serve as input devices for music and other sounds.

Sensors

Devices that collect data directly from the environment for input into a computer system. For instance, today’s farmers can use sensors to monitor the moisture of the soil in their fields to help them with irrigation.

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TABLE 5-3 Principal Output Devices Output Device

Description

LCD display screens

Liquid crystal displays have replaced CRT (cathode ray tube) displays because of their lighter weight, lower power consumption, and high resolution. They are used for computer, television, and smartphone displays.

Printers

Devices that produce a printed hard copy of information ouput.

They include impact printers (such as dot matrix printers) and nonimpact printers (such as laser, inkjet, and thermal transfer printers).

Audio output

Voice output devices that convert digital output data back into intelligible speech. Other audio output, such as music, can be delivered by speakers connected to the computer.

The principal input devices consist of keyboards, pointing devices (such as the computer mouse and touch screens), and source data automation technologies (optical and magnetic ink character recognition, pen-based input, digital scanners, audio input, and sensors), which capture data in computerreadable form at the time and place they are created.

Batch and On-Line Input and Processing The manner in which data are input into the computer affects how the data can be processed.

Information systems collect and process information in one of two ways: through batch or through on-line processing. In batch processing, transactions, such as orders or payroll time cards, are accumulated and stored in a group or batch until the time when, because of some reporting cycle, it is efficient or necessary to process them. Batch processing is found primarily in older systems where users need only occasional reports. In on-line processing, the user enters transactions into a device (such as a data entry keyboard or bar code reader) that is directly connected to the computer system. The transactions usually are processed immediately. Most processing today is on-line processing.

Figure 5-6 compares batch and on-line processing. Batch systems often use tape as a storage medium, whereas on-line processing systems use disk storage, which permits immediate access to specific items. In batch systems, transactions are accumulated in a transaction file, which contains all the transactions for a particular time period. Periodically, this file is used to update a master file, which contains permanent information on entities. (An example is a payroll master file with employee earnings and deduction data. It is updated with weekly time-card transactions.) Adding the transaction data to the existing master file creates a new master file. In on-line processing, transactions are entered into the system immediately using a keyboard, pointing device, or source data automation, and the system usually responds immediately. The master file is updated continually.

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FIGURE 5-6 A Comparison of Batch and On-line Processing.

In batch processing, transactions are accumulated and stored in a group. Because batches are processed at regular intervals, such as daily, weekly, or monthly, information in the system will not always be up to date. In on-line processing, transactions are input immediately and usually processed immediately. Information in the system is generally up to date. A typical on-line application is an airline reservation system.

Interactive Multimedia The processing, input, output, and storage technologies we have just described can be used to create multimedia applications that integrate sound and full-motion video, or animation with graphics and text into a computer-based application. Multimedia is becoming the foundation of new consumer products and services, such as electronic books and newspapers, electronic classroom-presentation technologies, full-motion videoconferencing, imaging, graphics design tools, and video and voice mail.

PCs today come with built-in multimedia capabilities, including high-resolution color monitors and DVD drives to store video, audio, and graphic data, and stereo speakers for amplifying audio output.

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Most Web sites today are multimedia sites, combining video, text, and audio in a single consumer experience.

Interactive Web pages replete with graphics, sound, animations, and full-motion video have made multimedia popular on the Internet. For example, visitors to the CNN Interactive Web site can access news stories from CNN, photos, on-air transcripts, video clips, and audio clips. The video and audio clips are made available using streaming technology, which allows audio and video data to be processed as a steady and continuous stream as they are downloaded from the Web. Multimedia Web sites are also being used to sell digital products, such as digitized music clips. A compression standard known as MP3, also called MPEG3, which stands for Motion Picture Experts Group, audio layer 3, can compress audio files down to one-tenth or one-twelfth of their original size with virtually no loss in quality. Visitors to Web sites offering MP3 downloads can download MP3 music clips over the Internet and play them on their own computers.

System Software and PC Operating Systems System software coordinates the various parts of the computer system and mediates between application software and computer hardware. The system software that manages and controls the computer’s activities is called the operating system. Other system software consists of computer language translation programs that convert programming languages into machine language that can be understood by the computer and utility programs that perform common processing tasks.

FUNCTIONS OF THE OPERATING SYSTEM The operating system is the computer system’s chief manager. The operating system allocates and assigns system resources, schedules the use of computer resources and computer jobs, and monitors computer system activities. The operating system provides locations in primary memory for data and programs, and controls the input and output devices, such as printers, terminals, and telecommunication links. The operating system also coordinates the scheduling of work in various areas of the computer so that different parts of different jobs can be worked on at the same time. Finally, the operating system keeps track of each computer job and may also keep track of who is using the system, of what programs have been run, and of any unauthorized attempts to access the system.

MULTIPROGRAMMING A series of specialized operating system capabilities enables the computer to handle many different tasks and users at the same time. Multiprogramming permits multiple programs to share a computer system’s resources at any one time through concurrent use of a CPU. Only one program is actually using the CPU at any given moment, but the input/output needs of other programs can be serviced at the same time. Two or more programs are active at the same time, but they do not use the same computer resources simultaneously. With multiprogramming, a group of programs takes turns using the processor. Figure 5-7 shows how three programs in a multiprogramming environment can be continued

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stored in primary storage. Multiprogramming on single-user operating systems such as those in older personal computers is called multitasking.

FIGURE 5-7 Single-program Execution Versus Multiprogramming.

In multiprogramming, the computer can be used much more efficiently because a number of programs can be executing concurrently. Several complete programs are loaded into memory. The first program executes until an input/output event is read in the program. The CPU then moves to the second program until an input/output statement occurs. At this point, the CPU switches to the execution of the third program, and so forth, until eventually all three programs have been executed.

VIRTUAL STORAGE Virtual storage handles programs more efficiently because the computer divides the programs into small fixed- or variable-length portions, storing only a small portion of the program in primary memory at one time. Only a few statements of a program actually execute at any given moment. This permits a very large number of programs to reside in primary memory, because only a tiny portion of each program is actually located there (see Figure 5-8), using this resource more efficiently. All other program pages are stored on a peripheral disk unit until they are ready for execution.

FIGURE 5-8 Virtual Storage.

In virtual storage, programs are broken down into small sections that are read into memory only when needed. The rest of the program is stored on disk until it is required. In this way, very large programs can be executed by small machines, or a large number of programs can be executed concurrently by a single machine.

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TIME SHARING Time sharing is an operating system capability that allows many users to share computer processing resources simultaneously. It differs from multiprogramming in that the CPU spends a fixed amount of time on one program before moving on to another. Thousands of users are each allocated a tiny slice of computer time, when each is free to perform any required operations; at the end of this period, another user is given another tiny time slice of the CPU. This arrangement permits many users to be connected to a CPU simultaneously, with each receiving only a tiny amount of CPU time.

MULTIPROCESSING Multiprocessing is an operating system capability that links together two or more CPUs to work in parallel in a single computer system. The operating system can assign multiple CPUs to execute different instructions from the same program or from different programs simultaneously, dividing the work between the CPUs. Whereas multiprogramming uses concurrent processing with one CPU, multiprocessing uses simultaneous processing with multiple CPUs.

LANGUAGE TRANSLATION AND UTILITY SOFTWARE System software includes special language translator programs that translate high-level language programs written in programming languages such as COBOL, FORTRAN, or C into machine language that the computer can execute. The program in the high-level language before translation into machine language is called source code. A compiler translates source code into machine code called object code, which is linked to other object code modules and then executed by the computer.

Some programming languages, such as BASIC, do not use a compiler but an interpreter, which translates each source code statement one at a time into machine code and executes it.

System software includes utility programs for routine, repetitive tasks, such as copying, clearing primary storage, computing a square root, or sorting. Utility programs can be shared by all users of a computer system and can be used in many different information system applications when requested.

PC OPERATING SYSTEMS AND GRAPHICAL USER INTERFACES Like any other software, PC software is based on specific operating systems and computer hardware.

Software written for one PC operating system generally cannot run on another.

When a user interacts with a computer, including a PC, the interaction is controlled by an operating system. A user communicates with an operating system through the user interface of that operating system. Contemporary PC operating systems use a graphical user interface, often called a GUI, which makes extensive use of icons, buttons, bars, and boxes to perform tasks. It has become the dominant model for the user interface of PC operating systems and for many types of application software.

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Application Software and Programming Languages Application software is primarily concerned with accomplishing the tasks of end users. Many different languages and software tools can be used to develop application software. Managers should understand which software tools and programming languages are appropriate for their organization’s objectives.

PROGRAMMING LANGUAGES The first generation of computer languages consisted of machine language, which required the programmer to write all program instructions in the 0s and 1s of binary code and to specify storage locations for every instruction and item of data used. Programming in machine language was a very slow, labor-intensive process. As computer hardware improved and processing speed and memory size increased, programming languages became progressively easier for humans to understand and use. From the mid-1950s to the mid-1970s, high-level programming languages emerged, allowing programs to be written with regular words using sentence-like statements. We now briefly describe the most important high-level languages.

ASSEMBLY LANGUAGE Assembly language is the next level of programming language up from machine language and is considered a “second-generation” language. Like machine language, assembly language (Figure 5-9) is designed for a specific machine and specific microprocessors. Assembly language makes use of certain mnemonics (e.g., load, sum) to represent machine language instructions and storage locations.

Although assembly language gives programmers great control, it is difficult and costly to write and learn. Assembly language is used primarily today in system software.

FIGURE 5-9 Assembly Language.

This sample assembly language command adds the contents of register 3 to register 5 and stores the result in register 5. (A register is a temporary storage location in the CPU for small amounts of data or instructions).

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THIRD-GENERATION LANGUAGES: FORTRAN, COBOL, BASIC, PASCAL, AND C Third-generation languages specify instructions as brief statements that are more like natural languages than assembly language. All are less efficient in the use of computer resources than earlier languages, they are easier to write and understand and have made it possible to create software for business and scientific problems. Important third-generation languages include FORTRAN, COBOL, BASIC, and C. ◆

FORTRAN FORTRAN (FORmula TRANslator) (Figure 5-10) was developed in 1956 to provide an easy way of writing scientific and engineering applications. FORTRAN is especially useful in processing numeric data. Some business applications can be written in FORTRAN, and contemporary versions provide sophisticated structures for controlling program logic.

FIGURE 5-10 FORTRAN.

This sample FORTRAN program code is part of a program to compute sales figures for a particular item.

◆

COBOL COBOL (COmmon Business Oriented Language) (Figure 5-11) was developed in the early 1960s by a committee representing both government and industry. Rear Admiral Grace M. Hopper was a key committee member who played a major role in COBOL development. COBOL was designed with business administration in mind, for processing large data files with alphanumeric characters (mixed alphabetic and numeric data) and for performing repetitive tasks such as payroll. It is poor at complex, mathematical calculations. Also, there are many versions of COBOL, and not all are compatible with each other.

FIGURE 5-11 COBOL

This sample COBOL program code is part of a routine to compute total sales figures for a particular item.

◆

BASIC BASIC has been used primarily in education to teach programming. BASIC (Beginners All-purpose Symbolic Instruction Code) was developed in 1964 by John Kemeny and Thomas Kurtz to teach students at Dartmouth College how to use computers. BASIC was supplanted

by Microsoft’s Visual Basic, which combines an updated version of BASIC with a visual forms builder.

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C and C++ C is a powerful and efficient language developed at AT&T’s Bell Labs in the early 1970s. It combines machine portability with tight control and efficient use of computer resources, and it can work on a variety of different computers. It is used primarily by professional programmers to create operating systems and application software, especially for PCs. C++ is a newer version of C that is object-oriented. It has all the capabilities of C plus additional features for working with software objects. C++ is used for developing application software.

◆

Popular programming tools for web applications include Ruby, Python, and PHP. Ruby is an object-oriented programming language known for speed and ease of use in building web applications. Python is used for web development, AI machine learning, operating systems, mobile application development, and some video games. PHP is used to develop static or dynamic websites or web applications.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 5: IT Infrastructure and Emerging Technologies

Learning Track 2: Service Level Agreements Service level agreements (SLAs) are contracts between firms that formally define the level of service between a purchaser of services and a vendor of services. Contracts are a promise between individuals and firms to perform a service. Some contracts are oral agreements, while others are written documents. Some contracts are unconditional, while others have ­conditions. In a marriage contract, both parties promise to “love and obey, in sickness and in health” without condition or specification of what exactly is meant by “love” or “obey.” In most commercial contracts, there are conditions: “in return for payment, the vendor promises to perform the s­ pecified services.” In most commercial contracts, the exact meaning of “perform specified s­ ervices” is defined in some detail.

Originating in the telecommunications industry to formally define the level of telephone voice service that telephone companies would provide to purchasing firms, SLAs have spread to all areas of business which involve services from human resources to marketing, management, logistics and information technology.

Service level agreements provide an opportunity for the purchaser of services to precisely specify the level and quality of service to be provided, to implement business best practices and world-class levels of service (as determined by independent certifying bodies such as the International Standards Organization (ISO), and in the IT area, the Information Technology Infrastructure Library (ITIL).

SLAs are related to the payment process as well. Service level agreements provide the seller of services with clear, measurable, objectives and benchmarks which, if attained, trigger payments to the provider. SLAs also contain provisions for cost recovery and penalties for ­non-performance or failure to meet the benchmarks. Typical SLAs will also have provisions for ­termination of the contract.

While service level agreements started out as a contract among independent firms, they are also used today within firms to manage the relationship between major departments and their ­internal customers although in this case, because they are internal documents, these service level a­ greements are more “agreements” than legally enforceable contracts. For instance, a centralized corporation information systems department or unit, will often use service level agreements to govern and manage its provision of IS services to other units in the firm.

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SLAs have become very important in the information technology and systems areas of b­ usiness firms. As firms increased their outsourcing of IT services beginning in the late 1980s, SLAs became the primary management tool for governing the relationship among the parties. Increasingly firms do not build their own software, but instead purchase the software from vendors. This purchased software generally requires a large consulting service and support component to implement, operate and maintain the software. Service Level Agreements are used here to specify and manage the process.

The emergence of software as a service, especially a Web service, has also spurred the development of service level agreements. As more business software moves to a Web delivery platform, SLAs are the primary tool regulating the relationship between vendor and purchaser of software services. Increasingly, in an outsourced and Web-based software world, SLAs are the glue that holds the outsourcing process together and provides managers for both purchasers and vendors with objective guidelines for performance and payment.

Information Systems Service Level Agreements In the information systems world, service level agreements cover a very large variety of IT services provided by outside vendors. Firms use SLAs in the systems area for several reasons: ◆

Identify and define the customer’s needs

◆

Provide a framework for mutual understanding

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Provide a framework for charging and pricing services

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Simplify complex issues

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Reduce areas of conflict

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Encourage dialog in the event of disputes

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Eliminate unrealistic expectations

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Provide a framework for competitive bidding of services

The table below lists some of the most common services governed by service level agreements and a very brief description of one or two metrics used to evaluate the “level” of service. For instance, one way to measure the quality of service at a help desk is to calculate how long on average does it take for a help desk technician to return a user’s call for help.

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Common Services Governed by Service Level Agreements

SERVICE

SERVICE LEVEL EXAMPLES

Service Desk

Average response time

Hardware support

Processing speed; transaction cost

Software support

Version control

Software maintenance

Hourly charges for routine changes

Software development

Cost for new functions

Server support

Hourly charges for server operations

Data network service

Network uptime

Voice network service

Maximum voice capacity

Data center service

Transaction costs; energy costs

Web site operations services

Web page delivery capacity

Security levels

Risk analysis and security cost

Disaster recovery services

Costs for remote backup sites

Dispute resolution

Costs and speed for resolving disputes among parties

3

Service Level Agreement Issues While service level agreements are one of the major tools for governing the relationship between the purchaser and providers of service, they have many limitations and pitfalls as well. Two of the most common pitfalls involve incomplete contracts and information asymmetry, but there are other issues as well.

Incomplete contracts. Some important aspects of a relationship cannot be described in a contract.

Contracts are never complete in the sense of defining every possible contingency and state of affairs in the world. Because it would be impossibly complex and costly for the parties to an agreement to make their contract complete, the law provides mechanisms called default rules which fill in the gaps in the actual agreement of the parties. In cases of disagreement, for instance, the contract may require the dispute be settled by an arbitrator rather than other legal remedies.

Information asymmetry. In most contracting situations, the participants have unequal amounts of information. Typically, the vendor of a service knows much more about the costs of p­ roviding the service than does the purchaser because they are specialized on this service and have many years of experience. Moreover, the purchaser quite often knows very little about their own ­internal costs for providing the service. The vendor is incentivised to use this information d­ isparity to extract additional profits. While having multiple vendors bid on providing services to a firm is one theoretical solution, in practice most firms choose from a much smaller list of providers who have a keen understanding of the “market price” for services, or who have a track record of p­ erformance in previous contracts.

Therefore, service level agreements for service outsourcing can be more costly than providing the service from internal sources.

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Managing complexity. Contracting costs. There is a cost to all contracts. Large scale service level agreements, say above $10 million, can become quite complex. Some of the largest SLA contracts go above $100 million. The SLA itself becomes a very complex, long document which requires teams of managers on both sides to create, and then manage. Indeed, software firms have sprung up to provide SLA creation templates, and online management tools to ensure the thousands of performance standards in large contracts are in fact being met. Contract management costs rise precipitously with the size of the contract.

Enforcement costs. Termination costs. When parties fail to perform, it can become very expensive to terminate the contract and even more expensive to allocate damages. When the vendor fails to perform, the purchaser has to either replace the vendor with another, or hire employees to have the service performed. In the meantime, the business can lose millions of dollars in revenue, or experience extraordinary costs. Establishing the size and nature of the damage requires teams of lawyers, a lengthy litigation period, and other unforeseeable costs.

REFERENCES: There is a very large literature on contracts and service level agreements. Here are just a few references to get started: Jacques Bouman, Jos Trienekens, Mark Van der Zwan, “Specification of Service Level Agreements, Clarifying Concepts on the Basis of Practical Research,” step, p. 169, Software Technology and Engineering Practice, 1999.

Nathan J. Muller, Managing Service Level Agreements, International Journal of Network Management, 9, 1999.

Jos J.M. Trienekens, Jacques J. Bouman and Mark van der Zwan, “Specification of Service Level Agreements: Problems, Principles and Practices,” Software Quality Journal, Vol. 12, 1, March 2004.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 5: IT Infrastructure and Emerging Technologies

Learning Track 3: The Open Source Software Initiative Open source software is software produced by a community of several hundred thousand programmers around the world. Open source software is by definition free, available to all who can download copies from the Internet, but there are many other important dimensions of open source software described in the following table. A related movement (free software) supported by the Free Software Foundation supports similar goals of making software freely available with the restrictions of copyright or patent law (see Chapter 4).

The open source movement has been evolving for more than thirty years and has demonstrated after many years of effort that it can produce commercially acceptable, high-quality software. In 1984 Richard Stallman, a programmer at MIT, began creating and distributing the first free UNIX compatible software system intended to run on large minicomputers of that era. 1985 Stallman published the GNU Manifesto, which outlines the philosophical goals and motivations behind the Free Software Movement he founded. The name GNU is a recursive acronym for GNU’s Not Unix. Soon after, he incorporated the non-profit Free Software Foundation (FSF) to employ free software programmers and provide a legal framework for the free software community. In 1989 Stallman invented and popularized the concept of copyleft.

Several large software companies are converting some of their commercial programs to open source.

IBM for instance handed over its Java based database program called Cloudscape to the Apache Software Foundation, an open source group. (It is now called Apache Derby.)

TABLE 1

The Open Source Definition

1. Free Redistribution

The license shall not restrict any party from selling or giving away the software as a component of an aggregate software distribution containing programs from several different sources. The license shall not require a royalty or other fee for such sale.

2. Source Code

The program must include source code, and must allow distribution in source code as well as compiled form. Where some form of a product is not distributed with source code, there must be a well-publicized means of obtaining the source code for no more than a reasonable reproduction cost-preferably, downloading via the Internet without charge. The source code must be the preferred form in which a programmer would modify the program. Deliberately obfuscated source code is not allowed. Intermediate forms such as the output of a preprocessor or translator are not allowed.

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3. Derived Works

The license must allow modifications and derived works, and must allow them to be distributed under the same terms as the license of the original software.

4. Integrity of The Author’s Source Code

The license may restrict source-code from being distributed in modified form only if the license allows the distribution of “patch files” with the source code for the purpose of modifying the program at build time. The license must explicitly permit distribution of software built from modified source code. The license may require derived works to carry a different name or version number from the original software.

5. No Discrimination Against Persons or Groups

The license must not discriminate against any person or group of persons.

6. No Discrimination Against Fields of Endeavor

The license must not restrict anyone from making use of the program in a specific field of endeavor. For example, it may not restrict the program from being used in a business, or from being used for genetic research.

7. Distribution of License

The rights attached to the program must apply to all to whom the program is redistributed without the need for execution of an additional license by those parties.

8. License Must Not Be Specific to a Product

The rights attached to the program must not depend on the program’s being part of a particular software distribution. If the program is extracted from that distribution and used or distributed within the terms of the program’s license, all parties to whom the program is redistributed should have the same rights as those that are granted in conjunction with the original software distribution.

9. License Must Not Restrict Other Software

The license must not place restrictions on other software that is distributed along with the licensed software. For example, the license must not insist that all other programs distributed on the same medium must be open-source software.

10. License Must Be Technology-Neutral

No provision of the license may be predicated on any individual technology or style of interface.

Source: The Open Source Initiative. http://www.opensource.org/docs/definition.php, 2004. Version 1.9

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 5: IT Infrastructure and Emerging Technologies

Learning Track 4: Cloud Computing

Introduction Cloud computing is a vision of computing in the 21st Century in which most computer and IS functionality is located on the Internet rather than on your personal computer, iPhone and Blackberry, or corporate data center. Put simply, cloud computing is computing on the Internet. But this simple definition lacks detail and is not very informative even if it works as a grand summary of cloud computing. In fact, this definition is misleading even though it’s commonplace in the popular press.

As we see later in this essay, cloud computing is not just a technological juggernaut that ineluctably is rolling over the landscape. It’s also a business product line for the largest computing corporations in the United States who have a vested interest in ensuring that cloud computing does in fact become the primary corporate computing model of the 21st Century. Think IBM, HP, Oracle, Google, Yahoo, Amazon, and many others who plan to benefit from cloud computing. The global cloud computing market size is expected to grow from $371.4 billion in 2020 to $832.1 billion by 2025.

1.0 Cloud Computing: Getting it Straight The reality is that cloud computing involves a number of different capabilities.

Figure 1-1 provides a graphical and more robust definition of cloud computing. In this view, cloud computing involves four different capabilities: applications servers, storage servers, infrastructure, and management services. Each of these capabilities plays a role in defining cloud computing. In the marketplace, providers of cloud computing generally offer these four different capabilities.

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FIGURE 1-1: Cloud Computing

Applications servers: cloud computing involves making standardized software applications available to users over the Internet. Rather than purchase software or build a software development platform, customers can use applications running over the Internet.

Application servers refers to specific server machines dedicated to that function, or multiple virtual machines, and/or application server software operating on numerous machines as demand dictates.

Cloud computing also offers software developers the ability to create new customized applications which run on the cloud application servers. These customized applications are built either on the customers’ computers and then uploaded, or using development tools on the cloud application server itself. The leading example of standardized applications running on the cloud is Salesforce.com which provides customer relationship management software online to thousands of business firms around the world.

Salesforce.com is an example of Software as a Service (SaaS), a concept which is intimately linked with cloud computing. . Other examples of SaaS provided by application servers are Google Workspace (office applications on line), Google Sites (a online collaborative environment), and similar services offered by Microsoft for small businesses. Other successful applications can be found easily on the Internet for video conferencing, , IT service management, accounting, IT security, web analytics, web content management, human resources, and e-mail.

Examples of entire application development platforms on the Web include AWS Elastic Beanstalk, Windows Azure, Salesforce’s Force.com, and Google App Engine. While each of these provide “platform as a service,” they offer different services and capabilities.

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In cloud computing, thousands and even hundreds of thousands of computers are located in cloud data centers. The largest application server installation is arguably Google which has millions of PC like blade servers to perform billions of searches a day.

There are several advantages for using cloud applications: ◆

◆ ◆ ◆ ◆

Reduces the need for customers to purchase computers to run applications, along with the telecommunications and staff required.

Reduces software maintenance, upgrades and support Provides inexpensive scalability as businesses grow (or shrink) Enables “on demand computing” where customers are charged only for the capacity they use.

Reduces the initial cost of purchasing software applications

The major disadvantages of cloud applications are: ◆ ◆ ◆ ◆ ◆

Reduced control by the firm over the functionality of the software Introduces dependency on an external firm Poses security risks for truly proprietary corporate information Introduces a new recurring expense beyond the control of the customer Exposes the firm to future switching costs if the relationship does not work out

Storage Servers: Applications need data, usually lots of data. In the past, firm data was stored locally on large disk drives, where it was used to support local application servers. With cloud computing, the location of data changes from the corporate hard drives to Internet storage servers located in very large, energy efficient data centers available on the Internet. One of the more successful cloud storage services is provided by Amazon’s S3 (Simple Storage Service). S3 is a part of Amazon’s larger cloud service Elastic Compute Cloud (EC2). S3 provides a simple web services interface that can be used to store and retrieve any amount of data, at any time, from anywhere on the Web. It gives any developer access to the same highly scalable, reliable, fast, inexpensive data storage infrastructure that Amazon uses to run its own global network of web sites. The service aims to maximize benefits of scale and to pass those benefits on to developers.

Costs for monthly storage of frequently accessed data of any type at AWS range from $0.021 per Gigabyte to $0.023 per Gigabyte. One user of Amazon S3 is NASDAQ (the National Association of Securities Dealers Automated Quotations) for its Market Replay application. Market Replay records every transaction price on the New York Stock Exchange and NASDAQ, along with ten minutes of transaction data on the stock. The purpose is to ensure to regulators that NASDAQ trades were executed at the best possible market price in a given environment. This involves tracking trillions of

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transactions. To store all this information NASDAQ uses Amazon’s S3, uploading 30 to 80 gigabytes a day.

Infrastructure: In order to provide application and storage services online, cloud providers construct elaborate and large data centers-the infrastructure of cloud computing. This involves acquiring physical buildings for its computers, securing sufficient power resources for the computers, establishing fail-safe telecommunications links with the Internet, and providing data security services. Data centers used to be located in the same physical building as corporate headquarters, or in an adjacent community or state. This was necessitated by the expense of moving large volumes of data over long distances, security issues and beliefs, and strategic considerations. Being “close by” is still a powerful phenomenon for many large institutions and firms, but the Internet has made moving data over long distances nearly as inexpensive as moving data to a corporate basement data center or across town.

To ensure the operation and survival of cloud hardware, air conditioning systems, electrical distribution and fail safe backup systems, fire protection, and physical security round out the main components in a cloud data center. Air conditioning and computer power consumption are the leading cost factors in operating a cloud data center. IBM has taken a number of innovative steps to reduce the power consumption of its computers by 40% when compared to standard, stand alone servers, and reduced the floor space required by 50%. Cloud computing is “green computing,” and much more sparing of electricity than millions of PCs on corporate desktops.

Management Services: Cloud computing is about more than hardware, software and physical buildings. It’s about management of all of these elements, and in addition, other value added services that roughly fit under the rubric of “management services.” For instance, a group of managers and lawyers will be needed to arrive at service level agreements with customers; another group of managers will focus on the maintenance and repair of the cloud components.

Managers of data centers provide to their customers the following services: ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆

System optimization Consulting services Hardware and software maintenance Continuity planning Physical floor management and planning Security management Infrastructure support (electrical and air conditioning) Pricing Accounting

An IBM Blue Cloud data center employs over 300 onsite employees, in addition to hundreds of offsite employees, who are required to administer the center and interact with clients.

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2.0 Leading Examples and Services Cloud computing is in its infancy. It tends to leverage the resources of very large hardware manufacturers, but even service oriented firms like Amazon have the potential to play a large role in cloud computing. Amazon’s example has opened the door to even more cloud services being provided by very large firms with excess computing capacity on their hands.

Table 1-1 describes some of the large vendors providing cloud computing services today.

TABLE 1-1 Top Cloud Computing Vendors Cloud Computing Vendor

Key Offerings

Amazon Web Services (AWS)

Compute, storage, database, analytics, networking, machine learning, and AI, mobile, developer tools, IoT, security, enterprise applications, blockchain. AWS is the most popular cloud service provider in the world.

Microsoft Azure

Compute, storage, mobile, data management, messaging, media services, CDN, machine learning and AI, developer tools, security, blockchain, IoT. Known for its PaaS software development platform and its exclusive offering of Microsoft’s previous products and services in the cloud.

Google Cloud

Similar to AWS and Azure, Google Cloud also offers similar services in various categories, including compute, storage, identity, security, database, AI and machine learning, virtualization, DevOps and more.

IBM Cloud

Compute, Network, Storage, Cloud Packs, Management, Security, Database, Analytics, AI, IoT, Mobile, Dev Tools, Blockchain, Integration, Migration, Private Cloud, and VMware. The IBM Cloud includes IaaS, SaaS, and PaaS services via public, private, and hybrid cloud models.

Oracle

Oracle cloud offers IaaS, PaaS, SaaS, and Data as a Service (DaaS). Oracle IaaS offerings are Compute, Storage, Networking, Governance, Database, Load Balancing, DNS Monitoring, Ravello, and FastConnect. Oracle PaaS offerings are Data Management, Application Development, Integration, Business Analytics, Security, Management, and Content and Enterprise.

Oracle SaaS offerings include HCM, ERP, SCM, EPM, IoT, Analytics, Data, and Blockchain Applications.

Alibaba Cloud

Initially built to serve Alibaba’s own e-commerce ecosystem and is now offered to the public. Alibaba Cloud is the largest cloud provider in China, with produces and services including Elastic Computing, Storage and CDN, Networking, Database Services, Security, Monitoring and Management, Domains and Websites, Analytics and Data Technology, Application Services, Media Services, Middleware, Cloud Communication, and Internet of Things.

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3.0 Cloud Computing: Related Concepts There were many precursors to cloud computing that at times become confused with cloud computing.

Table 1-2 describes some of these other concepts.

TABLE 1-2 Cloud Computing: Related Concepts Functional Area

Business Process

Cluster computing

Computers linked together generally in a local area network (same building) to provide redundancy, and dedicated to a small number of tasks.

Grid computing

Linking together of many remote computers and using their spare capacity to solve large computational problems, or to process bits and pieces of larger programs.

Utility computing

The provision of computing services over a network to remote customers much like an electrical or telephone utility works. This would include billing users based on the amount of service consumed, plus additional charges to pay for the infrastructure.

First proposed by Leonard Kleinrock in 1969.

4.0 Business Pros and Cons of Cloud Computing Cloud computing offers business firms the potential for significant cost reductions for both software and hardware. Software should be less costly because its cost can be spread efficiently over a large number of users. Hardware should be less expensive because large data centers can keep their computers operating at much higher capacity levels than a single firm. The single firm is no longer required to purchase enough computing power for its peak loads, and instead it can count on the cloud center to handle whatever peak loads come along. From a cost and flexibility perspective, cloud computing makes a lot of sense.

On the other hand, firms tend to hang on to their mission critical and “strategic” applications which form the foundation of the business. The reason is that most managers are still wary about Internet cloud security, both the telecommunications links and the stored data at cloud centers. What happens if the cloud center goes down? What happens if the communication links are severed? For instance, in September 2018 severe weather caused a Microsoft Azure cloud outage that impacted three dozen cloud services. It took up to two days for some services to restore operations. This highlights one of cloud computing’s biggest risks and nightmares. The question is: will the track record of cloud computing be as good as the track record of most corporate data centers (or just as bad)?

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For this reason, large corporations have primarily off-loaded their non-critical and non-strategic applications to the cloud. Other managers are concerned about becoming a “captive” of proprietary software offered by some vendors such as IBM and HP. What happens if you want to switch to another provider?

In the years ahead, confidence in Internet security will probably grow, and firms will feel more confident about placing more mission critical systems on the cloud. However, some obstacles-like vendor dependency-- will not be so easily overcome. Firms will develop mixed strategies. They will retain their strategic defining systems and their mission critical systems, while offloading to the Cloud more routine administrative systems. The cost of buying excess capacity will be considered far smaller than the risk of a cloud failure. Small and medium sized businesses may well be the largest users and benefactors of cloud computing. They are sufficiently small that they have no choice but to build scale by using cloud computing facilities.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 6: Foundations of Business Intelligence: Databases and Information Management

Learning Track 1: Database Design, Normalization, and Entity-Relationship Diagramming This Hands-On Guide will show you how to design a relational database system for a small business using normalization and entity-relationship diagrams. The system we will be developing is for a small but growing barber shop/hair salon business. The shop, named HisNHers, is owned by Clarence and Clarissa. They have big plans to expand soon and believe their system of maintaining customer information on index cards can no longer support their business needs.

Information Gathering Your first step is to gather information about how the new system will be used, what information the user needs, how a new system can speed up and simplify operations, as well as how the system could help the business to grow. A database is a model not only of reality but also of the future. If there is a need to know information which is not yet stored anywhere or does not currently exist, room for this data should be included in the system design.

Both Clarence and Clarissa want a system that can maintain information about their business with over 300 customers. Also, they want to be able to begin tailoring advertising to particular ­customers based on their profiles and to send birthday cards containing special offers.

Designing the Database: A Conceptual Schema To begin developing a conceptual schema of the system, Clarence and Clarissa (and perhaps their employees) need to describe their business. You will need to look at any paperwork generated by the business, starting with those index cards, which contain a lot of information about each customer.

But you’ll also look at the phone log, the appointment book, any financial reports that are generated, and perhaps talk to their accountant and/or see if they are using a small accounting package such as QuickBooks, and study what they do with it. There is often informal written information that is also good to know about—do the staff at HisNHers keep their own notes about anything?

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The HisNHers Salon now receives payment immediately after the service is performed. But with the proper design of a database, a billing system could be integrated. Targeted marketing could be performed whenever a new product (a new purple hair rinse for all the gray-haired customers) becomes available.

HisNHers is a small business where a personal computer running Microsoft Access would be an appropriate platform for its new system. Since you are most likely using Access in your course work, we will illustrate the design of the database as it would be implemented in Access.

After completing your information requirements analysis, your next task it to develop a conceptual schema of the database. One problem that can arise in this step is that the discussions with users may have shown multiple views of the system. These multiple views will need to be integrated into a single conceptual schema.

For example, at HisNHers, both Clarissa and Clarence often referred to “products.” Only after Clarence said that they might like to keep a “product” inventory and Clarissa mentioned that a customer made an appointment for a “product” did you realize that Clarence meant items such as a package of hair-coloring and Clarissa meant services, (e.g., hair cuts). This sort of double meaning for a single term is called a homonym and needs to be resolved before an integrated view of the system can be developed. In a similar fashion, when Clarence referred to the “customers” and Clarissa referred to the “heads,” it was clear that “heads” was a synonym for “customer.” Unfortunately not all synonyms are so obvious.

In a large organization, personnel with different jobs often see the data in light of their own job function. For example to the colorist applying the hair-coloring, vendor is only an attribute of the product.

To the person doing the ordering, vendor is an entity with attributes of its own such as address and phone number.

Entities, Relationships, and Normalization Once a cohesive view of the system is established, the entity classes (tables) need to be defined along with their attributes (fields). Review the discussion of entities, attributes, and relational databases in Chapter 6. Your requirements analysis showed that two main documents are central to HisNHers’ operation—Clarissa’s index cards and the salon’s appointment book.

Clarissa used the index cards to store information about the customers of the salon. They contain: the customer’s name, sometimes the address, usually the home phone number and/or a cell phone number, a small number scribbled in the corner, a few notes about the customer’s social life, plans, or children, and occasional comments about a particular appointment—(e.g., used Clairol #12 on 10/15).

The appointment book contains the date and time of the appointment, the customer’s name, phone number, service requested (e.g., hair cut, beard trim, frosting) and staff member who will do the job.

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These documents indicate the need for both a CUSTOMER Table and an APPOINTMENT Table.

But, what other tables are needed? What information belongs in each table? How should the tables be linked together? It is important to start slowly and carefully, building on what is obvious. Sometimes it helps to visualize one instance of the data (e.g., one customer and his appointments). Begin sketching out a simplified entity-relationship (ER) diagram to help you visualize the system’s tables and relationships. The verbs used for describing the relationships in the ER dia­gram are often helpful, (e.g., a customer makes an appointment, a service uses a product).

At HisNHers, Clarissa’s index cards contain the beginnings of the Customer entity. The entity known as the CUSTOMER Table will contain demographic data about the person as well as a notes where special “conversational” or unusual items about the customer can be stored. An initial breakdown of the attributes of this entity (or putting it more simply, the fields for the CUSTOMER Table) along with their type (as represented in Access) and size are: FIELD NAME

TYPE

CUSTID

Long Integer

SIZE 4

FNAME

Text

20

MIDNAME

Text

15

LNAME

Text

20

ADDR1

Text

30

ADR2

Text

30

CITY

Text

20

STATE

Text

2

ZIP

Text

5

HOMEPHONE

Text

10

WORKPHONE

Text

10

CELLPHONE

Text

10

EMAIL

Text

50

DOB

Date/Time

8

SEX

Text

1

PERSONAL_INFO

Memo

–

OLDCUSTNUMBER

Integer

3

The customer name field should be broken into first name, middle, and last name. This will insure the ability to sort reports based on last name and allow for personalized reports which use just the first name. Breaking up data into its smallest usable elements is known as atomization.

While HisNHers doesn’t currently have all of this customer demographic information, providing for these fields will allow the system to grow and meet Clarence’s desire for targeted marketing and a possible billing system. The last field in the CUSTOMER Table is the “old customer number.”

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It is taken from Clarissa’s index cards and will allow her to use both the old and new customer numbers until she is comfortable with the new system. This is often a good practice when converting manual or legacy systems (those done in an older computer program).

Discussions with the staff and studying the appointment book indicate that another entity would be the APPOINTMENT Table. It would include the following attributes (fields).

FIELD NAME

TYPE

SIZE

CUSTID

Long Integer

4

SERVICE_ID

Long Integer

4

APPT_DATE

Date/Time

8

APPT_TIME

Date/Time

8

EMP_SS

Text

9

PROD_NUM

Long Integer

4

APPT_COMMENT

Memo

—

The Appointment Book shows that customers make appointments. In this sentence lies the beginning of the table relationships in the HisNHers database. The ER diagram which shows the relationship between these initial two tables is:

As the system develops, we will add entities and information to this ER diagram until the entire conceptual schema for the database is illustrated.

There are a number of different formats for entity-­relationship diagrams. Since we are using Microsoft Access to build the database, we will use ER diagrams as they are shown in Microsoft Access’s table relationship view. In these ER diagrams, tables are shown with all of their fields. Related tables are shown via lines which link their key fields together and show whether the entities have a one-to-one or one-to-many ­relationship. A small number 1 next to the key means that a table is on the one side of a relationship. A small infinity symbol indicates that the table is on the many side of a relationship. For example, one customer makes many appointments.

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Because the CUSTOMER Table will be linked to the APPOINTMENT Table, it will not be necessary to include either the customer name or phone number in the APPOINTMENT Table. The CUSTOMER Table and APPOINTMENT Table will be linked based on a key (which is not the customer’s name). Thus, only the key field from the CUSTOMER Table needs to be included in the APPOINTMENT Table in order for all of the information about a customer to be available.

If a field from the CUSTOMER Table, like the phone number, were to be included in the APPOINTMENT Table, it would have to be entered each time an appointment was made. Also, if the phone number were to change, each record for that customer in the APPOINTMENT Table would have to modified. No entity ever needs to include attributes from an entity to which it is linked. Doing so would cause repeating information, which would violate the first rule of normalization, which states that there should be no repeating groups or many-to-many relationships among entity classes.

HisNHers appointment book includes the service provided. This could be an attribute of the CUSTOMER Entity since many customers have many services performed. However, this would create a many-to-many relationship. A many-to-many relationship requires a join or linking table (sometimes called an intersection relation) to prevent repeating data. The APPOINTMENT entity is, in fact such a join table. The APPOINTMENT entity joins the customer with the service provided on a particular date. Other details about a particular appointment such as the employee who performs the service and the product used are also included. These details or attributes relate only to this particular appointment, not to the customer or service.

For any one CUSTOMER record there may be many related APPOINTMENT records. This is indicated on the ER diagram by the small 1 next the CUSTID field in the CUSTOMER Table and the infinity symbol next to the CUSTID field in the APPOINTMENT Table. Similarly, the small 1 next to the SERVICE_ID field in the SERVICE Table is linked to the SERVICE_ID field in the APPOINTMENT

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Table with an infinity symbol indicating that for any one type of service there may be many related records in the APPOINTMENT Table. Simply put, Justin Jumpup can make many appointments in the APPOINTMENT Table but there is only one Justin Jumpup in the CUSTOMER Table. (If there were two customers named Justin Jumpup each would have a separate CUSTID.) Hair Cuts can be given in many appointments but there is only one type of service called Hair Cut.

The service (Hair Cut, Perm, etc.) could have been an attribute (a field) of the APPOINTMENT Table but the S ­ ERVICE itself has an attribute of Duration (e.g., Hair Cut 1¼2 hour, Coloring 2 hours).

Whenever an attribute itself has attributes, it must become an entity unto itself. If it does not, it will violate the second rule of normalization, which says that each non-key field must relate to the entire primary key field, not to just one part of it. The key field of the SERVICE entity will be included in the APPOINTMENT entity as a foreign key in order to link the name of the service and its duration.

Each SERVICE may or may not include a Product (e.g., haircuts require no product, but a hair frosting requires a colorant). Once again, the attribute of Product itself has attri­butes (e.g., product type, product number, vendor etc.). Thus, PRODUCT becomes an entity. Its relationship differs slightly from that of APPOINTMENT to SERVICE since not every SERVICE requires a PRODUCT. This information is shown on the ER diagram by the line which links the tables with no small l or infinity symbol present next to the joined fields.

The APPOINTMENT entity could have as an attribute the employee who will provide the SERVICE. However, yet again the employee him/herself also has attributes such as first name and last name. So a separate entity for EMPLOYEE will be created and it will be linked to the APPOINTMENT entity by its key.

The attributes of the APPOINTMENT entity consist almost entirely of foreign keys which link it to information contained in other entities. It is on the many side of these relationships.

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The conceptual schema for the HisNHers Salon now includes five separate entities: CUSTOMER, APPOINTMENT, SERVICE, EMPLOYEE, and PRODUCT.

Determining Key Fields To ensure that each record of an entity class is unduplicated, it must contain a field which is its unique identifier or key. Often referred to as the primary key, this field becomes the link from one entity to another. When the primary key of one entity is used as a field in a table to which it links, it is called a foreign key. For example the field CUSTID in the CUSTOMER Table is its primary key. When the CUSTID field is used in the APPOINTMENT Table to link it to the CUSTOMER Table, it is called a foreign key. Within the physical database, keys are used also used as indexes to speed up record retrieval.

The value of a key field in a record should never change and much care should go into selecting it.

Guidelines for selecting a key include simplicity and stability. For the EMPLOYEE Table, Social Security Number is an obvious choice for a key field. This number is known to the employer, is unique, and never changes.

You might be tempted to use the Social Security Number as the key in the CUSTOMER Table as well.

However, many people are protective of this number and not inclined to give it out. Another possible choice for the CUSTOMER Table key is the last name but there are can be several customers with the same last name and women frequently change their last name. It is also possible to create a composite key of two or more fields in a table so that first name and last name could be joined into one field.

But in this case such a composite key would not ensure a unique record (e.g., Maria Jones and her continued

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daughter, Maria Jones). The CUSTOMER entity requires the creation of a new attribute to be used as the primary key.

Often a composite key of date and time is a good choice for an entity that is time based, since it precludes duplicates. For the HisNHers database, the APPOINTMENT Table could use such a key if the service provider’s ID were added. (Two staff members frequently have appointments at the same time.)

Often the user wants keys that are meaningful to him. For example, in the SERVICE Table, Clarence would like to create a key based on the name of the service, like HCM for male haircut. BT for beard trim, and CF for coloring female. However, in a large database it is easy to run into duplicates with schemes like this, and the keys can quickly become meaningless to all but the person who established them. In a small system, such as HisNHers these problems are minimal, and using familiar abbreviations might make learning to use the new system easier.

If you have the luxury of being able to set up a new primary key, one of the best choices is to allow the system to create an automatically numbering field for each record. The CUSTID field in the CUSTOMER entity is such a field. This will ensure that keys are unique and unduplicated. It is seldom necessary for the user to even be aware of the contents of a primary key field. The job of the primary key is to link tables. Today’s database products include powerful look-up features so that you would not need to look up a customer by their ID number but could use their last name, then the first name, then the address, etc., until the requested record is located for use.

In many businesses some sort of key already exists for an entity. For example, Clarence and Clarissa had been using a small number that had been written in the corner of each customer’s index card, which could become the key. When you are using existing numbers, gaps in a numbering scheme do not matter but care must be taken that the numbers to be used in the primary key field are both unique and not duplicated, which is often not the case with a key that is used in a manual system.

If a key has been in use for a while on an older system but is found to no longer be appropriate as a primary key, you may need to carry this information into the new system, to help the user identify the records. For example if Clarissa’s index card numbers were inappropriate to use as a key field, but she had typed up notes about her personal customers using these numbers instead of names, you would carry the old key as a field (but not a key field) in the new database. When reports are printed from the new system they will include this old number so she can match the new reports to her old notes.

Reviewing the Design After the “final” conceptual schema has been developed and the ER diagram includes all of the entities with their keys, attributes, and relationships, it is time for a de­sign review. All of the principal stakeholders in the system should study it to be sure that the necessary information is included and

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available. Also, provisions for possible expansion should be included. If the system expands to include in­ventory and ordering, a sixth entity, VENDOR, would have to be added. Allowance has been made for this growth in the PROD_VENDOR field of the PRODUCT entity. While it isn’t impossible to redesign a system after data is entered, it is time consuming, error prone and requires serious skill in handling data via SQL commands.

Developing the User Interface: Forms and Reports The user interface includes menus, data entry forms, and reports. In short, despite your beautiful ER diagram, the interface is what the user will think of when he or she thinks of the database. The tools to create these objects vary significantly among database packages. In Microsoft Access, the development of both entry forms and reports can be quickly accomplished via wizards that create basic objects and then allow them to be customized.

Development of reports for the system can teach you much about the design of the system, and it is critical to have sample reports examined by the user. If the owners of HisNHers wanted to see the customer’s hair color on a report, you would soon realize that there is no field for this information.

While it’s possible to change the database to include a field for hair color, this type of oversight should have been caught at an earlier stage of the design process.

The owners of HisNHers wish to have a daily appointment list which shows not just the customer and appointment time but also the provider, the service requested, and any special product that will be needed. Above is a sample from this report. Creation of this report requires data from all five of continued

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the tables in the database. If tables are improperly related to each other, reports will be d­ ifficult if not impossible to create.

Since each table is related to another by a key field, records will be linked together based on ­matching data in the key fields. If a record in one table has no matching record in another table, it will not be included on the report. For example, only records from the tblAPPOINTMENT in which the appointment date = November 5, are selected for the 11/5 appointment list. If the group of records selected from the APPOINTMENT Table where appointment date = 11/5/2020 contain no record with the customer ID for Jim Brown, Jim Brown will not show on the appointment list. Since Jim ­didn’t have an appointment on 11/5, he shouldn’t show!

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 6: Foundations of Business Intelligence: Databases and Information Management

Learning Track 2: Introduction to SQL This Hands-On Guide is a brief introduction to Structured Query Language (SQL), the standard language for relational database management systems. SQL can be used for defining database structures, querying databases, and updating database data. If you are using Access, you will probably use its Query, Report, and Table-building tools rather than SQL for most of your querying and reporting work. However, you may want to use SQL to edit Access queries, and you can use your knowledge of SQL when you work with other database management systems. We will use tables from the HisNHers database developed in the previous appendix to illustrate how SQL works, focusing on the most important SQL commands for retrieving data. We will show you how to create SQL queries using sample data from the CUSTOMER Table and the APPOINTMENT Table illustrated here.

CUSTOMER TABLE WITH SAMPLE DATA CUST ID

FNAME

MID NAME

1

Georgia

A

2

Patrick Q

LNAME

ADDR1

ADR2

CITY

STATE

ZIP

HOME PHONE

(912) 4555555

Brown

88 Main Street

Missoula

NY

10521

(914) 332-1234

(914) 2228182

42 Sweetbriar L

Bocarain

NY

10598

(914) 333-4333

(211) 2222121 (212) 9210404

3

Juliet Mary Ellen

5

Mary Allen

Smith

22 September

Bocarain

NY

10598

6

Justin

J

Jumpup

6233 Ridgeview

Catalan

NY

10520

7

Thomas

E

Brown

7 Schiff Ave

Bocarain

NY

10598

Montague

11 Venice Plaza

Smith

Marian Lane

Apt. 22

Bldg. C

Bocarain

NY

10598

(914) 888-8181

Catalan

NY

10520

(914) 821-3666

(212) 3334567

8

Zoe

Nother

91 Glendale

Bocarain

NY

10598

(212) 345-6789

Mary Ann

Smith

8 Race Road

Catalin

NY

10520

(941) 222-1888

10

John Paul

Jones

66 Ocean View

Bocarain

NY

10598

12

Jeanne

Greene

9499 Threws Le

Bocarain

NY

10598

13

Mark

MacGregor

43 Schiff Ave

Catalan

NY

10520

15

Jim

Brown

9 Penland Park

Missoula

NY

10521

(941) 7653424 (212) 4597878

(518) 333-3311

(912) 4567823

PERSONAL GENDER INFO

EMAIL

DOB

gbrown@qqq.org

7/7/1951

F

PMAL@AOL.COM 6/12/1981

M

(212) 2221221

(914) 9991919

9

Q

CELL PHONE

Malone

4

J

WORK PHONE

12/25/1971

F

1/23/1959

F

masmith@smith. com

4/25/1973

F

jjup@bigcompany. com

9/13/1966

M

2/27/1981

M

3/14/1968

F

5/30/1083

F

WORKS AT M8

M

M

(430) 6868565

6/10/1979

OLD CUST ID

M

*Number

continued

Chapter 6

Learning Track 2

2

APPOINTMENT TABLE WITH SAMPLE DATA CUSTID

SERVICE_ID

APPT_DATE

APPT_TIME

EMP_SS

PROD_NUM

1

2

11/5/2020

3:30 PM

123456789

APPT_COMMENT

1

2

11/7/2020

2:00 PM

123456789

2

2

11/5/2020

8:30 AM

987654321

2

3

11/7/2020

3:00 PM

123456789

4

3

5

11/5/2020

10:00 AM

123456789

8

3

5

11/7/2020

11:30 AM

987654321

8

4

2

11/5/2020

3:00 PM

987654321

4

1

11/7/2020

9:00 AM

123456789

6

5

3

11/5/2020

12:00 PM

123456789

3

5

3

11/5/2020

9:00 AM

123456789

2

6

5

11/5/2020

11:30 AM

987654321

7

6

11/5/2020

10:30 AM

123456789

7

2

11/7/2020

4:30 PM

987654321

8

1

11/5/2020

1:00 PM

987654321

9

4

11/5/2020

2:30 PM

123456789

10

2

11/5/2020

4:30 PM

123456789

12

4

11/5/2020

9:30 AM

987654321

13

2

11/5/2020

8:30 AM

123456789

8 8

Basic SQL Syntax Rules SQL, like all computer languages has a particular syntax or grammar which must be followed in order for the commands to be understood and executed properly. Its most basic rules are: 1. Identifiers (names of tables, columns, and other objects) should contain between 1 and 30 characters. The identifiers can be upper or lower case, but no embedded spaces are allowed. For example, WORK PHONE would have to be written as WORKPHONE or WORK_PHONE. 2. SQL is not case sensitive, although SQL keywords such as SELECT or FROM are usually capitalized. Keywords have predefined meanings and cannot be used as identifiers.

3. SQL statements can take up more than one line (and there are no restrictions on the number of words per line or where to break a line). However, a new line is often started when a new clause in an SQL statement begins.

4. Commands begin with the SQL operator (e.g., CREATE or SELECT).

5. Field (column) names are separated from each other by a comma (e.g., SELECT FNAME, LNAME FROM tblCUSTOMER).

6. Field (column) names are separated from table names by a period (e.g., tblCUSTOMER.FNAME, tblCUSTOMER.LNAME). (Access uses this convention.) The name of the table does not have to be written before the name of the field from that table unless two tables used in the same SQL statement have identical field names (such as the CUSTID field in both the CUSTOMER and continued

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APPOINTMENT tables). Then the table name must be included (e.g., tblCUSTOMER.CUSTID and tblAPPOINTMENT.CUSTID).

7.

Strings must be enclosed in quotation marks. A string is text for a collection of bits that is foreign to the database. The SQL statement to find the phone number for all of the customers whose last name is MacGregor would be written as: SELECT HOMEPHONE FROM tblCUSTOMER WHERE LNAME = “MacGregor”;

Remember too that a space is considered a character and must always be included in the quotation marks if it is needed for the comparison. “Mac Gregor” and “MacGregor” will not return the same person.

8. Nested operations must be enclosed in parentheses. One of the strengths of SQL is its ability to perform quite complex data manipulation. This is primarily due to its use of nesting. Commands within commands are enclosed in parentheses and the innermost ones are executed first.

Using the Select Statement The most often used SQL command is SELECT, which returns rows of data from columns in the tables that the user would like to see in a result table. Following are a series of SELECT statements which demonstrate how to have all or specified columns returned in the result table. The names of the columns to be queried follow the keyword SELECT and the name of the table to use follows the keyword FROM. SELECT every column and every row SELECT * FROM tblCUSTOMER;

The asterisk after SELECT causes every column to be included in the records from the table, tblCUSTOMER. The results show all the rows in the CUSTOMER Table as displayed earlier.

SELECT only some columns and every row SELECT ADDR1, LNAME FROM tblCUSTOMER;

Only the columns which are listed are returned from the CUSTOMER Table and they are presented in the order they are listed in the statement.

continued

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ADDR1

LNAME

88 Main Street

Brown

42 Sweetbriar Lane

Malone

11 Venice Plaza

Montague

Marian Lane

Smith

22 September Street

Smith

6233 Ridgeview

Jumpup

7 Schiff Ave

Brown

91 Glendale

Nother

8 Race Road

Smith

66 Ocean View

Jones

9499 Threws Le.

Greene

43 Schiff Ave

MacGregor

4

Sorting Data: Using Order By The following examples show the ORDER BY statement which is used to sort the data returned by the SELECT statement.

Select only some columns and every row in sorted order by one field SELECT LNAME, FNAME FROM tblCUSTOMER ORDER BY LNAME;

The ORDER BY command causes the records to be sorted in order by the contents of the column name following it.

LNAME

FNAME

Brown

Jim

Brown

Thomas

Brown

Georgia

Greene

Jeanne

Jones

John Paul

Jumpup

Justin

MacGregor

Mark

Malone

Patrick

Montague

Juliet

Nother

Zoe

Smith

Mary Ann

Smith

Mary Allen

Smith

Mary Ellen

continued

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Select only some columns and every row in sorted order by several fields The returned records may be sorted in order by several fields. Each listed field after the ORDER BY clause is separated by a comma. First the records are sorted by last name, and if the last names are the same they are sorted by first name.

SELECT LNAME, FNAME FROM tblCUSTOMER ORDER BY LNAME, FNAME; LNAME

FNAME

Brown

Georgia

Brown

Jim

Brown

Thomas

Greene

Jeanne

Jones

John Paul

Jumpup

Justin

MacGregor

Mark

Malone

Patrick

Montague

Juliet

Nother

Zoe

Smith

Mary Allen

Smith

Mary Ann

Smith

Mary Ellen

Selecting Only Records That Meet Specified Criteria: Using Where The WHERE clause determines which records are returned based on criteria described in the clause.

It includes conditions for selecting specific rows in a table. Operators, such as = (equal), > (greater than), < (less than), and <> (not equal), as well as logical operators such as AND and OR are used to create the selection criteria. “IS NULL” is used to find fields that are empty (i.e., they contain no data).

Remember that to a computer, a space is a character and a field into which only one space has been keyed is not considered NULL. Select only records where the field GENDER contains an F in sorted order by last name and first name.

SELECT LNAME, FNAME, GENDER FROM tblCUSTOMER WHERE GENDER = “F” ORDER BY LNAME, FNAME;

Note that the letter F is a string and therefore must be enclosed in quotes.

continued

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LNAME

FNAME

GENDER

Brown

Georgia

F

Montague

Juliet

F

Nother

Zoe

F

Smith

Mary Allen

F

Smith

Mary Ann

F

Smith

Mary Ellen

F

6

Select only the records where GENDER does not contain an F in sorted order by last name and first name SELECT FNAME, LNAME, GENDER FROM tblCUSTOMER WHERE GENDER <> “F” ORDER BY LNAME, FNAME; FNAME

LNAME

GENDER

Jim

Brown

M

Thomas

Brown

M

John Paul

Jones

M

Justin

Jumpup

M

Patrick

Malone

M

Select only the records where GENDER contains an F and the zip code is 10520 in sorted order by last name and first name.

SELECT LNAME, FNAME, GENDER, ZIP FROM tblCUSTOMER WHERE GENDER = “F” AND ZIP = “10520” ORDER BY LNAME, FNAME;

The logical operator AND is used to select information that is contained within two different fields.

Multiple AND and OR operators can be contained within one WHERE clause.

The zip code 10520 is enclosed in quotes because it is a string. The ZIP code field is a text field and even though its data may look numeric, it is stored as text characters and can only be found with a string. If the field had been defined as a numeric one, the quotes around 10520 would not be used.

LNAME

FNAME

GENDER

ZIP

Smith

Mary Ann

F

10520

Smith

Mary Ellen

F

10520

continued

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Joining Multiple Tables Data from two or more tables can be joined together to provide data from both tables where the contents of a field found in both tables matches. Both tblCUSTOMER and tblAPPOINTMENT are needed to see who has an appointment on a particular date. Since both tables contain the customer’s ID, the contents of this field must match for the records to be returned.

Select the appointment date, time, and last name of all male customers with appointments.

SELECT APPT _ DATE, APPT _ TIME, LNAME FROM tblCUSTOMER, tblAPPOINTMENT WHERE tblCUSTOMER.CUSTID = tblAPPOINTMENT.CUSTID AND GENDER = “M”;

The preceding SQL syntax that works with most DBMS products. Access, however, uses a slightly different syntax for this particular operation. It would be: SELECT tblAPPOINTMENT.APPT _ DATE, tblAPPOINTMENT.APPT _ TIME, tblCUSTOMER.LNAME FROM.tblCUSTOMER INNER JOIN tblAPPOINTMENT ON tblCUSTOMER.CUSTID = tblAPPOINTMENT.CUSTID WHERE (((tblCUSTOMER.GENDER) = “M”)); APPT_DATE

APPT_TIME

LNAME

11/5/2004

8:30 AM

Malone

11/7/2004

3:00 PM

Malone

11/5/2004

11:30 AM

Jumpup

11/5/2004

4:30 PM

Jones

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 6: Foundations of Business Intelligence: Databases and Information Management

Learning Track 3: Hierarchical and Network Data Models You can still find older systems that are based on a hierarchical or network data model. The hierarchical DBMS is used to model one-to-many relationships, presenting data to users in a treelike structure. Within each record, data elements are organized into pieces of records called segments.

To the user, each record looks like an organizational chart with one top-level segment called the root.

An upper segment is connected logically to a lower segment in a parent–child relationship. A parent segment can have more than one child, but a child can have only one parent.

Figure 1 shows a hierarchical structure that might be used for a human resources database. The root segment is Employee, which contains basic employee information such as name, address, and identification number. Immediately below it are three child segments: Compensation (containing salary and promotion data), Job Assignments (containing data about job positions and departments), and Benefits (containing data about beneficiaries and benefit options). The Compensation segment has two children below it: Performance Ratings (containing data about employees’ job performance evaluations) and Salary History (containing historical data about employees’ past salaries). Below the Benefits segment are child segments for Pension, Life Insurance, and Health, containing data about these benefit plans.

FIGURE 1

A Hierarchical Database for a Human Resources System.

The hierarchical database model looks like an organizational chart or a family tree. It has a single root segment (Employee) connected to lower level segments (Compensation, Job Assignments, and Benefits).

Each subordinate segment, in turn, may connect to other subordinate segments. Here, Compensation connects to Performance Ratings and Salary History. Benefits connects to Pension, Life Insurance, and Health. Each subordinate segment is the child of the segment directly above it.

continued

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Whereas hierarchical structures depict one-to-many relationships, network DBMS depict data logically as many-to-many relationships. In other words, parents can have multiple children, and a child can have more than one parent. A typical many-to-many relationship for a network DBMS is the student– course relationship (see Figure 2). There are many courses in a university and many students. A student takes many courses, and a course has many students.

FIGURE 2

The Network Data Model

This illustration of a network data model showing the relationship the students in a university have to the courses they take represents an example of logical many-to-many relationships.

Hierarchical and network DBMS are considered outdated and are no longer used for building new database applications. They are much less flexible than relational DBMS and do not support ad hoc, English language–like inquiries for information. All paths for accessing data must be specified in advance and cannot be changed without a major programming effort. For instance, if you queried the human resources database illustrated in Figure 1 to find out the names of the employees with the job title of administrative assistant, you would discover that there is no way the system can find the answer in a reasonable amount of time. This path through the data was not specified in advance.

Relational DBMS, in contrast, have much more flexibility in providing data for ad hoc queries, combining information from different sources, and providing capability to add new data and records without disturbing existing programs and applications. However, these systems can be slowed down if they require many accesses to the data stored on disk to carry out the select, join, and project commands. Selecting one part number from among millions, one record at a time, can take a long time. Of course, the database can be tuned to speed up prespecified queries.

Hierarchical DBMS can still be found in large legacy systems that require intensive high-volume transaction processing. Banks, insurance companies, and other high-volume users continue to use reliable hierarchical databases, such as IBM’s Information Management System (IMS) developed in 1969. As relational products acquire more muscle, firms will shift away completely from hierarchical DBMS, but this will happen over a long period of time.

continued

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COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 7: Telecommunications,

the Internet, and Wireless Technology

Learning Track 1: Wireless Applications for Customer Relationship Management, Supply Chain Management, and Healthcare

Wireless Applications for Customer Relationship Management Major customer relationship management (CRM) vendors have enhanced their products to provide mobile support for sales and service activities. A growing number of sales professionals work outside the office and require up-to-date customer records and account information to help them close deals.

The ability to deliver this information on the spot helps mobile sales staff act decisively at the point of customer interaction.

For example, Oracle’s Siebel Wireless enables sales professionals to ac­cess customer account records and related information such as order status or recent service issues at any time or location. They can also enter the most current account and deal information data into their wireless devices to update the Siebel corporate customer database. The system will alert representatives to important events using wireless messaging.

Field service workers benefit from wireless applications that provide real-time access to ­critical information while they are servicing customers. Wireless CRM applications provide access to ­critical customer and service information while service representatives are working with clients. For example, a field service technician might use a wireless handheld to obtain information about the service history for a piece of equipment that must be fixed or whether parts required to fix the equipment are available. Some wireless CRM tools include capabilities for reporting field service staff time, expenses, parts availability, and details for follow-on work.

Pitney Bowes, a large vendor of postage meters and mailing systems, uses a wireless customer relationship management application for its Global Mailing Systems Division, in which 1,500 employees service its machines designed for low-volume distribution of mail. This system links Pitney Bowes field service representatives to the company’s call center and service applications and enables them to access data from multiple back-end systems.

continued

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Figure 7-1 illustrates how this system works. When a customer calls to place a field service request, Siebel CRM software identifies the product needing repair, selects the field service representative to dispatch, and messages that technician’s wireless device with the service re­quest. The technician then acknowledges receipt of the order. Messages from the technicians’ handhelds are routed to Antenna’s wireless gateways, which translate the data into XML format and forward them over a frame relay or virtual private network (VPN) to Pitney Bowes’s computer center for use by Siebel CRM field service software, which automatically updates inventory, billing, call center, and other back-end applications.

FIGURE 7-1 Pitney Bowes’s Wireless CRM System.

The application uses wireless handhelds, field service software from CRM vendor Siebel Systems, cellular wireless data service, and middleware to link field workers using wireless handhelds to Siebel CRM software and Pitney Bowes’s back-end systems.

The system delivers customer and service history data instantly to the field service technician’s handheld. It also tells the technician whether the work is covered by contract or is billable and feeds data for billable work into Pitney Bowes’s billing system. If parts are required, the Siebel field service application determines if the part is in stock and sends information on these parts to a legacy inventory application that is linked to the company’s SAP supply chain management system. Information from this system has enabled Pitney Bowes’s field service staff to solve problems faster and complete more service calls per day.

Wireless Supply Chain Management Contemporary supply chain management (SCM) systems are a fertile area for mobile wireless technology because of the need to provide simultaneous, accurate information about demand, supply, production, and logistics as goods move among supply chain partners. SCM software vendors include capabilities for mobile support and wireless capture of data on movements of goods and other events.

SAP Supply Chain Management software offers a number of mobile capabilities. Manufacturing employees can view work instructions on wireless handheld devices anywhere on the factory floor.

Supervisors can use wireless handhelds to call up data from process control systems to monitor production-line behavior.

A firm that needs to ship out goods can use SAP SCM to create a shipment order and tender it to a selected freight forwarder. The forwarder can access this tendering application from a mobile device continued

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and accept, reject, or modify the planned order. If the forwarder rejects the tender or does not reply within an anticipated time frame, the supply chain management software triggers a text message alert to the logistics manager’s mobile phone to expedite the search for another forwarder.

SAP SCM also uses mobile technology for warehouse management tasks such as picking, packing, unpacking, freight loading and unloading checks, and inventory queries. Some of these activities use radio frequency identification technology (RFID) technology.

Wireless in Health Care Another area in which wireless technology is having a major impact is health care. Health care systems have been hampered by inefficiencies from paper-based processes and gaps between information systems. Many hospitals have wired networks but still have problems getting essential information to the right place at the right time because most physicians and nurses are rarely in one place for long.

Mobile technology can provide some solutions. Hospitals are installing wireless LANs in emergency rooms and treatment areas, and are equipping staff with Wi-Fi-enabled laptop computers or wireless tablets and smart phones.

Table 7-3 provides examples of the efficiencies and improvements in patient care that result from using wireless technology.

TABLE 7-3

Examples of Wireless Health Care Applications

Wireless Application

Description

Electronic medical record (EMR) retrieval

Health care professionals can use wireless handhelds to enter and view medical records, including diagnostic information in real time. They can review data immediately and update patient records while making their rounds.

Wireless note taking for patient charts

Doctors and nurses can enter data electronically into wireless tablets, smart phones, or laptops.

Lab test results

Doctors can immediately obtain data about lab tests from a wireless tablet, smartphone, or laptop.

Prescription generation

Health care professionals can use a mobile phone, wireless laptop, or handheld to send a prescription to a pharmacy, reducing delays and errors.

Medical databases

Health care professionals can check drug references and other medical information wherever they are working by connecting wirelessly to medical databases.

COPYRIGHT NOTICE

continued

Chapter 7

Learning Track 1

4

Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 8: Securing Information Systems

Learning Track 1: The Booming Job Market in IT Security The technology industry has experienced its share of ups and downs over the last decade, from the initial dot-com boom to the dot-com bust, and back to the current rise of next-generation online businesses. One area of technology that has not been characterized by inconsistent levels of prosperity is information technology security.

As more and more bricks-and-mortar companies took their business online and relied on network and Internet technology for communications and productivity, protecting the business interests that run on these technologies became a priority. Even during the years when tech stocks were down and Internet startups were falling off the map, the security industry managed to grow. Boosting the industry even further was an increased focus on IT security after September 11, 2001, a focus that remains in effect today. Foreign countries and hacker groups effectively penetrated and stole information from government and industry systems. China, Russia, the United States, and other countries, have large cyber security organizations that are used to either attack other countries, or defend themselves from attack.

Following the 9/11 terrorist attacks, and the growing number of intrusions into business information systems emanating largely from China, many companies took a closer look at their security requirements. Firms that specialized in providing network security services saw an increase in demand for enterprise security evaluations. The scope of a proper security strategy is wide and can include everything from suitable locks on entrance and storage room doors to intricate pass codes for access to network resources. Companies sought to insulate their physical infrastructures as well as their vital data from harm. Within a few years, however, many businesses were forced to scale back their security budgets as economic conditions turned unfavorable. Today, interest in IT security has rebounded.

The competition to hire systems administrators and database analysts who are highly skilled in technical disciplines and security techniques has reached a feverish pitch.

One force behind this renaissance in IT security was identity theft. The price of IT security became more palatable as the cost of security lapses grew. Companies like JPMorgan Chase, Target, TJ Maxx, ChoicePoint, and CardSystems suffered significant economic and reputational losses when they failed to protect the credit card data of tens of millions of customers. Even the United States government sensed the urgency and instituted a commercial certification requirement for all IT workers and contractors at the Department of Defense.

The theft of intellectual property from American firms is another factor spurring the growth of the information and computer security field. A survey of members of a leading U.S. business lobby continued

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in China found that 25% had been victims of data theft, Twenty-six percent of the members who responded to an annual survey said that their proprietary data or trade secrets had been compromised or stolen at their China operations, according to the report from the business lobby, the American Chamber of Commerce in China. Mandiant, a U.S. computer security company, claimed that a secretive Chinese military unit was likely behind a series of hacking attacks that targeted the United States and stole data from more than 100 companies. U.S Representative Dutch Ruppersberger said that U.S. companies had suffered estimated losses in 2015 of more than $250 billion due to the theft of trade secrets, much of it the result of Chinese hacking.

To prevent attacks on their businesses, some companies are looking for IT security personnel with backgrounds in white-hat hacking and computer forensics, among other skills. Developing such skills is viewed as crucial for future chief security officers (CSOs) if they are going to defend their employers’ business interests from cyberattacks.

To support the development of such careers, EC-Council, a professional association for e-business and security professionals, has added a Master of Science in Cyber Security program to its EC-Council University training curriculum. ECCU’s Master of Science in Cyber Security (MSCS) program prepares professionals to assume cybersecurity and information assurance leadership roles in corporations, agencies, and organizations. The curriculum is rich in computer security management, IT security threat assessment, incident response, organizational management and behavior, and leadership challenges. The University aims to create a new front line of CSOs and highly skilled security executives. The program requires only part-time study so that students can continue to log real-world experiences as they complete the degree.

EC-Council does not guarantee job placement. According to Stephen Northcutt, president of SANS Technology Institute, finding employment should not be a problem. SANS awards graduate degrees in information security under the authority of the Maryland Higher Education Commission. Regarding his organization and EC-Council, Northcutt says, “if we are both wildly successful, we will fulfill perhaps 1% of the market’s true need.”

Whereas most advanced IT degrees relegate security to the second tier of learning, EC-Council’s program places security training at the forefront. For an IT worker, an education in ethical hacking provides great insight into the approach of criminal hackers. Jay Bavisi, the president of EC-Council, hopes to encourage more companies to create positions for well-armed CSOs. He preaches, “the benefit of having a CSO with a Master of Security Science degree is that you will bridge the digital divide between security executives and their technical teams.”

Professional security certification is definitely high on the list for employers with IT security jobs to fill. One tool that hiring managers have at their disposal is the Certified Information Systems Security Professional (CISSP) exam, which is a six-hour maximum, multiple-choice test sponsored by the International Information Systems Security Certification Consortium (ISC)2, an industry group.

(ISC)2 has established a matrix of security disciplines, which is called the Eight Domains of Security.

The exam focuses on these domains: continued

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1. Security and Risk Management 2. Asset Security 3. Security Architecture and Engineering 4. Communications and Network Security 5. Identity and Access Management 6. Security Assessment and Testing 7.

Security Operations

8. Software Development Security CISSP certification also has a continuing education requirement. Credentialed CISSPs must be recertified every three years, which can be accomplished through attending courses, seminars, and conferences, as well as through self study and a variety of other continuing education activities. Certification in good standing also requires an annual maintenance fee.

(ISC)2 is not the only organization that provides information security certification that employers may value. The following table lists various organizations and the certifications they offer that you may want to investigate as you embark on a career in information security.

TABLE 2

Security Certifications

ORGANIZATION

CERTIFICATIONS

CWNP

CWSP

Check Point

CCSA, CCSE, CCMSE

Cisco

CCNP Security

CompTIA

Security+

(ISC)2

CISSP, SSCP

TruSecure

ISCA

In the field, and certification notwithstanding, Paul Pescitelli recommends that job applicants have competence in at least two of the domains. Moreover, a successful job applicant often must combine IT expertise as it relates to a particular job or employer with a deep comprehension of security technology and practices.

Of course, if you are in college or graduate school now, you are a number of years of study and work experience away from being able to pursue some of these certifications. What can you do now to set

continued

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yourself on a good path if you are intent on pursuing a career in IT security? The school you attend and the courses in which you enroll can play a large part in the your future success. Consult Table 3 for a representative survey of educational institutions and the relevant degrees they offer.

TABLE 3

Example IT Degrees

Institution

Type

Degree

RIT

Undergraduate

Bachelor of Science in Computing Security

Johns Hopkins University

Graduate

Online Master of Cybersecurity

Colorado Technical University Online

Undergraduate

Bachelor of Science in Computer Science Cybersecurity Engineering

Penn State University

Undergraduate

M.S. in Cybersecurity Analytics and Operations

Boston University

Graduate

Master of Science in Computer Science with Specialization in Cyber Security

DePaul University

Undergraduate

Bachelor of Science in Cybersecurity

DePaul University

Graduate

Master of Science in Cybersecurity

As you can see, the options for pursuing a degree in information security are quite diverse. If you are not currently able to redirect your education to an institution that offers an information security, you can start preparing now by examining the curriculum of your own school. Make it a priority to enroll in courses that are in concert with the typical curriculum of an information security degree program.

Some typical courses you might consider are: ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆

Introduction to System Administration Introduction to Programming Security Management Network Fundamentals Information System and Network Infrastructure Protection Cyber Self Defense Information Security Policies Cryptography Authentication Computer System Security Network Forensics and Security

An information security curriculum may also contain courses in other disciplines such as English, Economics, Psychology, Accounting, and Statistics.

One of the greatest challenges for IT security professionals is a work force that has little regard for security. The market research firm Insight Express surveyed users of mobile technology to see how careful they are with their company-issued devices. 44 percent of respondents reported opening e-mail and file attachments from unfamiliar or suspicious senders. 33 percent had hijacked a neighbor’s wireless connection or used a public hotspot with no knowledge of its security. 73 percent admitted to continued

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sometimes being unaware of security threats and best practices for working on mobile devices. And 28 percent “hardly ever” consider the risks of their activities. The survey also uncovered one truth about why workers have little regard for security issues: they feel that security is the IT department’s responsibility, not their own.

The attitude of the work force goes a long way to explain why security has become part of a company’s day to day operations instead of remaining an adjunct position. All levels of IT workers must now have an understanding of security issues.

The following table displays a sample of security positions and their related salary ranges.

TABLE 4

Example IT Security Degrees

Position

2020 Salary Range (USA)

Chief Information Security Officer

$193,105 - $255,415

Senior IT Auditor

$94,500 - $111,400

IT Auditor

$69,250 - $88,700

Data Security Analyst

$112,373 - $132,113

Security Systems Administrator

$75,131 - $105,485

Network Security Administrator

$68,142 - $87,479

If you are searching for a job in IT security, you may also want to search for variations of some of the above job titles, such as: IT Security Engineer, Information Security Specialist, IT Security Manager, Security Architect, and IT Security Consultant. Of course, job titles and salary ranges are only part of the story. You will also need to consider the responsibilities that accompany each of these jobs: ◆

◆

Chief Information Security Officer: The CISO, sometimes called CSO, is a high-level executive who reports directly to the CEO, CIO, COO, or CFO. The person in this position takes the lead on all matters related to setting and implementing security standards for the company. The CSO is charged with protecting all of the company’s physical and digital assets, as well as ensuring the safety of all employees. The CSO’s domain is as wide as the enterprise because security is a critical issue in all departments. In this role, you would need to work with IT, human resources, communications, legal, and other departments to coordinate enterprise security. The CSO often takes the lead on business continuity planning, privacy, loss prevention, and fraud prevention decisions.

IT Auditor: The IT auditor typically participates in identifying, documenting, and evaluating a firm’s financial and operational controls. He or she performs audits to ensure compliance with professional and governmental standards, such as Sarbanes-Oxley. The IT Auditor may also be the liaison between the company and external auditors. The job may also require testing and

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validating internal controls, as well as making recommendations to senior executives about security areas that need improvement. ◆

◆

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Data Security Analyst: A data security analyst protects the firm’s data from threats, such as theft, fraud, vandalism, and unauthorized access. This position supports applications, operating systems, networks, and more. It generally requires you to institute procedures for safeguarding information assets. As a data security analyst, you will also make recommendations to senior executives based on vulnerabilities and integrity issues that you have found.

Security Systems Administrator: The person in this position performs risk management tasks on a firm’s computers and network. The duties of a Security Systems administrator include realtime monitoring of traffic, incident response and analysis, forensics, and configuring and administering firewalls. In this position, you may also design and implement security best practices and support hardware and software from a security perspective.

Network Security Administrator: A network security administrator establishes and implements authorization policies for access to company resources on the network by assigning permissions.

In this position, you would install, configure, and maintain all of the components of the network, including routers, switches, and wireless devices. You may also take the lead on technical direction, project management, documentation, and troubleshooting as they relate to IT security and infrastructure.

The IT security job market promises to remain strong for years to come. The U.S. has a total employed cybersecurity workforce consisting of 715,000 people, and there are currently 314,000 unfilled positions, according to Cyber Seek, a project supported by the National Initiative for Cybersecurity Education (NICE), a program of the National Institute of Standards and Technology (NIST). In addition to the overwhelming need for the services the industry provides, security is not an industry that is easily exported to overseas contractors. While moving the work offshore may be more economical, it is significantly less effective because overseas workers are not accountable under local laws and business practices. It is also more difficult to rely on the security of remote infrastructures, especially because security technology and practices require constant updating to be successful in the face of new threats.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 8: Securing Information Systems

Learning Track 2: The Sarbanes-Oxley Act Reacting to corporate accounting and governance scandals that made headlines in the early days of the twenty-first century, the United States Congress enacted legislation to protect investors from fraudulent corporate accounting and restore public confidence in corporate America. The l­egislation, known officially as the Public Company Accounting Reform and Investor Protection Act of 2002, acquired the common name of the Sarbanes-Oxley Act (alternatively SOX or Sarbox), so named for the members of Congress who sponsored the bill, Senator Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH).

The scandals in question, including Enron, WorldCom, and Tyco, resulted in bankruptcy and, in some cases, the complete collapse of major public corporations. Hundreds of thousands of shareholders lost millions of dollars due to the unethical actions of a handful of executives and faulty accounting practices. In general, high-ranking company officials allowed earnings to be misstated and investors to be deceived. In less serious cases, companies were forced to restate their earnings to the detriment of shareholders because accounting practices did not provide accurate records of income and expenses.

SOX forces companies to ensure the accuracy of their financial records though internal a­ ccounting controls. All internal audits must in turn be certified by an independent external auditor. The importance of an independent external auditor is underscored by the fact that Enron’s accountant, Arthur Andersen, also relied on income from Enron for consulting services. This conflict of interest influenced the accounting firm to, at best, tacitly approve inaccurate records. SOX declares that outside auditors may not furnish actuarial, legal, or consulting services to their audit clients. In addition to mandating the independence of auditors, SOX enforces compliance to the following: ◆ ◆

Financial reports must not contain any misrepresentations CEOs and CFOs of corporations must review all financial reports and are responsible for their veracity, as well as the internal accounting controls that ensure them

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High-level executives are prohibited from asking for or accepting loans from their companies

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Companies must fully disclose the compensation of the CEO and CFO

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Companies must report insider trades more expeditiously

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Companies must offer protection for whistleblowers

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Companies must disclose material changes in their financial state or operations promptly continued

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CEOs and CFOs are compelled to report deficiencies in internal accounting controls, fraud related to management of internal accounting controls, and material changes in internal accounting controls

Companies, and executives, that fail to comply with SOX regulations are subject to a variety of penalties, ranging from criminal and civil actions for securities violations to lengthy jail terms and hefty fines for executives who purposefully misstate financial records. SOX also criminalizes the corrupt alteration, destruction, mutilation, or suppression of documents for the purpose of d­ evaluing them or evading disclosure in official proceedings.

Along with heavy consequences for violations, SOX compliance carries financial burdens for implementing the necessary controls. The cost of installing adequate internal auditing controls and having those controls certified by an outside auditor is on average $4.3 million for companies with revenues of at least $5 billion. Even larger companies may spend $30-$40 million annually on SOX compliance.

While the burden of proof of SOX compliance falls on executives and the auditors they hire, the burden of implementation falls largely on IT departments. SOX does not outline requirements for IT security, in fact the text of the law makes no explicit mention of IT, but the vast majority of internal auditing and reporting controls rely on IT installations. Without the IT department, SOX compliance has virtually no chance of occurring.

The terms of SOX mandate the long-term storage and protection of financial records, as well as the rapid availability of such records in case an oversight agency or subpoena requests them. Interference with the proper retention of records, including destruction, alteration, and falsification, carries harsh criminal penalties mentioned earlier. Records that need to be retained include not only transactions that account for income, expenses, liability, etc., but also communications, such as e-mails and instant messages. Penalties for deleting an e-mail with the intent to hinder a federal investigation may be as severe as a $1,000,000 fine and 20 years in jail. While all e-mails and IMs may not be relevant to compliance, best practices suggest archiving practically all electronic communications, including phone calls.

SOX stipulates that companies and their accountants must retain records of their audits for at least seven years, and that accountants auditing companies that issue securities must retain audit work papers for at least five years, SOX has created the need to store and protect data for longer periods with secure, duplicate backups. Storage repositories must feature an easily navigable index to facilitate the satisfaction of record requests. And companies must be able to record and report any attempts to access, modify, or delete the records they have retained. To comply with these provisions, companies are investing in IT: new storage devices and media, software, and record management controls.

A popular solution for managing record retention is write-once, read-many server technology, commonly known as WORM. WORM technology employs magnetic tape, specially enabled drives, and WORM data cartridges to serve a “backup, duplicate, and archive everything” strategy effectively. This is especially important in an era when even individual employee workstations must be added to the aggregate official record. continued

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WORM media prevent overwriting or deleting data once they have been recorded as a result of the write-once technology. These media are also high-performance and high-capacity solutions at a reasonable cost. Technologists have used magnetic tape reliably to store data for decades. Its traditional strengths, including capacity, cost, transfer rates, durability, and portability, combine with the security of WORM technology to satisfy the SOX-compliance needs of many businesses.

Creating unalterable, long-lasting data records is not the end of the information security process. Full Sox compliance requires that the media and their duplicates be physically secure as well. To prevent loss from damage, best practices indicate storing duplicate copies in different locations. To prevent unauthorized access, these locations must be subject to strict controls so that all interactions with the records are properly documented.

SOX compliance is a complex undertaking. The following guidelines may be helpful to any business that has questions about their strategy for storing and securing data: ◆

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Do you have the ability to store data and prevent them from being altered for the appointed retention period?

Is the technology you are using flexible enough to be updated so that access to stored data remains possible years from now?

Does your current technology permit rapid retrieval of financial records by authorized personnel in the face of an oversight request?

Is the technology you are using scalable so that it will support increased storage and security demands if your organization grows?

How well does your SOX-compliance technology solution work with the business process ­technologies that produce the critical data that are subject to the legislation?

By answering these questions appropriately, executives may find that they have blessed their companies with improved operational processes and new competitive advantages.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 8: Securing Information Systems

Learning Track 3: Computer Forensics For thirty years, a serial murderer known as the BTK killer (standing for bind, torture, and kill) remained at large in Wichita, Kansas. The BTK killer first struck in 1971 with the murder of four members of a Wichita family in their home and committed his last in this early period murder in 1991.

He then resurfaced between March 2004 and February 2005, sending a letter to a local news paper and eventually a floppy disk to the city police department. The disk contained a file labeled “Test A.RTF” with the message “This is a test.” Additional investigation found that the disk was opened in computers at Wichita’s Christ Lutheran Church and the file was last saved by a user named “Dennis.”

This information led police to Dennis Rader, president of the congregation, who was proven via DNA analysis and examination of Rader’s computer to be the BTK killer. Computer forensics played an important role in breaking this case.

What Is Computer Forensics?

Computer forensics is the scientific collection, examination, authentication, preservation, and a­ nalysis of digital data so that the information can be used as evidence in a court of law. Both local and federal law enforcement agencies use computer forensics to gather evidence for criminal cases or to obtain more information about a suspect. Large corporations may hire a computer forensics expert to monitor employee computer activities to make sure employees are not leaking sensitive or critical company information or using company computer resources in harmful ways.

Computer forensics can be an indispensable tool in divorce cases where one party may be trying to conceal or secretly transfer wealth, or there is suspicion of infidelity or other conduct that would constitute “fault” in divorce proceedings. The divorce discovery process will be looking for digital evidence such as names and addresses of financial institutions, fund transfers, hidden accounts, real estate holdings, debt information, account activity, and e-mail and instant message communication with other people. The party that fails to disclose an asset during the divorce process may be required to pay attorney’s fees and turn over the asset to the other party or to the court in a receivership proceeding, in addition to losing credibility in the divorce proceeding as a whole.

For instance, computer forensics facilitated the discovery of records related to a family-owned business. The profit and loss statements and general ledgers for a four-year period provided by the spouse that operated the business appeared to minimize corporate assets and income. A forensic analysis of the computer system where the records were stored showed that a program designed to erase data was continued

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downloaded and used to remove items from the hard drive shortly before the computer was turned over to the forensic examiner. The forensic examiner additionally determined that the financial records that had been provided by the spouse had been generated by a program version that was not in use at the time the records were purportedly created. As a result, the court concluded that the records had been modified and imposed a sanction against the spouse that had provided the records.

Computer forensics requires specialized expertise and tools that go beyond the normal data collection preservation techniques employed by end users and information systems departments. This field also requires legal knowledge because digital evidence must adhere to the standards of evidence that are admissible in a court of law. Before performing an investigation, the examiner must make sure he or she has the legal authority to search for digital data.

Computer forensics experts perform a variety of tasks: ◆ ◆ ◆ ◆

Identify sources of digital or documentary evidence Preserve the evidence Analyze the evidence Present the findings.

Digital Evidence Digital evidence consists of any information stored or transmitted in digital form that can be used in court for either criminal or civil cases. Digital evidence can be found in e-mail, voice mail, instant messaging, Web browsing histories, digital photographs and video, computer disk drives, CDs, DVDs, USB storage devices, iPods and MP3 players, smart phones, cell phones, pagers, p­ hotocopiers, fax machines, and Global Positioning System (GPS) tracks.

E-mail is now a primary means of communication and a major source of digital evidence. This evidence may be found in the body of the e-mail or in an attachment. E-mail data may be stored on a local hard drive, a network device, a dedicated mail server, or a removable device, and the f­ orensic examiner will search all of these devices.

All e-mail messages generate headers attached to the messages that contain valuable information such as the time the message was sent, identities of sender and recipient, and the sender’s domain name.

The headers may contain “reply to” information that allow threads to be reconstructed.

The high volume of e-mail makes it difficult for an examiner to search each message. Forensic experts typically will make copies of e-mails and attachments and look for incriminating evidence using keyword searches.

Computer forensics specialists are often called in to recover data that has been deleted from a device.

Many computer users do not realize that there are tools for recovering data on a computer hard drive after a file has been deleted. In addition to recovering “deleted” files, computer forensics specialists can examine local network connections to gather evidence from data transmissions or uploads of files. continued

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Obtaining Digital Evidence Like any other piece of evidence used in a legal case, the information obtained by a c­ omputer forensics investigation must follow the standards of admissible evidence in a court of law. Those presenting electronic evidence must be able to demonstrate the reliability of the computer ­equipment, the manner in which the basic data were initially entered, measures taken to ensure the accuracy of the data as entered, the method of storing the data, precautions taken to prevent its loss, and the accuracy and reliability of the computer programs used to process the data.

If the individual who generated the digital evidence has not consented to having his or her ­computer system examined, the computer forensics expert must make sure that he or she has the legal authority to seize, examine, and image the individual’s computer devices.

The computer forensics investigator needs to document all work done to a computer and all ­information found. An investigator who uses a faulty procedure may invalidate all the digital evidence collected. To make sure evidence is not lost, destroyed, or compromised, the following guidelines should be followed: 1. Only use tested tools and methods that have been tested and validated for accuracy and reliability.

2. Handle the original evidence as little as possible to avoid changing data.

3. Document everything done.

4. Establish and maintain a chain of custody.

5. Never exceed personal knowledge Unless it is completely unavoidable, digital evidence should not be analyzed using the same machine from which it was collected. Instead, forensic image copies of the contents of computer storage devices (primarily hard drives) are made.

If a machine is suspected of being used for illegal communications, such as terrorist traffic, i­ mportant information may not be stored on the hard drive. Several Open Source tools are available to analyze open ports, mapped drives, or open encrypted files on the live computer system. These tools can also scan RAM and Registry information to show recently accessed Web-based e-mail sites and the login/ password used to access these sites or recently accessed local e-mail applications such as MS Outlook.

The Registry is a database used by the Windows operating system to store configuration information, such as settings for hardware, system software, installed programs, and user preferences. This information may help a forensic investigation by showing, for example, whether someone tried to uninstall a program.

It is possible that the expert trying to analyze a live computer system will make changes to the contents of the hard drive. During each phase of the analysis, the forensic examiner needs to identify

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the information that will be lost when the system powers down, balancing the need to potentially change data on the hard drive with the evidentiary value of the perishable data.

When a live analysis is being conducted, data that are most likely to be modified or damaged first must be captured first. So the examiner will first inspect data in network connections, followed by analysis of running computer programs, then the contents of RAM, which may include information on all running programs, recently run programs, passwords, encryption keys, personal information, and system and program settings. Next operating systems will be examined, including user lists, currently logged in users, system data and time, currently accessed files, and current security policies.

Finally, the hard drive will be imaged to create an exact duplicate. Forensic examiners can completely duplicate an entire hard drive using a standalone hard drive duplicator or software imaging tools such as DCFLdd or IXimager, storing the duplicate on another hard disk drive, a tape, or other media. The original drive will be moved to secure storage to prevent tampering and some type of hardware write tool will be used to ensure the original hard drive cannot be written on again. Table 1 shows some of the leading software tools used for these activities.

TABLE 1

Digital Forensic Software Tools

Software tool

Description

EnCase Forensics

Comprehensive tool capable of performing both file imaging and analysis, and acquiring data from multiple types of devices, including hard drives, CDs, smartphones, tablets, and cloud data repositories.

DCFLdd

Open source tool that is often used to create bit-stream image files of media as part of a forensic acquisition process. Can hash data as it is being transferred, helping to ensure data integrity, verify that a target drive is a bit-for-bit match of the specified input file or pattern, and output to multiple files or disks at the same time.

AccessData Forensic Toolkit

Performs rapid searches, imaging, decryption, and analysis, supporting many file and imaging formats.

Mailbag Assistant

Tools for searching, organizing, and analyzing e-mail in many different formats.

IsoBuster

Data recovery tool for examining CDs and DVDs. Works with multiple CD and DVD file formats and CD image files. Is capable of viewing and accessing data on CDs and DVDs from both open and closed sessions, thereby displaying data which may not be readily accessible by other forensic software tools

IX Imager

Linux-based digital media acquisition tool, with the ability to compress and/or encrypt image files and provide imaging accuracy in the face of damaged media, hidden geometries, and under adverse conditions. Works with devices that otherwise cannot be imaged in a Windows environment, include USB devices, server RAID systems, and tape.

Paraban Device Seizure

Provides deleted data recovery and full data dumps of certain cell phone models

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Careers in Computer Forensics Computer forensics is a blossoming field, given the increasing amount of public discussion and legislation aimed controlling computer crime, identity theft, data leakage, and data protection. The FBI anticipates that nearly fifty percent of its criminal cases will involve computer forensics work in the future. The nature of crime itself is changing as criminals learn how to exploit weaknesses in computers, networks, and their business applications in finance and accounting.

Computer forensics professionals are referred to by many titles, including computer forensics investigator, digital forensics detectives, and digital media analysts. All these jobs deal with the investigation of digital media.

A computer forensics investigator is responsible for collecting and evaluating data stored or encrypted on digital media or for recovering data that have been deleted from a computer device. The investigator is also charged with securing the data and ensuring they are not accidentally damaged during an investigation. Once the investigation is complete, the computer forensics investigator will write a detailed report describing the findings of the investigation. Computer forensics investigators work with law enforcement agencies, large corporations, or consulting firms or they operate on their own as freelance consultants to businesses that do not need or cannot afford a full-time computer forensics professional.

A computer forensics director is typically responsible for managing a team of computer f­ orensics investigators in a law enforcement agency, large corporation, or computer forensics consulting firm.

Computer forensics directors must have good management skills and are responsible for e­ nsuring that all legal procedures and company policies are carefully followed. This position g­ enerally requires a bachelor’s degree, usually in management, computer security, criminal justice, or computer forensics.

The salary for computer forensics analysts averages over $100,000 per year, with ­salaries at private companies usually higher than those in law enforcement.

The two most common certifications for computer forensics investigators are the Certified Information Systems Security Professional (CISSP) and the Certified Computer Examiner (CCE). The CISSP is offered by the International Information Systems Security Certification Consortium, or ISC. To be certified, individuals must pass a six-hour CISSP examination. Candidates for the CISSP exam should have at least four years of professional experience in information security or a college degree and three years of experience.

The Certified Computer Examiner (CCE) certification demonstrates competency in computer forensics. The CCE credential is offered by the International Society for Forensic Computer Examiners (ISFCE). To qualify for the CCE, candidates should have at least 18 months of professional experience or documented training, pass an online examination. and perform a forensic examination on at least three “test media.”

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Digital Forensic Degree Programs Many computer forensics professionals acquire expertise while on the job in law enforcement and computer security positions, but formal education is becoming more necessary as a requirement for these positions. There are computer forensics certificate programs for people who already have some career knowledge. People with no law enforcement or security background can pursue an associates’ degree, a bachelors’ degree or a masters degree programs in computer forensics. For positions such as forensic team leaders or bureau supervisors, a graduate degree is desirable.

All computer forensics specialists must have a solid comprehension of the law. They must understand how to properly and legally handle evidence and how to use a variety of methods for evidence discovery and retrieval. Computer forensics specialists will need knowledge of computer systems and programs and how to retrieve information from them. Computer forensic degree programs offer courses in business and criminal law along with course work in computer systems and programs and courses in technical writing and public speaking. Many of these degree programs require completion of an internship with local agencies or computer forensics professionals prior to graduation to provide real-world working experience.

The associate’s degree in computer forensics is a two year study program that includes courses in cybercrime, intrusion detection systems, and legal basics, along with courses in technical writing, algebra, and public speaking.

The bachelor’s degree in computer forensics is a four-year program providing computer forensics knowledge along with general education. Graduates typically take courses in criminal law, computer operating systems, and intrusion detection systems along with courses in technical writing, economics, and statistics. A few colleges and universities, such as George Washington Universiity, Champlain College, Bloomsburg University of Pennsylvania, George Mason University,Farmingdale State College, and CUNY John Jay College offer bachelor’s and master’s degree programs in computer forensics. Many more colleges are planning new programs in computer forensics.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 8: Securing Information Systems

Learning Track 4: General and Application Controls for Information Systems To minimize errors, disaster, computer crime, and breaches of security, special policies and procedures must be incorporated into the design and implementation of information systems. The combination of manual and automated measures that safeguard information systems and ensure that they perform according to management standards is termed controls. Controls consist of all the methods, policies, and organizational procedures that ensure the safety of the organization’s assets, the accuracy and reliability of its accounting records, and operational adherence to management standards.

In the past, the control of information systems was treated as an afterthought, addressed only toward the end of implementation, just before the system was installed. Today, however, organizations are so critically dependent on information systems that vulnerabilities and control issues must he identified as early as possible. The control of an information system must be an integral part of its design. Users and builders of systems must pay close attention to controls throughout the system’s life span.

Computer systems are controlled by a combination of general controls and application controls.

General controls are those that control the design, security, and use of computer programs and the security of data files in general throughout the organization. On the whole, general controls apply to all computerized applications and consist of a combination of system software and manual procedures that create an overall control environment.

Application controls are specific controls unique to each computerized application, such as payroll, accounts receivable, and order processing. They consist of both controls applied from the user functional area of a particular system and from programmed procedures.

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General Controls General controls are overall controls that ensure the effective operation of programmed procedures. They apply to all application areas. General controls include the following: Controls over the system implementation process ◆ ◆ ◆ ◆ ◆

Software controls Physical hardware controls Computer operations controls Data security controls Administrative controls

IMPLEMENTATION CONTROLS Implementation controls audit the systems development process at various points to ensure that the process is properly controlled and managed. The systems development audit should look for the presence of formal review points at various stages of development that enable users and management to approve or disapprove the implementation.

The systems development audit should also examine the level of user involvement at each stage of implementation and check for the use of a formal cost/ benefit methodology in establishing system feasibility. The audit should also look for the use of controls and quality assurance techniques for program development, conversion, and testing.

An important though frequently neglected requirement of systems building is appropriate documentation. Without good documentation that shows how a system operates from both a technical and a user standpoint, an information system may be difficult, if not impossible, to operate, maintain, or use. Table 1 lists the various pieces of documentation that are normally required to run and maintain an information system. The systems development audit should look for system, user, and operations documentation that conforms to formal standards.

SOFTWARE CONTROLS Controls are essential for the various categories of software used in computer systems. Software controls monitor the use of system software and prevent unauthorized access of software programs, system software, and computer programs.

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FIGURE 1 Points in the processing cycle where errors can occur. Each of the points illustrated in this figure represents a control point where special automated and/or manual procedures should be established to reduce the risk of errors during processing.

System software controls govern the software for the operating system, which regulates and manages computer resources to facilitate execution of application programs. System software controls are also used for compilers, utility programs, reporting of operations, file setup and handling, and library recordkeeping. System software is an important control area because it performs overall control functions for the programs that directly process data and data files. Program security controls are designed to prevent unauthorized changes to programs in systems that are already in production. continued

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TABLE 1

Essential User and Technical Documentation for an Information System

TECHNICAL DOCUMENTATION

USER DOCUMENTATION

Hardware/operation system requirements

Sample reports/output layouts

File layouts

Sample input forms/screens

Record layouts

Data preparation instructions

List of programs/modules

Data input instructions

Program structure charts

Instructions for using reports

Narrative program/module descriptions

Security profiles

Source program listings

Functional description of system

Module cross references

Work flows

Error conditions/actions

Error correction procedures

Abnormal termination

Accountabilities

Job setup requirements

Processing procedure narrative

Job run schedules

List/description of controls

Report-output distribution

Responsible user contact

Responsible programmer contact Job control language listings Backup/recovery procedures Run control procedures File access procedures

HARDWARE CONTROLS Hardware controls ensure that computer hardware is physically secure and check for equipment malfunction. Computer hardware should he physically secured so that it can be accessed only by authorized individuals. Access to rooms where computers operate should be restricted to computer operations personnel.

Computer terminals in other areas or PCs can be kept in locked rooms. Computer equipment should he specially protected against fires and extremes of temperature and humidity. Organizations that are critically dependent on their computers must also make provisions for emergency backup in case of power failure.

Many kinds of computer hardware also contain mechanisms that check for equipment malfunction. Parity checks detect equipment malfunctions responsible for altering bits within bytes during processing. Validity checks monitor the continued

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structure of on-off hits within bytes to make sure that it is valid for the character set of a particular computer machine. Echo checks verify that a hardware device is performance ready.

COMPUTER OPERATIONS CONTROLS Computer operations controls apply to the work of the computer department and help ensure that programmed procedures are consistently and correctly applied to the storage and processing of data. They include controls over the setup of computer processing jobs, operations software and computer operations, and backup and recovery procedures for processing that ends abnormally.

Instructions for running computer jobs should be fully documented, reviewed, and approved by a responsible official. Controls over operations software include manual procedures designed to both prevent and detect error. These are comprised of specified operating instructions for system software, restart and recovery procedures, and procedures for specific applications.

Human-operator error at a computer system at the Shell Pipeline Corporation caused the firm to ship 93,000 barrels of crude oil to the wrong trader. This one error cost Shell $2 million. A computer operator at Exxon Corporation headquarters inadvertently erased valuable records about the grounding of the Exxon Valdez tanker and the Alaskan oil spill that were stored on magnetic tape. Such errors could have been avoided had the companies incorporated tighter operational safeguards.

System software can maintain a system log detailing all activity during processing. This log can he printed for review so that hardware malfunction, abnormal endings, and operator actions can be investigated. Specific instructions for backup and recovery can be developed so that in the event of a hardware or software failure, the recovery process for production programs, system software, and data files does not create erroneous changes in the system.

DATA SECURITY CONTROLS Data security controls ensure that valuable business data files are not subject to unauthorized access, change, or destruction. Such controls are required for data files when they are in use and when they are being held for storage. It is easier to control data files in batch systems, since access is limited to operators who run the batch jobs. However, on-line and real-time systems are vulnerable at several points. They can be accessed through terminals as well as by operators during production runs. When data can be input online through a terminal, entry

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of unauthorized input must be prevented. For example, a credit note could be altered to match a sales invoice on file. In such situations, security can be developed on several levels: ◆

◆

◆

Terminals can be physically restricted so that they are available only to authorized individuals.

System software can include the use of passwords assigned only to authorized individuals. No one can log on to the system without a valid password.

Additional sets of passwords and security restrictions can be developed for specific systems and applications. For example, data security software can limit access to specific files, such as the files for the accounts receivable system. It can restrict the type of access so that only individuals authorized to update these specific files will have the ability to do so. All others will only be able to read the files or will be denied access altogether.

Systems that allow online inquiry and reporting must have data files secured.

Figure 2 illustrates the security allowed for two sets of users of an online personnel database with sensitive information such as employees’ salaries, benefits, and medical histories. One set of users consists of all employees who perform clerical functions such as inputting employee data into the system. All individuals with this type of profile can update the system but can neither read nor update sensitive fields such as salary, medical history, or earnings data. Another profile applies to a divisional manager, who cannot update the system but can read all employee data fields for his or her division, including medical history and salary.

These profiles would be established and maintained by a data security system. A multilayered data security system is essential for ensuring that this information can he accessed only by authorized persons. The data security system illustrated in Figure 2 provides very fine-grained security restrictions, such as allowing authorized personnel users to inquire about all employee information except in confidential fields such as salary or medical history.

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FIGURE 2

Security profiles for a personnel system. These two examples represent two security profiles or data security patterns that might be found in a personnel system.

Depending upon the security profile, a user would have certain restrictions on access to various systems, locations, or data in an organization.

Although the security risk of files maintained offline is smaller, such data files on disk or tape can he removed for unauthorized purposes. ‘These can he secured in lockable storage areas, with tight procedures so that they are released only for authorized processing. Usage logs and library records can be maintained for each removable storage device if it is labeled and assigned a unique identity number.

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ADMINISTRATIVE CONTROLS Administrative controls are formalized standards, rules, procedures, and control disciplines to ensure that the organization’s general and application controls are properly executed and enforced. The most important administrative controls are (1) segregation of functions, (2) written policies and procedures, and (3) supervision.

Segregation of functions is a fundamental principle of internal control in any organization. In essence, it means that job functions should be designed to minimize the risk of errors or fraudulent manipulation of the organization’s assets.

The individuals responsible for operating systems should not be the same ones who can initiate transactions that change the assets held in these systems.

Responsibilities for input, processing, and output are usually divided among different people to restrict what each one can do with the system. For example, the individuals who operate the system should not have the authority to initiate payments or to sign checks. A typical arrangement is to have the organization’s information systems department responsible for data and program files and end users responsible for initiating input transactions or correcting errors. Within the information systems department, the duties of programmers and analysts are segregated from those of computer equipment operators.

Written policies and procedures establish formal standards for controlling information system operations. Procedures must be formalized in writing and authorized by the appropriate level of management. Accountabilities and responsibilities must be clearly specified.

Supervision of personnel involved in control procedures ensures that the controls for an information system are performing as intended. With supervision, weaknesses can be spotted, errors corrected, and deviations from standard procedures identified. Without adequate supervision, the best-designed set of controls may be bypassed, short-circuited, or neglected.

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Weakness in each of these general controls can have a widespread effect on programmed procedures and data throughout the organization. Table 2 summarizes the effect of weaknesses in major general control areas.

TABLE 2

Effect of Weakness in General Controls

WEAKNESS AREA

IMPACT

Implementation controls

New systems or systems that have been modified will have errors or fail to function as required

Software controls (program security)

Unauthorized changes can be made in processing. The organization may not be sure of which programs or systems have been changed.

Software controls (system software)

These controls may not have a direct effect on individual applications. Since other general controls depend heavily on system software, a weakness in this area impairs the other general controls

Physical hardware controls

Hardware may have serious malfunctions or may break down altogether, introducing numerous errors or destroying computerized records.

Computer operations controls

Random errors may occur in a system. (Most processing will be correct but occasionally it may not be.)

Data file security controls

Unauthorized changes can be made in data stored in computer systems or unauthorized individuals can access sensitive information.

Administrative controls

All of the other controls may not be properly executed or enforced.

APPLICATION CONTROLS Application controls are specific controls within each separate computer application, such as payroll or order processing. They include both automated and manual procedures that ensure that only authorized data are completely and accurately processed by that application. The controls for each application should take account of the whole sequence of processing, manual and computer, from the first steps taken to prepare transactions to the production and use of final output.

Not all of the application controls discussed here are used in every information system. Some systems require more of these controls than others, depending on the importance of the data and the nature of the application.

Application controls focus on the following objectives: 1. Completeness of input and update. All current transactions must reach the computer and be recorded on computer files.

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2. Accuracy of input and update. Data must be accurately captured by the computer and correctly recorded on computer files.

3. Validity. Data must be authorized or otherwise checked with regard to the appropriateness of the transaction. (In other words, the transaction must reflect the right event in the external world. The validity of an address change, for example, refers to whether a transaction actually captured the right address for a specific individual.)

4. Maintenance. Data on computer files must continue to remain correct and current.

TABLE 3

Important Edit Techniques

Edit Technique

Description

Example

Reasonableness checks

To be accepted, the data must fall within certain limits set in advance, or they will be rejected.

If an order transaction is for 20,000 units and the largest order on record was 50 units, the transaction will be rejected.

Format checks

Characteristics of the contents (letter/digit), length, and sign of individual data fields are checked by the system.

A nine-position Social Security number should not contain any alphabetic characters.

Existence checks

The computer compares input reference data to tables or master files to make sure that valid codes are being used.

An employee can have a Fair Labor Standards Act code of only 1, 2, 3, 4, or 5. All other values for this field will be rejected.

Dependency checks

The computer checks whether a logical relationship is maintained between the data for the same transaction. When it is not, the transaction is rejected.

A car loan initiation transaction should show a logical relationship between the size of the loan, the number of loan repayments, and the size of each installment.

Check digit

An extra reference number called a check digit follows an identification code and bears a mathematical relationship to the other digits. This extra digit is input with the data, recomputed by the computer, and the result compared with the one input.

A product code with the last position as a check digit, as developed by the Modulus 11 check digit system, can detect user error in transcription or transposition of product information.

Application controls can be classified as (1) input controls, (2) processing controls, and (3) output controls.

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INPUT CONTROLS Input controls check data for accuracy and completeness when they enter the system. There are specific input controls for input authorization, data conversion, data editing, and error handling.

Input authorization. Input must be properly authorized, recorded, and monitored as source documents flow to the computer. This process is known as input authorization. For example, formal procedures can be set up to authorize only selected members of the sales department to prepare sales transactions for an order entry system. Sales input forms might he serially numbered, grouped into batches, and logged so that they can be tracked as they pass from sales units to the unit responsible for inputting them into the computer. The batches may require authorization signatures before they can be entered into the computer.

Data conversion is the process of properly converting input into computer transactions, with no errors as it is transcribed from one form to another.

Transcription errors can be eliminated or reduced by keying input transactions directly into computer terminals from their source documents. (Point-ofsale systems can capture sales and inventory transactions directly by scanning product bar codes.)

Batch control totals can be established beforehand for transactions grouped in batches. These totals can range from a simple document count to totals for quantity fields such as total sales amount (for the batch). Computer programs count the batch totals from transactions input. Batches that do not balance are rejected. Online, real-time systems can also utilize batch controls by creating control totals to reconcile with hard copy documents that feed input.

Various routines (edit checks) can be performed to edit input data for errors before they are processed. Transactions that do not meet edit criteria will be rejected. The edit routines can produce lists of errors to be corrected later. The most important types of edit techniques are summarized in Table 3.

An advantage of online, real-time systems is that editing can be performed up front. As each transaction is input and entered it can be edited, and the terminal operator can be notified immediately if an error is found. Alternatively, the operator may fail to correct the error on purpose or by accident. The system can he designed to reject additional input until the error is corrected or to print a hard copy error list that can be reviewed by others.

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PROCESSING CONTROLS Processing controls establish that data are complete and accurate during updating. The major processing controls are run control totals, computer matching, and programmed edit checks.

Run control totals reconcile the input control totals with the totals of items that have updated the file. Updating can he controlled by generating control totals during processing. The totals, such as total transactions processed or totals for critical quantities, can be compared manually or by computer. Discrepancies are noted for investigation.

Computer matching matches the input data with information held on master or suspense files, with unmatched items noted for investigation. Most matching occurs during input, but under some circumstances it may be required to ensure completeness of updating. For example, a matching program might match employee time cards with a payroll master file and report missing or duplicate time cards.

Edit checks verify reasonableness or consistency of data. Most edit checking occurs at the time data are input. However, certain applications require some type of reasonableness or dependency check during updating as well. For example, consistency checks might be utilized by a utility company to compare a customer’s electric bill with previous bills. If the bill were 500 percent higher this month compared to last month, the bill would not be processed until the meter was rechecked.

OUTPUT CONTROLS Output controls ensure that the results of computer processing are accurate, complete, and properly distributed. Typical output controls include the following: ◆ ◆

◆

◆

Balancing output totals with input and processing totals Reviews of the computer processing logs to determine that all of the correct computer jobs were executed properly for processing Audits of output reports to make sure that totals, formats, and critical details are correct and reconcilable with input Formal procedures and documentation specifying authorized recipients of output reports, checks, or other critical documents

Developing a Control Structure: Costs and

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Benefits Information systems can make exhaustive use of all of the control mechanisms previously discussed. But they may be so expensive to build and so complicated to use that the system is economically or operationally unfeasible. Some cost/ benefit analysis must be performed to determine which control mechanisms provide the most effective safeguards without sacrificing operational efficiency or cost.

One of the criteria that determine how much control is built into a system is the importance of its data. Major financial and accounting systems, for example, such as a payroll system or one that tracks purchases and sales on the stock exchange, must have higher standards of controls than a system to inventory employee training and skills or a “tickler” system to track dental patients and remind them that their six-month checkup is due. For instance, Swiss Bank invested in additional hardware and software to increase its network reliability because it was running critical financial trading and banking applications.

Standing data, the data that are permanent and that affect transactions flowing into and out of a system (e.g., codes for existing products or cost centers) require closer monitoring than individual transactions. A single error in transaction data will affect only that transaction, while a standing data error may affect many or all trans-actions each rime the file is processed.

The cost effectiveness of controls will also be influenced by the efficiency, complexity, and expense of each control technique. For example, complete onefor-one checking may be time-consuming and operationally impossible for a system that processes hundreds of thousands of utilities payments daily. But it might be possible to use this technique to verify only critical data such as dollar amounts and account numbers, while ignoring names and addresses.

A third consideration is the level of risk if a specific activity or process is not properly controlled. System builders can undertake a risk assessment, determining the likely frequency of a problem and the potential damage if it were to occur. For example, if an event is likely to occur no more than once a year, with a maximum of a $1000 loss to the organization, it would not be feasible to spend $20,000 on the design and maintenance of a control to protect against that event. However, if that same event could occur at least once a day, with a potential loss of over $300,000 a year, $100,000 spent on a control might be entirely appropriate.

Table 4 illustrates sample results of a risk assessment for an online order processing system that processes 30,000 orders per day. The probability of a power continued

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failure occurring in a one-year period is 30 percent. Loss of order transactions while power is down could range from $5000 to $200,000 for each occurrence, depending on how long processing was halted. The probabaility of embezzlement occurring over a yearly period is about 5 percent, with potential losses ranging from $1000 to $50,000 for each occurrence. User errors have a 98 percent chance of occurring over a yearly period, with losses ranging from $200 to $40,000 for each occurrence. The average loss for each event can be weighted by multiplying it by the probability of its occurrence annually to determine the expected annual loss. Once the risks have been assessed, system builders can concentrate on the control points with the greatest vulnerability and potential loss. In this case, controls should focus on ways to minimize the risk of power failures and user errors.

TABLE 4

Online Order Processing Risk Management

Exposure

Probability of Occurrence

Loss range / Average ($)

Expected Annual Loss ($)

Power failure

30

5000-200,000 (102,500)

30,750

Embezzlement

5

1000-50,000 (25,500)

1,275

User Error

98

200-40,000 (20,100)

19,698

This chart shows the results of a risk assessment of three selected areas of an online order processing system. The likelihood of each exposure occurring over a one-year period is expressed as a percentage. The next column shows the highest and lowest possible loss that could be expected each time the exposure occurred and an “average” loss calculated by adding the highest and lowest figures together and dividing by 2. The expected annual loss for each exposure can be determined by multiplying the “average’ loss by its probability of occurrence.

In some situations, organizations may not know the precise probability of threats occurring to their information systems, and they may not be able to quantify the impact of events that disrupt their information systems. In these instances, management may choose to describe risks and their likely impact in a qualitative manner.

To decide which controls to use, information system builders must examine various control techniques in relation to each other and to their relative cost effectiveness. A control weakness at one point may be offset by a strong control at another. It may not be cost effective to build tight controls at every point in continued

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the processing cycle if the areas of greatest risk are secure or if compensating controls exist elsewhere. The combination of all the controls developed for a particular application will determine its overall control structure.

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This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes.

All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Learning Track 4

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 8: Securing Information Systems

Learning Track 5: Management Challenges of Security and Control Information systems security needs organizational and management resources as well as technologies.

Establishing a good framework for security and control requires skillful balancing of risks, rewards, and the firm’s operational capabilities.

Opportunities Information system security and control are more crucial than ever. Firms today have opportunities to create marvellously secure, reliable Web sites and systems that can support their e-commerce and e-business strategies. On the downside, revenue, liability, reputation, brand image—and even a company’s ability to survive—will suffer if a firm is found to be insecure or unreliable. The stakes have never been higher.

Management Challenges There are many alternative technologies to help firms achieve security and control, but organizational discipline is required to use these technologies effectively.

DESIGNING SYSTEMS THAT ARE NEITHER OVERCONTROLLED NOR UNDERCONTROLLED Although security breaches and damage to information systems still come from organizational insiders, security breaches from outside the organization are increasing because firms pursuing electronic commerce are open to outsiders through the Internet. It is difficult for organizations to determine how open or closed their networks should be to protect themselves. If a system requires too many passwords, authorizations, or levels of security to access information, the system will go unused and therefore is ineffective. Controls that are effective but that do not discourage authorized individuals from using a system are difficult to design.

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TRAINING EMPLOYEES: SOCIAL ENGINEERING ATTACKS The most serious breaches of security have occurred not because of poor technology, but instead because of poor security policies and employee compliance. Social engineering is the most common source of IS security lapses in business firms. For instance, in 2010 Google’s important systems containing its proprietary software was hacked by alleged Chinese hackers using a simple e-mail spoof message to a Google employee announcing a change in benefit plans and requesting the employee click on the email link to read about the new human resource policies. Once the employee clicked, the email downloaded malware which used the employee’s security clearance to gain access to proprietary code. The breach was sufficiently serious that Google stopping censoring its search results, and essentially, withdrew from the mainland Chinese marketplace to Hong Kong.

While Google claimed it was the victim of a sophisticated attack, in reality, the attack was in fact incredibly simple and relied on “spear fishing” a vulnerable employee. Hackers can map out the relationships at a company or research lab, then spoof an e-mail to a worker that appears to come from his boss. Clicking the link could lead to a webpage with malicious software or a phishing attack. Other attacks might spoof a company-wide e-mail to everyone, hoping that at least a few non-savvy users will click the links and provide entry points into the network.

Social engineering was also used to gain access to the information systems used by the Clinton presidential campaign in 2016. Clinton campaign aide Charles Delavan clicked on a phishing email sent to the personal account of campaign chairman John Podesta, thinking it was legitimate. This enabled Russian hackers to enter Clinton’s network and extract confidential documents and e-mails, which were later posted on WikiLeaks and other websites.

IMPLEMENTING AN EFFECTIVE SECURITY POLICY Despite increased awareness of worms, denial of service attacks, and computer crime, far too many firms do not pay sufficient attention to security. Controls and security programs are often treated as an afterthought rather than incorporated into the design of key business processes and systems. Research has shown that 75 percent of companies with information security policies do not keep them up-todate and that only 9 percent of employees understand these security policies. Many firms lack disaster recovery and business continuity plans or fail to patch their software routinely against security vulnerabilities. Managers do not appreciate the value of a sound security strategy. Security threats abound, but they are neither predictable nor finite, making it more difficult to calculate returns on security investments. Unless managers change their thinking about security, security budgets will be inadequate.

Solution Guidelines One thing is clear: Security and control must become a more visible and explicit priority and area of information systems investment, with greater emphasis on the overall organizational planning process. Coordinating the firm’s security plan with its overall business plan shows that security is just continued

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as essential to the success of the business as any other business function. Larger firms may merit a formal security function with a chief security officer (CSO). To develop sound security and controls, users may need to change the way they work. Support and commitment from top management is required to show that security is indeed a corporate priority and vital to all aspects of the business.

Security and control will never be a high priority unless there is security awareness throughout the firm. Security and control should be the responsibility of everyone in the organization. Users may need special training on how to protect equipment and passwords and how to work with antivirus and other protective software. Key management decisions include determining an appropriate level of control for the organization and establishing standards for system accuracy and reliability. Managers should ask the following questions: ◆

◆

◆

◆

What firm resources are the most critical to control and secure? How much would it cost to replace these critical assets if they were destroyed or compromised? What would be the legal and business impact if they were accessed by unauthorized parties?

What level of system downtime is acceptable? How much disruption in business function or financial loss is the business willing to tolerate?

What is the minimum acceptable level of performance for software and systems? If zero defects are impossible to achieve in large complex pieces of software, what constitutes acceptable, if not perfect, software performance?

How much is the business willing to invest to protect its information assets?

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 8: Securing Information Systems

Learning Track 6: Software Vulnerability and Reliability In addition to disasters, viruses, and security breaches, defective software and data also pose a constant threat to information systems, causing untold losses in productivity. An undiscovered error in a company’s credit software or erroneous financial data can result in losses of millions of dollars.

Table 1.1 illustrates just of a few of the better known system quality problems of 2012.

TABLE 1-1 Top Software Glitches Software glitch

Description

Toyota Motors Corporation

Recall of 2 million cars to fix a software glitch that caused the cars to stall.

United Airlines

5,000 flights grounded due to a network router slowdown.

Wall Street Journal

The Journal’s web site taken down because its homepage failed to load.

NYSE

The NewYork Stock Exchange suspends trading in all securities for several hours due to a software error.

The NASDAQ stock exchange

The NASDAQ stock exchange computers failed in the first half hour of trading in Facebook’s IPO stock offering. Investor orders were not recorded so investors did not know what price they paid for the stock, or even if they owned it.

Royal Bank of Scotland

Customers lost access to their accounts when a system upgrade was performed

LinkedIn passwords leaked

6.6 million passwords leaked online due to a software glitch.

GoDaddy

The Web hosting site had problems in the DNS (Domain Name System) causing thousands of Web sites that it hosts to go down.

Knight Capital

Knight lost $440 million in trading due to a software glitch which generated erroneous buy orders for major companies’ stock. Knight closed it doors when it could not make good on the orders.

Apple Map errors

Apple prematurely released its Map app with many bugs like no labels, wrong directions, and no public transportation records.

BUGS AND DEFECTS A major problem with software is the presence of hidden bugs or program code defects. Studies have shown that it is virtually impossible to eliminate all bugs from large programs. The main source of bugs is the complexity of decision-making code. Even a relatively small program of several hundred lines will contain tens of decisions leading to hundreds or even thousands of different paths. Important programs within most corporations are usually much larger, containing tens of thousands or even millions of lines of code, each with many times the choices and paths of the smaller programs. Such continued

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complexity is difficult to document and design—designers may document some reactions incorrectly or may fail to consider some possibilities. Studies show that about 60 percent of errors discovered during testing are a result of specifications in the design documentation that were missing, ambiguous, in error, or in conflict.

Zero defects, a goal of the total quality management movement, cannot be achieved in larger programs. Complete testing simply is not possible. Fully testing programs that contain thousands of choices and millions of paths would require thousands of years. Eliminating software bugs is an exercise in diminishing returns because it would take proportionately longer testing to detect and eliminate obscure residual bugs. Even with rigorous testing, one could not know for sure that a piece of software was dependable until the product proved itself after much operational use. The message?

We cannot eliminate all bugs, and we cannot know with certainty the seriousness of the bugs that do remain.

THE MAINTENANCE NIGHTMARE Another reason that systems are unreliable is because computer software traditionally has been a nightmare to maintain. Maintenance, the process of modifying a system in production use, is the most expensive phase of the systems development process. In most organizations nearly half of information systems staff time is spent maintaining existing systems.

Why are maintenance costs so high? One major reason is organizational change. The firm may experience large internal changes in structure or leadership, or change may come from its surrounding environment. These organizational changes affect information requirements. Another reason appears to be software complexity, as measured by the number and size of interrelated software programs and subprograms and the complexity of the flow of program logic among them. A third common cause of long-term maintenance problems is faulty systems analysis and design, especially analysis of information requirements. Some studies of large TPS systems by TRW, Inc., have found that a majority of system errors—64 percent—result from early analysis errors.

Figure 8-1 illustrates the cost of correcting errors based on the experience of consultants reported in the literature. If errors are detected early, during analysis and design, the cost to the systems development effort is small. But if they are not discovered until after programming, testing, or conversion has been completed, the costs can soar astronomically. A minor logic error, for example, that could take 1 hour to correct during the analysis and design stage could take 10, 40, and 90 times as long to correct during programming, conversion, and postimplementation, respectively.

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FIGURE 8-1 The Cost of Errors Over the Systems Development Cycle.

The most common, most severe, and most expensive system errors develop in the early design stages.

They involve faulty requirements analysis. Errors in program logic or syntax are much less common, less severe, and less costly to repair than design errors.

RESOURCE ALLOCATION DURING SYSTEMS DEVELOPMENT Views on resource allocation during systems development have changed significantly over the years.

Resource allocation determines the way the costs, time, and personnel are assigned to different phases of the project. In earlier times, developers focused on programming, with only about 1 percent of the time and costs of a project being devoted to systems analysis (determining specifications). More time should be spent in specifications and systems analysis, decreasing the proportion of programming time and reducing the need for so much maintenance time. Documenting requirements so that they can be understood from their origin through development, specification, and continuing use can also reduce errors as well as time and costs. Current literature suggests that about one-­quarter of a project’s time and cost should be expended in specifications and analysis, with perhaps 50 percent of its resources allocated to design and programming. Installation and postimplementation ideally should require only one-quarter of the project’s resources. Investments in software quality initiatives early in a project are likely to provide the greatest payback.

SOFTWARE METRICS Software metrics can play a vital role in increasing system quality. Software metrics are objective assessments of the system in the form of quantified measurements. Ongoing use of metrics allows the IS department and the user to jointly measure the performance of the system and identify problems as they occur. Examples of software metrics include the number of transactions that can be processed in

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a specified unit of time, online response time, the number of payroll checks printed per hour, and the number of known bugs per hundred lines of code.

For metrics to be successful, they must be carefully designed, formal, and objective. They must measure significant aspects of the system. In addition, metrics are of no value unless they are used consistently and users agree to the measurements in advance.

TESTING The stages of testing required to put an information system into operation are program testing, system testing, and acceptance testing. Early, regular, and thorough testing will contribute significantly to system quality. In general, software testing is often misunderstood. Many view testing as a way to prove the correctness of work they have done. In fact, we know that all sizable software is riddled with errors, and we must test to uncover these errors.

Testing begins at the design phase. Because no coding exists yet, the test normally used is a walkthrough—a review of a specification or design document by a small group of people carefully selected based on the skills needed for the particular objectives being tested. Once coding begins, coding walkthroughs also can be used to review program code. However, code must be tested by computer runs.

When errors are discovered, the source is found and eliminated through a process called debugging.

Electronic commerce and electronic business applications introduce new levels of complexity for testing to ensure high-quality performance and functionality. Behind each large Web site, such as Amazon.com, eBay, or E*TRADE, are hundreds of servers, thousands of miles of network cable, and hundreds of software programs, creating numerous points of v­ ulnerability. These Web sites must be built and tested to make sure that they can withstand expected—and unexpected—spikes and peaks in their loads. Both Web site traffic and technical components, such as hardware, software and networks, must be considered during application development and during testing.

To test a Web site realistically, companies need to find a way to subject the Web site to the same number of concurrent users as would actually be visiting the site at one time and to devise test plans that reflect what these people would actually be doing. For example, a retail e-commerce site should create a test scenario where there are many visitors simply browsing and some making purchases.

Testing wireless applications poses additional challenges. Many wireless and conventional Web applications are linked to the same back-end systems so the total load on those systems will increase dramatically as wireless users are added. Automated load testing tools that simulate thousands of simultaneous wireless Web and conventional Web browser sessions can help companies measure the impact on system performance.

Many companies delay testing until the end of the application development phase, when design decisions have been finalized and most of the software program code has been written. Leaving Web site performance and scalability tests until the end of the application development cycle is extremely risky because such problems often stem from the fundamental workings of the system. To minimize the continued

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chance of discovering major structural problems late in the system’s development process, companies should perform this testing well before the system is complete. This makes it possible to address performance bottlenecks and other issues in each application level or system component before everything is integrated.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 9: Achieving Operational Excellence and Customer Intimacy: Enterprise Applications

Learning Track 1: Business Processes in Supply Chain Management and Supply Chain Metrics

Supply Chain Processes Many processes and subprocesses are involved in managing the supply chain to expedite this flow of information and materials. The Supply Chain Council (SCC) developed a Supply Chain Operations Reference Model (SCOR) as a cross-industry process reference model for supply chain management.

(SCC members are organizations interested in applying and advancing state-of-the-art supply chain management systems and practices.) SCOR defines a common set of supply chain processes to help companies better understand supply chain management issues and set goals for supply chain improvement. SCOR identifies five major supply chain processes: plan, source, make, deliver, and return (see Figure 8-2). ◆

◆

◆

◆

◆

Plan Consists of processes that balance aggregate demand and supply to develop a course of action to meet sourcing, production, and delivery requirements Source Consists of processes that procure goods and services needed to create a specific product or service Make Consists of processes that transform a product into a finished state to meet planned or actual demand Deliver Consists of processes that provide finished goods and services to meet actual or planned demand, including order management, transportation management, and distribution management Return Consists of processes associated with returning products or receiving returned products, including postdelivery customer support

Logistics plays an important role in these processes, dealing with the planning and control of all factors that will have an impact on transporting the correct product or service to where it is needed on time and at the least cost. (Logistics accounts for 12 to 14 percent of a typical manufacturer’s cost of goods sold.) Supply chain management provides an opportunity to optimize the movement of materials and goods among different members of the supply chain.

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To manage the supply chain, a company tries to eliminate redundant steps, delays, and the amount of resources tied up along the way as it manages relationships with other supply chain members.

Information systems make supply chain management more efficient by providing information to help companies coordinate, schedule, and control procurement, production, inventory management, and delivery of products and services.

FIGURE 9-2 Key Supply Chain Management Processes.

The five supply chain management processes consist of many subprocesses performed by members of the supply chain.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 9: Achieving Operational Excellence and Customer Intimacy: Enterprise Applications

Learning Track 2: Best-Practice Business Processes in CRM Software TABLE 9-1

Examples of Best Practice Business Processes in Oracle’s Siebel CRM System

Business Process

Description

Priority-based lead qualification and distribution

Evaluates and scores leads, providing scripted assessment guides to enable sales agents to focus on the leads with the highest potential value.

Integrated customer order management

Automates the workflow for order management, including designing a customer solution, developing a detailed product configuration, applying correct pricing and contract terms, and entering and shipping the order.

Real-time offer optimization

Ensures that the optimal marketing offer is presented to a customer.

Value-based customer segmentation

Enables marketing organizations to deliver different offers and services based on current and potential customer value.

Contact strategy-based targeting

Enables marketing organizations to define and consistently enforce across the enterprise policies governing the types and frequencies of communications with customers. Ensures compliance with customer privacy and communication preferences.

Rules-based service order fulfillment

Ensures that service orders are fulfilled in an order based on the lifetime value of the customer and the specific details of that customer’s service agreement.

Value-based service coverage

Ensures that an organization’s highest-value customers are routed to the most-qualified customer service agents.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 10: E-commerce: Digital Markets, Digital Goods

Learning Track 2: Build an E-commerce Business Plan There are lots of different ways to lay out a business plan. The sample outline below is just one of many outlines. After the outline, we’ll flesh out each of the elements listed to give you an idea of what is entailed in creating an effective business plan.

Elements of a Business Plan: Outline 1.

2.

3.

Cover sheet Executive summary Table of contents I. The Business A. Description of business, customer value proposition and competitive advantages, if any B. Market Opportunity C. Competition D. Marketing E. Management Team II. Financial Data/Revenue Model A. Balance sheet B. Breakeven analysis C. Pro-forma income projections (profit & loss statements) i. Three-year summary ii. Detail by month, first year iii. Detail by quarters, second and third years iv. Assumptions upon which projections were based D. Pro-forma cash flow i. Follow guidelines for letter C. III. Supporting Documents/Appendices: tax returns; personal financial statements of principals; copies of relevant legal documents, etc.

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Cover Sheet, Executive Summary and Table of Contents The first page of the usiness plan is a cover sheet that includes the name, address and telephone number of the business and the names of all principals. The cover sheet can be also be combined with the executive summary, with the information that would appear on the cover sheet being place instead at the top of the executive summary.

The second page of the business plan is a one-page executive summary that summarizes each of the main elements of the business plan. In straightforward prose you should answer the following questions: ◆ ◆ ◆ ◆

What sort of company is it?

What’s the product/service, and what’s special about it?

Who are the managers?

How much money do you need? In what stages? What will you use it for?

The first paragraph of the executive summary should be a compelling description of company’s mission--one that grab’s readers’ attention and encourages them to read further.

The table of contents follows the executive summary and lists the major headings and subheadings of the business plan. A word about length: the business plan should not exceed 25-30 pages if at all possible!

I. The Business A. DESCRIPTION OF THE BUSINESS In this section, provide a detailed description of the business. Include your products, market and services as well as a thorough description of what makes your business unique. The description of the business should have two main sections: the first section describes the business, while the second section describes the product or service you will be offering.

The description of the business should clearly identify the business’s goals and objectives (its “mission”). When describing the business, generally you should also explain: 1. The legal form of the business: proprietorship, partnership, corporation.

2. Business type: merchandizing, manufacturing or service.

3. What the product or service is.

4. Why the business will be profitable. What are the growth opportunities?

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Include a description of what makes the business unique and how or why its unique aspects will appeal to consumers. Emphasize any special features that you feel will appeal to customers and explain how and why these features are appealing.

Next give a detailed description of the product/service. Try to describe the benefits of goods or services from your customers’ perspective. More specifically, describe: 1. What you are selling.

2. How your product or service will benefit the customer.

3. What is different about the product or service your business is offering.

B. MARKET OPPORTUNITY In this section of the business, you demonstrate to potential investors that you have done your “homework” and know the industry you are seeking to enter. An analysis of the market opportunity includes a discussion of industry characteristics and trends, projected growth, customer behavior, complementary products/services, barriers of entry, and so on. You should talk about how similar products/services have done in the market, how you’re fulfilling an obvious need, and exactly whom you expect to purchase your products/services.

C. THE COMPETITION It is important to know your competitors. Questions like these can help you: 1. Who are your five nearest direct competitors?

2. Who are your indirect competitors?

3. How are their businesses: steady? increasing? decreasing?

4. What have you learned from their operations? from their advertising?

5. What are their strengths and weaknesses?

6. How does their product or service differ from yours?

Start a file on each of your competitors. Take note of their advertising and promotional materials and their pricing strategy techniques. Review these files periodically, determining when and how often they advertise, sponsor promotions and offer sales. Study the copy used in the advertising and promotional materials, and their sales strategy. Using this technique can help you to understand your competitors better and how they operate their businesses.

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D. MARKETING Marketing plays a vital role in successful business ventures. How well you market you business, along with a few other considerations, will ultimately determine your degree of success or failure. The key element of a successful marketing plan is to know your customers--their likes, dislikes, expectations.

By identifying these factors, you can develop a marketing strategy that will allow you to arouse and fulfill their needs.

Identify your customers by their age, sex, income/educational level and residence. At first, target only those customers who are more likely to purchase your product or service. As your customer base expands, you may need to consider modifying the marketing plan to include other customers.

Develop a marketing plan for your business by answering these questions. Your marketing plan should be included in your business plan and contain answers to the questions outlined below.

1. Who are your customers? Define your target market(s).

2. Are your markets growing? steady? declining?

3. Is your market share growing? steady? declining?

4. Are your markets large enough to expand?

5. How will you attract, hold, increase your market share?

6. What pricing strategy have you devised?

How you advertise and promote your goods and services may make or break your business. Having a good product or service and not advertising and promoting it is like not having a business at all. Many business owners operate under the mistaken concept that the business will promote itself, and channel money that should be used for advertising and promotions to other areas of the business. Advertising and promotions, however, are the lifeline of a business and should be treated as such.

Devise a plan that uses advertising and networking as a means to promote your business. Develop short, descriptive copy (text material) that clearly identifies your goods or services, its location and price. Use catchy phrases to arouse the interest of your readers, listeners or viewers. Remember the more care and attention you devote to your marketing program, the more successful your business will be.

Your pricing strategy is another marketing technique you can use to improve your overall competitiveness. Get a feel for the pricing strategy your competitors are using. That way you can determine if your prices are in line with competitors in your market area and if they are in line with industry averages.

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The key to success is to have a well-planned strategy, to establish your policies and to constantly monitor prices and operating costs to ensure profits.

Appendix 1 includes a questionnaire that can be used to help you create a marketing plan.

E. MANAGEMENT TEAM Managing a business requires dedication, persistence, the ability to make decisions and the ability to manage both employees and finances. Employees and staff play an important role in the total operation of a business. Consequently, it’s imperative that you know what skills you possess and those you lack since you will have to hire personnel to supply the skills that you lack. The management section of the business plan should answer questions such as: ◆

How does your background/business experience help you in this business?

◆

Who will be on the management team?

◆

What are their duties?

◆

What are your current personnel needs?

◆

What are your plans for hiring and training personnel?

II. Financial Data/Revenue Model Sound financial management is one of the best ways for your business to remain profitable and solvent. How well you manage the finances of your business is the cornerstone of every successful business venture. Each year thousands of potentially successful businesses fail because of poor financial management.

To effectively manage your company’s finances, plan a sound, realistic budget by determining the actual amount of money needed to open the business (start-up costs) and the amount needed to keep it open (operating costs). The first step to building a sound financial plan is to devise a start-up budget.

The start-up budget will usually include such one-time-only costs as major equipment, utility deposits, down payments, etc.

An operating budget is prepared when you are actually ready to open for business. The operating budget will reflect your priorities in terms of how you spend your money, the expenses you will incur and how you will meet those expenses (income). Your operating budget also should include money to cover the first three to six months of operation.

The financial section of your business plan should include any loan applications you’ve filed, a capital equipment and supply list, balance sheet, breakeven analysis, pro-forma income projections (profit and loss statement) and pro-forma cash flow. The income statement and cash flow projections should include a three-year summary, detail by month for the first year, and detail by quarter for the second and third years. continued

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Other questions that you will need to consider are: ◆

What will your sales goals and profit goals for the coming year be?

◆

What financial projections will you need to include in your business plan?

Your plan should include an explanation of all projections. Unless you are thoroughly familiar with financial statements, get help in preparing your cash flow and income statements and your balance sheet. Your aim is not to become a financial wizard, but to understand the financial tools well enough to gain their benefits. Your accountant or financial advisor can help you accomplish this goal.

Sample balance sheets, income projections (profit and loss statements) and cash flow statements are included in Appendix 2, Financial Data.

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Appendix 1: The Marketing Plan I. MARKET ANALYSIS A. Target Market--Who are the customers?

1. We will be selling primarily to (check all that apply): Total Percent of Business a. Private sector

______

______

b. Wholesalers

______

______

c. Retailers

______

______

d. Government

______

______

e. Other

______

______

2. We will be targeting customers by: a. Product line/services.

We will target specific lines:

________________

b. Geographic area? Which areas?

________________

c. Sales? We will target sales of

________________

d. Industry? Our target industry is:

________________

e. Other?

________________

3. How much will our selected market spend on our type of product or service this coming year? $________________ B. Competition 1. Who are our competitors?

NAME

________________________________________

ADDRESS

________________________________________ ________________________________________

Years in Business

___________________

Market Share

___________________

Price/Strategy

___________________

Product/Service Features

___________________

2. How competitive is the market?

High

____________________

Medium

____________________

Low

____________________

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3. List below your strengths and weaknesses compared to your competition (consider such areas as location, size of resources, reputation, services, personnel, etc.): Strengths

Weaknesses

1._______________________

1._______________________

2._______________________

2._______________________

3._______________________

3._______________________

4._______________________

4._______________________

C. Environment 1. The following are some important economic factors that will affect our product or service (such as trade area growth, industry health, economic trends, taxes, rising energy prices, etc.): ________________________________________________ ________________________________________________ ________________________________________________ 2. The following are some important legal factors that will affect our market: ________________________________________________ ________________________________________________ ________________________________________________ 3. The following are some important government factors: ________________________________________________ ________________________________________________ ________________________________________________ 4. The following are other environmental factors that will affect our market, but over which we have no control: ________________________________________________ ________________________________________________ ________________________________________________ II. PRODUCT OR SERVICE ANALYSIS A. Description 1. Describe here what the product/service is and what it does: ________________________________________________ ________________________________________________ ________________________________________________

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B. Comparison 1. What advantages does our product/service have over those of the competition (consider such things as unique features, patents, expertise, special training, etc.)? __________________________________________________ __________________________________________________ __________________________________________________ 2. What disadvantages does it have? __________________________________________________ __________________________________________________ __________________________________________________ C. Some Considerations 1. Where will you get your materials and supplies? __________________________________________________ 2. List other considerations: __________________________________________________ __________________________________________________ III. MARKETING STRATEGIES--MARKET MIX A. Image 1. First, what kind of image do we want to have (such as cheap but good, or exclusiveness, or customer-oriented or highest quality, or convenience, or speed, or...)? __________________________________________________ B. Features 1. List the features we will emphasize: a. __________________________________________ b. __________________________________________ c. __________________________________________ C. Pricing 1. We will be using the following pricing strategy: a. Markup on cost

____

b. Suggested price

____

c. Competitive

____

What % markup?

_____

d. Below competition ____ e. Premium price

____

f. Other

____

2. Are our prices in line with our image?

YES___ NO___

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3. Do our prices cover costs and leave a margin of profit?

YES___ NO___ D. Customer Services 1. List the customer services we provide: a. ____________________________________________ b. ____________________________________________ c. ____________________________________________ 2. These are our sales/credit terms: a. ____________________________________________ b. ____________________________________________ c. ____________________________________________ 3. The competition offers the following services: a. ____________________________________________ b. ____________________________________________ c. ____________________________________________ E. Advertising/Promotion 1. These are the things we wish to say about the business: ____________________________________________________ ____________________________________________________ ____________________________________________________ 2. We will use the following advertising/promotion sources: 1. Internet

________

2. Television/Radio

________

3. Direct mail

________

4. Personal contacts

________

5. Trade associations ________ 6. Newspaper

________

7. Magazines

________

8. Yellow Pages

________

9. Billboard

________

10. Other

________

3. The following are the reasons why we consider the media we have chosen to be the most effective: __________________________________________________ __________________________________________________ __________________________________________________

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Appendix 2: Financial Data INCOME PROJECTION STATEMENT The income projections (profit and loss) statement is valuable as both a planning tool and a key management tool to help control business operations. It enables the owner/manager to develop a preview of the amount of income generated each month and for the business year, based on reasonable predictions of monthly levels of sales, costs and expenses.

As monthly projections are developed and entered into the income projections statement, they can serve as definite goals for controlling the business operation. As actual operating results become known each month, they should be recorded for comparison with the monthly projections. A completed income statement allows the owner/manager to compare actual figures with monthly projections and to take steps to correct any problems.

Industry Percentage In the industry percentage column, enter the percentages of total sales (revenues) that are standard for your industry, which are derived by dividing (Costs/expenses items x 100%) / (total net sales)

These percentages can be obtained from various sources, such as trade associations, accountants or banks. Industry figures serve as a useful benchmark against which to compare cost and expense estimates that you develop for your firm. Compare the figures in the industry percentage column to those in the annual percentage column. ◆

◆

◆ ◆

◆

Total Net Sales (Revenues): Determine the total number of units of products or services you realistically expect to sell each month at the prices you expect to get. Use this step to create the projections to review your pricing practices.

Cost of Sales: The key to calculating your cost of sales is that you do not overlook any costs that you have incurred. Calculate cost of sales of all products and services used to determine total net sales. Also include any direct labor.

Gross Profit: Subtract the total cost of sales from the total net sales to obtain gross profit.

Gross Profit Margin: The gross profit is expressed as a percentage of total sales (revenues). It is calculated by dividing gross profits by total net sales.

Controllable (also known as Variable) Expenses: Include salary expenses, payroll expenses, outside services, supplies, repairs, marketing/advertising, accounting and legal.

◆

Fixed Expenses: Include rent, depreciation, utilities, insurance, loan repayments, etc.

◆

Net Profit (loss) (before taxes): Subtract total expenses from gross profit.

◆

Taxes: Enter federal, state and local income taxes.

◆

Net Profit (loss)(after taxes): Subtract taxes from net profit (before taxes). continued

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Annual Total: For each of the sales and expense items in your income projection statement, add all the monthly figures across the table and put the result in the annual total column.

Annual Percentage: Calculate the annual percentage by dividing (Annual total x 100%) / (total net sales)

Compare this figure to the industry percentage in the first column.

BALANCE SHEET Figures used to compile the balance sheet are taken from the previous and current balance sheet as well as the current income statement. The income statement is usually attached to the balance sheet.

The following text covers the essential elements of the balance sheet.

At the top of the page, fill in the legal name of the business, the type of statement and the day, month and year. ◆

◆

◆

◆

◆ ◆

Assets: List anything of value that is owned or legally due the business. Total assets include all net values. These are the amounts derived when you subtract depreciation and amortization from the original costs of acquiring the assets.

Current Assets: Include cash and resources that can be converted into cash within 12 months of the date of the balance sheet (or during one established cycle of operation); an accounts receivable (the amounts due from customers in payment for merchandise or services); inventory (raw materials on hand, work in progress and all finished goods, either manufactured or purchased for resale); short-term investments (also called temporary investments or marketable securities, these include interest- or dividend-yielding holdings expected to be converted into cash within a year); and prepaid expenses (goods, benefits or services a business buys or rents in advance).

Long-term Investments: Also called long-term assets, these are holdings the business intends to keep for at least a year and that typically yield interest or dividends. Included are stocks, bonds and savings accounts earmarked for special purposes.

Fixed Assets: Also called plant and equipment. Includes all resources a business owns or acquires for use in operations and not intended for resale. Fixed assets may be leased. Includes land, buildings, improvements, equipment, furniture and automobile/vehicles.

Liabilities: Include both current liabilities and long-term liabilities.

Current Liabilities: Include all debts, monetary obligations and claims payable within 12 months or within one cycle of operation. Typically they include accounts payable (amounts owed to suppliers for goods and services purchased in connection with business operations); notes payable (the balance of principal due to pay off short-term debt for borrowed funds and the current amount due of total balance on notes whose terms exceed 12 months); interest payable (any accrued fees due for use of both short- and long-term borrowed capital and credit extended to continued

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the business); taxes payable (amounts estimated by an accountant to have been incurred during the accounting period); and payroll accrual (salaries and wages currently owed). ◆

◆

◆

Long-term Liabilities: Include note, contract or mortgage payments due over a period exceeding 12 months or one cycle of operation.

Net Worth: Also called owner’s equity, net worth is the claim of the owner(s) on the assets of the business. In a proprietorship or partnership, equity is each owner’s original investment plus any earnings after withdrawals.

Total Liabilities and Net Worth: The sum of these two amounts must always match that for total assets.

CASH FLOW PROJECTION A cash flow projection helps the entrepreneur understand the cash needs of the business. It should be prepared for each month for at least an entire year period.

1. It begins with an accounting of (1) the cash on hand at the beginning of a particular month.

2. To this amount is added expected (2) cash receipts, which includes a. all cash sales b. collections from credit accounts c. loans or other cash injection 3. Total cash receipts (2a+2b+2c=3) 4. Total cash available (before cash out)(1+3) 5. Cash paid out typically includes the following: a. Purchases (merchandise)--Merchandise for resale or for use in product (paid for in current month). b. Gross wages (including withdrawals) c. Payroll expenses (taxes, etc.) d. Outside services e. Supplies (office and operating) f. Repairs and maintenance g. Advertising h. Car, delivery and travel i. Accounting and legal j. Rent--Real estate only (Use 5(p) for other rentals) k. Telephone l. Utilities m. Insurance n. Taxes o. Interest

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p. Other expenses q. Miscellaneous r. Subtotal--This subtotal indicates cash out for operating costs s. Loan principal payment t. Capital purchases u. Other start-up costs v. Reserve and/or escrow w. Owner’s withdrawal 6. Total cash paid out (add 5a through 5w) 7. Cash position (end on month) (4 minus 6)--Enter this amount in (1) Cash on hand following month.

Essential Operating Data (non-cash flow information) This is basic information necessary for proper planning and for proper cash flow projection. Also with this data, the cash flow can be evolved and shown in the above form.

A. Sales volume (dollars) This is a very important figure and should be estimated carefully, taking into account size of facility and employee output as well as realistic anticipated sales (actual sales, not orders received).

B. Accounts receivable (end of month) Previous unpaid credit sales plus current month’s credit sales, less amounts received current month (deduct “C” below).

C. Bad debt (end on month) Bad debts should be subtracted from (B) in the month anticipated.

D. Inventory on hand (end on month) Last month’s inventory plus merchandise received and/or manufactured current month minus amount sold current month.

E. Accounts payable (end of month) Previous month’s payable plus current month’s payable minus amount paid during month.

F. Depreciation Established by your accountant, or value of all your equipment divided by useful life (in months) as allowed by Internal Revenue Service.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 10: E-commerce: Digital Markets, Digital Goods

Learning Track 3: Hot New Careers in E-commerce The Internet/e-commerce economy is hot again, and the prospects for employment in the rapidly expanding segment of the economy have never been better. In 2020, e-commerce retail and service revenues will exceed $1.2 trillion. This includes retail, personal services (like YouTube and PhotoBucket), as well as travel and digital download services. Overall, the e-commerce economy is growing at 13% a year, and even higher due to the coronavirus pandemic.

The Internet economy, a broader measure of IT, of which e-commerce is a significant part, and includes sales of computers, servers, telecommunications, routers, and a myriad number of technological gadgets that make the Internet work, arguably exceeds $2 trillion in annual revenues.

Marketing and advertising are shifting from traditional media towards interactive, participative websites, creating additional new employment opportunities for marketing specialists. U.S. digital advertising spending is projected to reach $93.5 billion in 2020. Add these numbers to the growth in the overall Internet economy and you will discover an employment market for a wide variety of skills from marketing to finance, information systems, and management.

Careers With the Internet/e-commerce economy booming, the related job market is hot as well. According to the U.S. Department of Labor’s Occupational Outlook Handbook, information security analysts, Web developers, and computer architects; network systems and data communications analysts; computer systems analysts; software developers, and database administrators are all occupations that are projected to grow at faster than the average for all occupations.

Demand for information security analysts is expected to be particularly high due to the increasing need to defend against cyberattacks. The federal government is expected to greatly increase its hiring in this area. The health care industry is also expected to have an increasing need for information security analysts. Demand for Web developers is expected to continue to grow along with e-commerce, although some of this demand may be able to be satisfied offshore. Demand for computer network architects will increase as firms expand their use of mobile networks, although it is possible that increasing adoption of cloud computing will reduce this demand somewhat. Demand for database administrators and related jobs (data mining engineers, data modelers, data warehouse experts and

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business intelligence developers) is being driven by the fact that many companies are building teams focused on big data, and looking for candidates who possess business knowledge, technology and analytics skills.

According to the Robert Half Technology 2021 Salary Guide, salaries for these jobs range from $87,000 for entry-level Web designers to over $172,000 for senior Web developers and network administrators. Salaries will be higher for those with content management system (CMS) skills, and .Net and Web services development skills. C#, Java, Java Enterprise Edition (Java EE/J2EE), and PHP skills are worth an even higher premium.

Some of the hottest areas in today’s e-commerce and Internet economies are in mobile communications. According to Robert Half, the latter is one of the top areas driving IT hiring in U.S. companies, as developers create more and more tools for mobile devices. The greatest opportunities will be available to workers who have diverse technology skill sets and solid comprehension of business principles.

Workers who focus on only one specific technology may find themselves squeezed out of the market.

Data mining tools can be very valuable to e-commerce businesses, offering a return on investment that often far exceeds the cost. Behavioral tracking technologies and new advertising media, using data mining tools to precisely identify your customers, have proven to be far more effective than traditional online banner ads.

The following table provides a glimpse at some of the jobs being offered in the e-commerce and Internet job spheres, organized on the basis of average starting salary: TABLE 10-1 Job Title

Description

Average Salary

Webmaster/Web administrator

Responsible for Web site design, architecture, content management, and generating and monitoring traffic for optimization; interfaces with department heads to ensure that needs are being met; develops and supports Web site applications.

Familiarity with TCP/IP, LDAP, FTP, HTTP, HTTPS, and similar Internet protocols typically required.

$70,500-$119,500

Web programmer/ developer

Designs and develops web-based applications; responsibilities include design analysis, coding, QA, creation of technical specs and end-user documentation, and integration of third-party tools. Use Web technologies and tools such as HTML/XHTML, CSS, JavaScript, Python, Ruby, PHP, Java, ASP, ASP.NET, SQL Oracle database, and others.

S87,000-$145,000

Data security analyst

Defends organization from hacking and other cybercrime; includes anti-malware strategies, credit card encryption, and steganography.

$112,000-$190,000

E-commerce analyst

Uses financial and analytical background to track E-commerce business trends; monitors and manages success of new products and initiatives; uses data mining techniques to provide timely and accurate analyses.

$86,000-$142,500.

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Mobile Applications Developer

Builds mobile applications and mobile Web sites for iOS, Android, BlackBerry, using Java, C++, HTML, HTML5, MySQL, PHP, and Objective-C.

$112,500-$189,500

Wireless Network Engineer

Research, design, implement, and optimize wireless networks.

Requires background in wireless equipment, standards, protocols, and WLAN design; professional certifications such as Certified Wireless Network Professional (CWNP) also valuable.

$108,000-$184,000

Business Intelligence Analyst

Uses data analytics and network administrator experience to sift through multitudes of data and identify and explain trends in Web site traffic.

$92,000-$189,000

Senior e-commerce product manager

Defines, builds, drives, and manages the full life cycle of products; identifies market and customers; tracks industry trends and key product metrics; performs benchmark analysis.

$80,000-$98,000

Director, E-commerce

Develops e-commerce marketing strategies to drive revenue and increase sales; oversees creation of linked networks, databases, and business solutions; skilled at identifying trends; designs and directs online offers to increase revenue per site visit.

$64,000-$156,000

Sources: Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Robert Half Corporation, The Robert Half Technology 2021 Salary Guide.

Data mining tools can be very valuable to e-commerce businesses, offering a return on investment that often exceeds 1,000 percent. Online businesses are also using web tools, such as blogs, wikis, and RSS feeds, to help convert browsers into buyers.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 10: E-commerce: Digital Markets, Digital Goods

Learning Track 4: E-commerce Payment Systems For the most part, existing payment mechanisms have been able to be adapted to the online environment, albeit with some significant limitations that have led to efforts to develop alternatives. In addition, new types of purchasing relationships, such as between individuals online, and new technologies, such as the development of the mobile platform, have also created both a need and an opportunity for the development of new payment systems. In this section, we provide an overview of the major e-commerce payment systems in use today. Table 1 lists some of the major trends in e-commerce payments.

TABLE 1

Major Trends in E-commerce Payments

• Online payment volume increases as mobile retail becomes more popular.

• Payment by credit and/or debit card remains the dominant form of online payment.

• PayPal remains the most popular alternative payment method online.

• Apple, Google, and Samsung offer popular mobile payment apps.

• Mobile P2P payment systems such as Venmo, Zelle, and Square Cash take off.

Online payment represents a market of more than $80 billion in the U.S. in 2020. Institutions and business firms that can handle this volume of transactions (mostly the large banking and credit firms) generally extract 2%–3% of the transactions in the form of fees, or about $2.4 billion a year in revenue. Given the size of the market, competition for online payments is spirited.

In the United States, the primary form of online payment is still the existing credit card system. Alternative payments including PayPal and mobile payments

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continue to make inroads into traditional payment methods. PayPal is the most popular alternative to usage of credit and debit cards online.

In other parts of the world, e-commerce payments can be very different depending on traditions and infrastructure. Credit cards are not nearly as dominant a form of online payment as they are in the United States. If you plan on operating a website in Europe, Asia, or Latin America, you will need to develop different payment systems for each region. Consumers in Europe rely for the most part on bank debit cards (especially in Germany) and some credit cards. Over 75 percent of online purchases in China are paid for using mobile devices, with the rest paid for by check or cash when the consumer picks up the goods at a local store. In Japan, consumers use postal and bank transfers and CODs, using local convenience stores (konbini) as the pickup and payment point. Japanese consumers also use accumulated balance accounts with the telephone company for Internet purchases made from their home computers. Japan and some European countries make extensive use of mobile phones for payment of small purchases (and even parking tickets).

ONLINE CREDIT CARD TRANSACTIONS Because credit and debit cards are the dominant form of online payment, it is important to understand how they work and to recognize the strengths and weaknesses of this payment system. Online credit card transactions are processed in much the same way that in-store purchases are, with the major differences being that online merchants never see the actual card being used, no card impression is taken, and no signature is available. Online credit card transactions most closely resemble Mail Order-Telephone Order (MOTO) transactions. These types of purchases are also called Cardholder Not Present (CNP) transactions and are the major reason that charges can be disputed later by consumers. Since the merchant never sees the credit card, nor receives a hand-signed agreement to pay from the customer, when disputes arise, the merchant faces the risk that the transaction may be disallowed and reversed, even though he has already shipped the goods or the user has downloaded a digital product.

Figure 1 illustrates the online credit card purchasing cycle. There are five parties involved in an online credit card purchase: consumer, merchant, clearinghouse, merchant bank (sometimes called the “acquiring bank”), and the consumer’s card-issuing bank. In order to accept payments by credit card, online merchants must have a merchant account established with a bank or financial institution. A merchant account is simply a bank account that allows companies to process credit card payments and receive funds from those transactions. continued

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FIGURE 1

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How an Online Credit Card Transaction Works

As shown in Figure 1, an online credit card transaction begins with a purchase (1). When a consumer wants to make a purchase, he or she adds the item to the merchant’s shopping cart. When the consumer wants to pay for the items in the shopping cart, a secure tunnel through the Internet is created using SSL. Using encryption, SSL secures the session during which credit card information will be sent to the merchant and protects the information from interlopers on the Internet (2). SSL does not authenticate either the merchant or the consumer. The transacting parties have to trust one another.

Once the consumer credit card information is received by the merchant, the merchant software contacts a clearinghouse (3). As previously noted, a clearinghouse is a financial intermediary that authenticates credit cards and verifies account balances. The clearinghouse contacts the issuing bank to verify the account information (4). Once verified, the issuing bank credits the account of the merchant at the merchant’s bank (usually this occurs at night in a batch process) (5). The debit to the consumer account is transmitted to the consumer in a monthly statement (6).

Credit Card E-commerce Enablers continued

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Companies that have a merchant account still need to buy or build a means of handling the online transaction; securing the merchant account is only step one in a two-part process. Today, Internet payment service providers (sometimes referred to as payment gateways) can provide both a merchant account and the software tools needed to process credit card purchases online.

For instance, Authorize.net is an Internet payment service provider. The company helps a merchant secure an account with one of its merchant account provider partners and then provides payment processing software for installation on the merchant’s server. The software collects the transaction information from the merchant’s site and then routes it via the Authorize.net “payment gateway” to the appropriate bank, ensuring that customers are authorized to make their purchases. The funds for the transaction are then transferred to the merchant’s merchant account. CyberSource is another well-known Internet payment service provider.

Limitations of Online Credit Card Payment Systems There are a number of limitations to the existing credit card payment system.

The most important limitations involve security, merchant risk, administrative and transaction costs, and social equity.

The existing system offers poor security. Neither the merchant nor the consumer can be fully authenticated. The merchant could be a criminal organization designed to collect credit card numbers, and the consumer could be a thief using stolen or fraudulent cards. The risk facing merchants is high: consumers can repudiate charges even though the goods have been shipped or the product downloaded. The banking industry attempted to develop a secure electronic transaction (SET) protocol, but this effort failed because it was too complex for consumers and merchants alike.

The administrative costs of setting up an online credit card system and becoming authorized to accept credit cards are high. Transaction costs for merchants are also significant—roughly 3.5% of the purchase plus a transaction fee of 20–30 cents per transaction, plus other setup fees.

Credit cards are not very democratic, even though they seem ubiquitous.

Millions of young adults do not have credit cards, along with almost 100 million other adult Americans who cannot afford cards or who are considered poor risks because of low incomes.

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ALTERNATIVE ONLINE PAYMENT SYSTEMS The limitations of the online credit card system have opened the way for the development of a number of alternative online payment systems. Chief among them is PayPal. PayPal (purchased by eBay in 2002) enables individuals and businesses with e-mail accounts to make and receive payments up to a specified limit. Paypal is an example of an online stored value payment system, which permits consumers to make instant, online payments to merchants and other individuals based on value stored in an online account. In 2019, PayPal processed more than $712 billion in transactions and had 277 million active users. PayPal builds on the existing financial infrastructure of the countries in which it operates. You establish a PayPal account by specifying a credit, debit, or checking account you wish to have charged or paid when conducting online transactions. When you make a payment using PayPal, you e-mail the payment to the merchant’s PayPal account. PayPal transfers the amount from your credit or checking account to the merchant’s bank account. The beauty of PayPal is that no personal credit information has to be shared among the users, and the service can be used by individuals to pay one another even in small amounts.

Issues with PayPal include its high cost (in addition to paying the credit card fee of 3.5%, PayPal tacks on a variable fee of from 1.5%–3% depending on the size of the transaction) and its lack of consumer protections when a fraud occurs or a charge is repudiated.

Although PayPal is by far the most well-known and commonly used online credit/debit card alternative, there are a number of other alternatives as well.

Amazon Pay is aimed at consumers who have concerns about entrusting their credit card information to unfamiliar online retailers. Consumers can purchase goods and services at non-Amazon websites using the payment methods stored in their Amazon accounts, without having to reenter their payment information at the merchant’s site. Amazon provides the payment processing. Google Pay, (described further in the following section on Mobile Payments) offers similar functionality, enabling consumers to sign in once and then shop online at thousands of different stores without having to reenter account information.

WUPay, operated by Western Union, offers a service to consumers who do not wish to enter their credit card information online. WUPay customers who select the WUPay option at firms such as Sears, Kmart, Buy.com, and other retailers do not have to provide any credit card information. Instead they are e-mailed a bill, which they can pay via their bank’s online bill payment service, or in person at any Western Union location.

Stripe is another company that is attempting to provide an alternative to the traditional online credit card system. Stripe focuses on the merchant side of the continued

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process. It provides simple software code that enables companies to bypass much of the administrative costs involved in setting up an online credit card system, and instead lets companies begin accepting credit card payments almost immediately without the need to obtain a merchant account or use a gateway provider. Unlike PayPal, the customer doesn’t need a Stripe account to pay, and all payments are made directly to company rather than being routed through a third party.

MOBILE PAYMENT SYSTEMS: YOUR SMARTPHONE WALLET The use of mobile devices as payment mechanisms is already well established in Europe, Japan, China, and South Korea and is expanding rapidly in the United States, where the infrastructure to support mobile payment is finally being put in place, especially with the advent of smartphones equipped with near field communication chips. Near field communication (NFC) is a set of short-range wireless technologies used to share information among devices within about 2 inches of each other (50 mm). NFC devices are either powered or passive. A connection requires one powered unit (the initiator), and one target unpowered unit that can respond to requests from the powered unit. NFC targets can be very simple forms such as tags, stickers, key fobs, or readers. NFC peer-to-peer communication is possible where both devices are powered. An NFC-equipped smartphone, for instance, can be swiped by a merchant’s reader to record a payment wirelessly and without contact. In September 2011, Google introduced Google Wallet, now called Google Pay, a mobile app designed to work with NFC chips. Google Pay currently works with the MasterCard PayPass contactless payment card system. It is also designed to work with Android smartphones that are equipped with NFC chips. PayPal and start-up Square are attacking the mobile payment market from a different direction, with apps and credit card readers that attach to smartphones. In 2014 Apple announced Apple Pay as a contactless payment system for iPhones. By the beginning of 2019, Apple Pay was available in 65 percent of U.S. retail locations, including 74 of the top 100 merchants in the United States.

DIGITAL CASH AND VIRTUAL CURRENCIES Although the terms digital cash and virtual currencies are often used synonymously, they actually refer to two separate types of alternative payment systems.

Digital cash is typically based on an algorithm that generates unique authenticated tokens representing cash value that can be used “in the real world.” Bitcoin is an example of digital cash. Bitcoins are encrypted numbers (sometimes referred to as cryptocurrency) that are generated by a complex algorithm using

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a peer-to-peer network in a process referred to as “mining,” that requires extensive computing power. Like real currency, Bitcoins have a fluctuating value tied to open-market trading. Like cash, Bitcoins are anonymous—they are exchanged via a 34-character alphanumeric address that the user has, and do not require any other identifying information. Bitcoins have recently attracted a lot of attention as a potential money laundering tool for cybercriminals, and have also been plagued by security issues, with some high-profile heists. Bitcoin and other cryptocurrencies have proven a prime target for hackers despite their characterization by proponents as super safe and impregnable. One of the biggest such cases was Mt. Gox, which collapsed in 2014 after losing $460 million, apparently to hackers. In 2016, hackers stole $72 million worth of bitcoin from exchange Bitfinex. And in 2018, hackers stole $500 million in digital tokens from exchange Coincheck. According to the Wall Street Journal, more than $1.7 billion in cryptocurrency has been stolen over the years, most of which has come from exchanges and been centered around Asia.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes.

All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

7

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 11: Managing Knowledge and Artificial Intelligence

Learning Track 1: Challenges of Knowledge Management Systems Successful deployment of knowledge management systems requires a very clear understanding of how the firm creates and uses knowledge. Organizations need to determine precisely how they can benefit from knowledge management programs and whether the benefits are realistic.

Opportunities Businesses armed with proprietary knowledge about their customers and operations have what could be called an “invisible competitive advantage” if this knowledge is not available to competitors and cannot be purchased by others in the marketplace. For that reason, knowledge management systems can be a source of tremendous value if they enable firms to further leverage that knowledge.

Management Challenges Proving the quantitative benefits of knowledge management projects that deal with intangibles such as “knowledge” and “collaboration” is often more challenging than other information systems projects. Information systems that truly enhance the productivity of knowledge workers may be difficult to build because the manner in which information technology can enhance higher-level tasks, such as those performed by managers and professionals, is not always clearly understood. Some aspects of organizational knowledge are tacit, unstructured, and not easily captured or codified. Only certain kinds of information problems are appropriate for intelligent techniques.

Research conducted in the past five years on knowledge management projects has uncovered a number of difficulties in implementing knowledge management systems. Among these difficulties are the following: ◆ ◆

◆ ◆

Insufficient resources are available to structure and update the content in repositories.

Poor quality and high variability of content quality results from insufficient validating mechanisms.

Content in repositories lacks context, making documents difficult to understand.

Individual employees are not rewarded for contributing content, and many fear sharing knowledge with others on the job. continued

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Search engines return too much information, reflecting lack of knowledge structure or taxonomy.

Solution Guidelines There are both managerial and technological solutions to these challenges. Communities of practice are useful in providing motivation to employees and help provide context to knowledge. Properly designed knowledge taxonomies are also helpful in organizing knowledge. Firms can revise their employee compensation systems to reward knowledge sharing.

Proper planning and rollout can increase the chances of success for knowledge management projects.

There are five important steps in developing a successful knowledge management project that has measurable results: ◆ ◆ ◆ ◆ ◆

Develop in stages Choose a high-value business process Choose the right audience Measure ROI during initial implementation Use the preliminary ROI to project enterprise-wide values

Staged implementation and choice of business process or group to impact are perhaps the most critical decisions (see Figure 11-1). At each stage in the implementation process somewhat different metrics can be used to evaluate a project.

FIGURE 11-1 Implementing Knowledge Management Projects in Stages.

Knowledge management projects have a greater chance of succeeding if they are implemented in stages with clearly defined ways of measuring results.

continued

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In general, pilot projects should have 30 to 500 people involved. Knowledge management projects produce value by sharing knowledge among a large number of users and developing a large, useful knowledge repository or knowledge network. Measures of value will change as the project moves from the pilot stage through the group and enterprise stages (see Table 11-1).

TABLE 11-1 Stages for Measuring Value of Knowledge Management Systems Stage

Approach

Required Time

Data Availability

Accuracy

Pilot project

Bottom up

Short

Usually available

Good

Evaluation metrics Group implementation

Group utilization data (e.g., demand)

Moderate

Easily gathered

Better

Enterprise-wide implementation

Process improvement

Lengthy

Requires effort

Best

In the early stages, bottom-up reports and evaluations from users can be gathered. Users can be asked to assign a value (either a dollar value or minutes and hours saved during work) to the various uses they make of the knowledge management system: ◆ ◆ ◆ ◆ ◆ ◆ ◆

Number of conversations viewed Number of visits Number signed on to system Number of answers found in the knowledge base Number of answers received from expert providers Average rating of answers (on a scale of 1 to 5) Number of FAQs requested

In the group implementation stage, a different set of top-down measures can be used. Here, managers need to assign a value to answers viewed, improvements in business processes, new unexpected answers, the number of documents shared (as opposed to reinvented), and the number of FAQs accessed. The emphasis in these stages is on establishing a dollar value for the system’s benefits based on reasonable assumptions and reports from users developed in the pilot stage.

Table 11-2 illustrates one set of results of using these measures for 1,000 users during a 90-day period.

The total savings produced by all of these improvements during that period amounted to $225,010, or an average savings of $225.01 per user. If we projected these benefits for an entire year, total savings would amount to $900,040 (or $900.04 per user). If the system cost $700,000 to implement and $100,000 annually to maintain after the first year, the total benefits would amount to $200,040 in the first year and $800,040 each succeeding year. Chapter 15 describes the various capital budgeting models that can then be used to calculate the actual return on investment.

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TABLE 11-2 Example of Savings from a Knowledge Management System Metric

Assigned Value

First 90 Days Results

Total Value

Documents shared

$450

172

$77,400

Answers viewed

$10

6,103

$61,030

New answers

$30

486

$14,580

Best practices

$3,000

18

$54,000

FAQs

$225

80

$18,000

In the enterprise-wide implementation stage, other enterprise business process metrics become more important, such as response time to customers, speed of new product development, reductions in head count, reduction in procurement costs, and reductions in management decision-making intervals.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 11: Managing Knowledge and Artificial Intelligence

Learning Track 2: Case-based Reasoning Expert systems primarily capture the tacit knowledge of individual experts, but organizations also have collective knowledge and expertise that they have built up over the years. This organizational knowledge can be captured and stored using case-based reasoning. In case-based reasoning (CBR), descriptions of past experiences of human specialists, represented as cases, are documented and stored in a database for later retrieval when the user encounters a new case with similar parameters. The system searches for stored cases with problem characteristics similar to the new one, finds the closest fit, and applies the solutions of the old case to the new case. Successful solutions are tagged to the new case and both are stored together with the other cases in the knowledge base. Unsuccessful solutions also are appended to the case database along with explanations as to why the solutions did not work (see Figure 1).

Expert systems work by applying a set of IF-THEN-ELSE rules extracted from human experts. Casebased reasoning, in contrast, represents knowledge as a series of cases, and this knowledge base is continuously expanded and refined by users. You’ll find case-based reasoning in diagnostic systems in medicine or customer support where users can retrieve past cases whose characteristics are similar to the new case. The system suggests a solution or diagnosis based on the best-matching retrieved case.

continued

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How Case-based Reasoning Works

Case-based reasoning represents knowledge as a database of past cases and their solutions. The system uses a six-step process to generate solutions to new problems encountered by the user.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.w

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 11: Managing Knowledge and Artificial Intelligence

Learning Track 3: Fuzzy Logic Systems Most people do not think in terms of traditional IF-THEN rules or precise numbers. Humans tend to categorize things imprecisely using rules for making decisions that may have many shades of meaning. For example, a man or a woman can be strong or intelligent. A company can be large, medium, or small in size. Temperature can be hot, cold, cool, or warm. These categories represent a range of values.

Fuzzy logic is a rule-based technology that can represent such imprecision by creating rules that use approximate or subjective values. It can describe a particular phenomenon or process linguistically and then represent that description in a small number of flexible rules. Organizations can use fuzzy logic to create software systems that capture tacit knowledge where there is linguistic ambiguity.

Let’s look at the way fuzzy logic would represent various temperatures in a computer application to control room temperature automatically. The terms (known as membership functions) are imprecisely defined so that, for example, in Figure 1, cool is between 45 degrees and 70 degrees, although the temperature is most clearly cool between about 60 degrees and 67 degrees. Note that cool is overlapped by cold or norm. To control the room environment using this logic, the programmer would develop similarly imprecise definitions for humidity and other factors, such as outdoor wind and temperature. The rules might include one that says: “If the temperature is cool or cold and the humidity is low while the outdoor wind is high and the outdoor temperature is low, raise the heat and humidity in the room.” The computer would combine the membership function readings in a weighted manner and, using all the rules, raise and lower the temperature and humidity.

Fuzzy logic provides solutions to problems requiring expertise that is difficult to represent in the form of crisp IF-THEN rules. In Japan, Sendai’s subway system uses fuzzy logic controls to accelerate so smoothly that standing passengers need not hold on. Mitsubishi Heavy Industries in Tokyo has been able to reduce the power consumption of its air conditioners by 20 percent by implementing control programs in fuzzy logic. The autofocus device in cameras is only possible because of fuzzy logic. In these instances, fuzzy logic allows incremental changes in inputs to produce smooth changes in outputs instead of discontinuous ones, making it useful for consumer electronics and engineering applications.

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Management also has found fuzzy logic useful for decision making and organizational control. A Wall Street firm created a system that selects companies for potential acquisition using the language stock traders understand. A fuzzy logic system has been developed to detect possible fraud in medical claims submitted by health care providers anywhere in the United States.

FIGURE 1

Fuzzy Logic for Temperature Control

The membership functions for the input called temperature are in the logic of the thermostat to control the room temperature. Membership functions help translate linguistic expressions such as warm into numbers that the computer can manipulate.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.w

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 12: Enhancing Decision Making

Learning Track 1: Building and Using Pivot Tables Spreadsheet software is useful for helping managers detect and understand patterns in data. For instance, let’s a take a look at one day’s worth of transactions at an online firm, Online Management Training Inc. (OMT Inc.), that sells online management training books and streaming online videos to corporations and individuals who want to improve their management techniques. On this day, the firm experienced 517 order transactions. Figure 1 shows the first 15 transaction records produced at the firm’s Web site that day. The names of customers and other identifiers have been removed from this list.

FIGURE 1

Sample List of Transactions for Online Management Training Inc.

This list shows a portion of the order transactions for Online Management Training Inc. (OMT Inc.) on October 28, 2020.

You can think of this list as a database composed of transaction records (the rows). The fields for each customer record are: customer ID, region of purchase, payment method, source of contact (e-mail versus Web banner ad), amount of purchase, the product purchased (either online training or a book), and time of day (in 24-hour time). continued

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There’s a great deal of valuable information in this transaction database that could help managers answer important questions and make important decisions: ◆

◆

◆

◆

◆

◆

Where do most of our customers come from? The answer might tell managers where to spend more marketing resources, or to initiate new marketing efforts.

Where are the average purchases higher? The answer might tell managers where to focus marketing and sales resources, or pitch different messages to different regions.

What form of payment is the most common? The answer could be used to emphasize in advertising the most preferred means of payment.

Are there any times of day when purchases are most common? Do people buy products while at work (likely during the day) or at home (likely in the evening)?

Are there regional differences in the average purchase? If one region is much more lucrative, managers could focus their marketing and advertising resources on that region.

Are there regional differences in the sources of our customers? Perhaps in some regions, e-mail is the most effective marketing tool, whereas in other regions, Web banner ads are more effective?

The answer to this more complicated question could help managers develop a regional marketing strategy.

Microsoft Excel spreadsheet software offers many tools that are helpful in answering these kinds of questions. If the list was small, you could simply inspect the list and try to get a sense of patterns in the data. But this is impossible when you have a list of over 500 transactions. Notice that these questions often involve two dimensions: region and average purchase, time of day and average purchase, payment type and average purchase. But the last question is more complex because it has three dimensions: region, source of customer, and purchase.

You could use Excel’s charting capabilities, such as a bar chart, to answer some of these questions, but this would require you to sort the transactions on one dimension, calculate an average purchase price for each value of that dimension, manually create a new worksheet, and then create a bar chart. This would take a lot of time and be very inefficient.

Fortunately, spreadsheet software has a very powerful tool called a pivot table that categorizes and summarizes data very quickly. A pivot table is simply a table that displays two or more dimensions of data in a convenient format. Excel’s PivotTable Wizard creates a pivot table for you. It is located in the drop-down Data menu. When you click on PivotTable and PivotChart Report in the Excel Data menu and tell Excel where your data are, and what type of report your want (select PivotTable), the PivotTable and PivotChart Wizard screen appears (Figure 2).

continued

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FIGURE 2

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The Excel PivotTable Wizard

PivotTable Field List

PivotTable Toolbar

PivotTable form

The PivotTable Wizard in Excel makes it easy to analyze lists and databases by simply dragging and dropping elements from the Field List to the PivotTable area.

The PivotTable Wizard has three elements: an empty PivotTable with labels for rows, columns, and data areas; a PivotTable Field List which lists the fields in your list or database; and a PivotTable Toolbar. By dragging and dropping the fields you want to look at in your pivot table, you can analyze this list quickly, and arrive at decisions quickly.

For instance, let’s take the first question: “Where do our customers come from?” There’s several answers to this question, but let’s start with region and ask the question: “How many customers come from each region?” To find the answer, simply drag the Region field to the “Drop Row Fields Here” area of the empty pivot table, and drag Cust ID to the “Drop Data Items Here” areas of the empty pivot table. Figure 3 shows the results.

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A Pivot Table That Quickly Determines the Regional Distribution of Customers

Drag and drop the Cust ID field to the Drop Data Items Here area on the PivotTable form Drag and drop the Region field to the Drop Row Fields Here area

Use the Toolbar Field Settings button to redefine the Cust ID field from a sum to a count

By dragging and dropping fields to row and data areas of the pivot table form, you can quickly produce a table showing the relationship between region and number of customers. You will need to use the Field Settings button on the Toolbar to produce this table in order to redefine the Cust ID field as a count rather than a sum so Excel reports the number of customers, not the sum of their customer IDs, which would be meaningless.

The PivotTable shows most of our customers come from the Western region. So far we’ve looked at a single dimension, region, in understanding where our customers come from. Now let’s take a more complicated question that involves two dimensions: Does the source of the customer make a difference in addition to region? We have two sources of customers: some customers respond to e-mail campaigns, and others respond to online banner advertising. In a few seconds you can find the answer shown in Figure 4. This pivot table shows that Web banner advertising produces most of the customers, and this is true of all the regions.

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A Pivot Table That Examines Two Dimensions

Drag and drop the Source field to the Data area to add a second dimension

In this pivot table, we can examine where our customers come from in terms of two dimensions: region and advertising source. It appears nearly 40 percent of the customers respond to e-mail campaigns, and there are some regional variations in this theme.

Could we analyze the average amount of the purchase to the table in Figure 4? The answer is yes, very easily: just drag the Amount field to the data area of the pivot table. If you do this, you will find that while the average purchase on this day was $38, the customers who responded to e-mail from the Western region had an average sale of nearly $49! As a manager you might want to use this knowledge and expand your e-mail campaigns to Western audiences, and perhaps enlarge your banner advertising in other regions.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 13: Building Information Systems

Learning Track 1: Unified Modeling Language Object-oriented development can be used to improve system quality and flexibility. A number of techniques for the analysis and design of object-oriented systems have been developed, but the Unified Modeling Language (UML) has become the industry standard. UML allows system builders to represent different views of an object-oriented system using various types of graphical diagrams, and the underlying model integrates these views to promote consistency during analysis, design, and implementation.

Table 13-1 provides an overview of UML and its components. “Things” are objects and “structural things” allow system builders to describe objects and their relationships. UML uses two principal types of diagrams: structural diagrams and behavioral diagrams.

TABLE 13-1 An Overall View of UML and Its Components: Things, Relationships, and Diagrams UML Category Things

UML Elements Structural Things

Behavioral Things

Relationships

Grouping Things Annotational Things Structural Relationships

Behavioral Relationships

Diagrams

Structural Diagrams

Behavioral Diagrams

Specific UML Details Classes Interfaces Collaborations Use Cases Active Classes Components Nodes Interactions State Machines Packages Notes Dependencies Aggregations Associations Generalizations Communicates Includes Extends Generalizes Class Diagrams Object Diagrams Component Diagrams Deployment Diagrams Use Case Diagrams Sequence Diagrams Collaboration Diagrams Statechart Diagrams Activity Diagrams

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Structural diagrams are used to describe the relationships between classes. One type of structural diagram is called a class diagram. It shows classes of employees and the relationships between them.

The terminators at the end of the relationship lines in this type of diagram indicate the nature of the relationship. Generalization is a relationship between a general kind of thing and a more specific kind of thing. This type of relationship is sometimes described as a “is a relationship.” Generalization relationships are used for modeling class inheritance.

Behavioral diagrams are used to describe interactions in an object-oriented system. Figures 13-1 and 13-2 illustrate two types of behavioral diagrams: a use case diagram and a sequence diagram.

FIGURE 13-1 A UML Use-Case Diagram: Credit Card Processing Use case diagrams model the functions of a system, showing how objects interact with each other and with the users of the system.

Illustrated here is a use case diagram for credit card processing that was created with SmartDraw software.

A use case diagram shows the relationship between an actor and a system. The actor (represented in the diagram by a stick figure) is an external entity that interacts with the system, and the use case represents a series of related actions initiated by the actor to accomplish a specific goal. Several continued

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interrelated use cases are represented as ovals within a box. Use case modeling specifies the functional requirements of a system, focusing on what the system does rather than how it does it. The system’s objects and their interactions with each other, and with the users of the system, are derived from the use case model.

FIGURE 13-2 A UML Sequence Diagram.

Sequence diagrams describe interactions among classes in terms of the communication between objects (messages) during a specified period of time. Illustrated here is a sequence diagram for a Web page interacting with a database that was created with SmartDraw software.

A sequence diagram describes the interactions among objects during a certain period of time. The vertical axis represents time, whereas the horizontal axis represents the participating objects and actors. Boxes along the top of the diagram represent actors and instances of objects. Lateral bars drop down from each box to the bottom of each diagram, with interactions between objects represented by arrows drawn from bar to bar. The sequence of events is displayed from top to bottom, with the first interaction at the top and the last at the bottom of the diagram. Sequence diagrams are used in system design to derive the interactions, relationships, and operations of the objects in the system.

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COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 13: Building Information Systems

Learning Track 2: Primer on Business Process Design and Documentation

Why Business Process Design Is Important “Business process design has a long history in American management. In today’s digital e­ nvironment, an important part of the business consulting industry involves business process design, redesign, and process re-engineering. These business process design activities have grown along with the huge investments in information technology hardware and ­software in the United States. Why is so much attention paid to process design and how is it related to investments in IT/IS? The concern with business process design is motivated by several findings. The first is that many firms and organizations invest heavily in information systems and technologies, but do not receive anticipated benefits. In fact, it’s quite common. The reason for this variation is that firms ­receiving high returns on their IT investments are much more likely to have made complementary ­investments in their firms by redesigning their business processes, changing their management and organizational culture, and moving the locus of decision authority downwards in the organization, permitting employees to make better informed decisions, more quickly, with much higher-quality information. Major gains in productivity, quality, and reliability result from developing ­entirely new business processes that reflect and take advantage of the new technologies. Business firms have learned that in order to reap the benefits of information systems and technologies, they need to re-design how they do business.

A second finding that underscores the importance of business process re-design is that new ­information technologies enable entirely new business processes that are inconceivable without new technologies. The process of ordering a CD from Amazon.com is entirely enabled by a ­collection of software tools and computer hardware. Making a purchase at Wal-Mart invokes a collection of business processes all of which are enabled by software (with the exception of the clerk who checks you out). Downloading a track from iTunes is likewise an IT-enabled b­ usiness process. Each of these are examples of how American firms have used the opportunities ­afforded by new information

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technologies to re-design existing business processes, and to create new b­ usiness models. American business firms have learned to use technology to create new, very e­ fficient business processes.

How to Describe a Business Process There are two predominant methods of documenting business activities: flow charts and business process modeling. Each of this has very different uses and intentions. Flow charts are a schematic representation of a decision process--not a business process. A decision process is a set of ­logically and temporally related decisions that are required to turn inputs into outputs. Flow charts were developed in the late 1950’s as a way of documenting the conditional logic and the flow and ­structure of computer programs. Computer programs are a collection of conditional statements which represent decisions, e.g., “if age is less than 65, retirement category equals 0.” Prior to flow charts, computer programs were a collection of unstructured statements haphazardly organized into what came to be known as “spaghetti code.” Later, flow charts were used in business presentations to help visualize and improve the business decision making process. Flow charts and o­ perations manuals are typically used to guide the decision making process in organizations.

Unfortunately, flow charts tell us nothing about how long a decision process takes, who is involved, what kinds of activities are involved, or how much it all costs. To answer these questions, business process modeling is required.

Business process modeling is very different from flow charting. A business process is a set of ­logically and temporally connected activities in a business that turn inputs into outputs, utilize capital and labor resources, and require time to complete. Business process modeling focuses on the flow of work which transforms raw materials into finished products, inputs into outputs. Business process ­modeling provides a schematic representation of a production process—not a decision process. Originally developed in early factories, the technique spread to service and “paper-based” organizations such as banks and insurance companies--which were seeking to identify all the steps in production, and the time and resources required at each step. Once time and resources are identified, it is possible to change the business process in order to optimize the process efficiency.

As a technique, and a perspective, business process design is ideally suited to maximizing the returns on investment in information technology because it focuses management attention on the potential for using the new technology to support entirely new, more efficient business processes.

How to Model a Business Process Modeling a business process means two things: (a) describe the business process, and (b) measure the process. Before you can improve a business process, you need to be able to describe it, d­ ocument it, and measure it.

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So let’s start with how to describe a business process. There is a great variety of commercially ­available software tools that are used to graphically describe a business process. For our p­ urposes of teaching the basics about business process modeling, they are too complicated and too ­sophisticated.

We prefer to start with a generic model of the business process that focuses on the key ­attributes of any business process (see Figure 1 below): ◆ ◆ ◆ ◆ ◆

Inputs and outputs Activities (decision makers) Buffers (time delays) Process managers and owners Resources (capital and labor support)

FIGURE 1

A Generic Business Process

A business process is a set of activities that transform inputs into outputs, utilize capital and labor, and require time to complete. Buffers represent time delays in the process where products or i­ nformation are held until the next activity is ready to receive them.

Next let’s think about how to measure a business process. As you can see from the generic model and discussion above, a business model can be measured on the following dimensions: ◆ ◆ ◆ ◆ ◆

Cost Time Quality Efficiency Flexibility

To see how this all works, let’s look at a practical example.

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EXAMPLE BUSINESS PROCESS DOCUMENTATION: A PROCUREMENT PROCESSES ITC Corporation is a regional distributor of electronic connectors and components in Omaha, Nebraska, that services the Mid-West region of Chicago, Denver, Minneapolis and Salt Lake.

Procurement, next to customer service, is the most important business process in the firm. The firm receives requests from customers for electronic components, and after a period of i­ nteraction with the customer and with internal managers, the Procurement Office issues an order for the components from one of several manufacturers chosen by ITC on the basis of quality, delivery time, and profitability for ITC. ITC always tries to get the lowest cost products from its suppliers, while also ensuring the customer is satisfied with quality and delivery time.

The procurement system was built twenty years ago for a mainframe environment, and is outdated, slow, and not very good at obtaining and tracking the lowest price parts from manufacturers. As a matter of fact, humans have to review quotations from suppliers, and the system can only really track procurements once they are made. Procurement is a major “pain” point for the firm--costly, error prone, and slow. Strategically, the firm feels without a high quality, modern procurement system it will not be able to meet its financial goals.

Before it can improve the procurement process, ITC needs to thoroughly understand its acquisition business processes. ITC understands it will not achieve its objectives simply by installing new procurement software running on new client server computers. Senior mangers understand they will need to rethink how the procurement process is currently organized.

A consulting firm has prepared an high-level macro overview of the procurement process and identified key actors (Figure 2).

FIGURE 2

High-Level Overview of the Procurement Processs

A consulting firm has prepared an overview of the procurement process.

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The procurement process takes inputs from customers in the form of requests for electronic ­products.

In a process involving an interaction between Procurement Officers (PO), the customer, and vendors, an output is produced in the form of a procurement order.

The firm has identified the following key actors: ◆ ◆ ◆ ◆ ◆

AA: Administrative Assistant APM: Acquisition Program Manager PMAP: Program Management Acquisition Planning Chief CO: Contracting Officer PO: ITC Procurement Office (owner of the process)

The “process owner” is the unit of the firm which creates, manages, and maintains the p­ rocurement process. They are the responsible party for this process.

Next the consulting firm spent two weeks in the field interviewing the key actors in the p­ rocurement process, including customers, vendors, all employees, and all managers. They wanted to achieve a fairly fine-grained view of the activities, times, and resources, without becoming e­ xcessively detailed at this point. They also want a consensus view of the real work flow, not a hypothetical or “rule book” view of the “correct” work flow (Figure 3).

FIGURE 3

ITC Procurement Process Workflow

The consulting firm, working closely with employees, customers, vendors, and managers, produces a more detailed illustration of the procurement business process or work flow.

Now finally we get a sense of how the process works. Customers fax or email requests for ­components to the Administrative Assistant (AA). The AA works with the customer to clarify the order, and later in the process continues to coordinate the information that flows between procurement officers and continued

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customers. After a period of time, the AA creates a physical file and forwards it to the desk of the Acquisition Program Manager (APM). The APM reviews the request for completeness (delivery date, shipment method, and payment schedule). The APM interacts directly with the customer at this point to clarify details. When the request has been reviewed, the APM forwards the file to the Acquisition Management Director (AMP). The AMP reviews the request and begins the search for possible vendors. Once vendors are identified, the AMP issues a request for bid, and receives from multiple vendors price quotations and delivery dates. Once a vendor is identified, the information and file is passed back to the APM for a brief review, and then forwarded to company’s Contracting Officer (CO). The CO reviews the documents and issues a procurement order to the selected vendor.

Once a consensus is achieved about how the process works in the real world, the next step is to measure the process. The consulting firm spent additional time in the field gathering information from participants on how many hours of labor they spend on a single procurement in the $1 million dollar range. They also gather information on the time required for each of the steps, and the amount of hours documents and information spend waiting for the next step to be taken (buffers). Using salary data supplied by the firm, they were able to convert the hours employees spent on task into a direct dollar cost to the firm. They then produced a preliminary business process model which estimated the cost and time required to complete a typical $1 million procurement (Figure 4).

FIGURE 4

ITC Business PRocess Workflow: Typical $1 Million Purchase

In their preliminary estimate of the procurement business process, the consultants estimate the process for a million dollar procurement requires about $46,000 in direct labor costs, and about 340 hours to complete from start to finish.

The consultants estimate the typical million dollar procurement costs about $46,000 and takes 340 hours. Because this is the first time the firm has ever looked at the process, and attempted to measure it, senior managers are somewhat incredulous it could cost this much, and take this long. They want to continued

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know how to cut the time in half, and reduce the direct labor cost to less than $20,000. Do you have an ideas?

Business Process Modeling Tools Simple business processes can be modeled with a pen and paper, or spreadsheet and PowerPoint slides.

With more complex processes, and when there are multiple divisions, and when the information has to be shared widely throughout an organization, it is much better to use a software tool specifically designed for business process analysis, and that has both strong graphics and reasonable, built-in, spread sheeting tools to keep track of financial and other quantitative data. In this way, a common set of graphical symbols is used to describe all processes across the enterprise; the quantitative data can be simultaneously entered into the same software tool as descriptive and graphical information; and the results can be shared across networks to facilitate rapid team-based responses, and collaboration across functional, departmental, and geographic boundaries.

There are many low cost, PC-based, business process modeling tools available. A basic tool that is strong on graphics and basic data analysis is FlowCharter by iGrafx (http://www.igrafx.com/­products/ flowCharter/). A more advanced tool that has strong graphics and strong modeling ­capabilities is ProcessModel by Processmodel, Inc. (http://www.processmodel.com/). You can explore the Web for more options.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

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Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 13: Building Information Systems

Learning Track 3: Primer on Business Process Management Many businesses do not have a clear conception of what business processes exist in their firms, how they work, or how much they cost. In a recent survey by Forrester and IBM, 38% of business executives said they had no real-time visibility into their firm’s business processes. Surely this is an understatement. In contrast, nearly all businesses have fairly good measures of revenue, customers, employees, payroll, profits, assets and liabilities. All these accounting measures of a business are required by external authorities as accounting reporting requirements. Almost all business executives in a firm can tell you how much revenues are up or down, is head count up or down, and whether liabilities have increased along with assets. Very few executives can tell you if their business processes have improved, in what sense, and by how much. Business executives are very results oriented: the bottom line is how much money they make. How the money gets made is, well, often less well understood.

This requires a process orientation.

1.0 What Is Business Process Management?

Business Process Management is a methodology, a set of tools and systems, and a management philosophy or approach to business. Let’s start with the basic definition of a business process. A business process is a set of activities that transform inputs into outputs, utilize capital and labor, and require time to complete. Buffers represent time delays in the process where products or information are held until the next activity is ready to receive them. Next let’s think about how to measure a business process.

Generally, business processes are measured in terms of their cost, time to complete or cycle, quality, efficiency and flexibility. Figure 1 illustrates a generic business process.

Business Process Management (BPM) is an approach to business which aims to continuously improve business processes. In this sense it shares a great deal with total quality management which seeks to improve the quality of business processes by decreasing error and rejection rates, improving customer satisfaction, and reducing costs. However, business process management is a bit broader, concerned with quality, but expanding beyond that to include efficiency, cost, benefits to the firm.

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A Generic Business Process

BPM uses a variety of tools and methodologies to understand existing processes, design new processes, and optimize those processes. BPM is never concluded because continuous improvement requires continual change.

2.0 The Business Process Management Development Model There are a number of stages in the business process management management model: ◆

Identify processes for change

◆

Analyze existing process

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Design new processes

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Model new processes

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Implement new processes

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Optimize new processes

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Continuous Measurement

Let’s examine each of these stages in the BPM model.

Identify processes for change. This may seem obvious but deciding what to improve in a business can be a daunting task, and choosing a process to improve is influenced by many factors. First, any sizable business has thousands of processes. Rationally, one would like to identify all processes in the firm,

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and rank order them on various criteria such as cost-benefit: how much does each process contribute to profits and how much does it cost. Those processes which have a poor cost-benefit ratio would be candidates for BPM. This rational approach is not very useful if only because the cost of identifying all the business processes is prohibitive, and linking each to a portion of profits virtually impossible.

One method is to rely on a business scorecard approach in which senior executives decide the criteria of business performance that are important to them based on their experience and understanding of the business. A small number (generally less than ten) of performance criteria are identified such as customer satisfaction surveys, sales activity, revenues, market penetration, employee head count, stock price, costs of supplies, and other factors. These are continuously measured by existing systems and executives use a dashboard to monitor these performance criteria in real time. Once these measured criteria are understood, BPM managers can focus on the specific business processes involved in producing each outcome or result. For instance, if an executive learns that costs of supplies are accelerating faster than normal, he or she can ask BPM managers to examine the supply chain process more closely.

A different less formal method is also used. I call this the pain reduction method which is a variation of the “squeaky wheel” approach. Sometimes particular business processes are troublesome and produce negative results that obviously hurt the business. A poor Web site may turnoff customers; a loading dock may be the source of many accidents; some process might be far more costly than the same process developed by competitors; the number of employees in a transaction processing unit or call center may be expanding faster than sales, suggesting a problem worthy of further investigation.

Briefly, some processes are well-known in the firm as not being very good or effective. These become candidates for further analysis.

Analyze existing processes. Once a candidate process is identified for improvement, the next step is to analyze the process and determine how much resources in terms of time and costs are expended by the process. Once this is understood, the results can be compared to historical data, or to a similar process used by competitors. Here is where consulting firms are very valuable. Finding out your competitor’s cost structure is very difficult. It can be “guesstimated” using a variety of legal techniques. Former employees of your competitors can provide information. Consulting firms who have worked throughout the industry are a major source of benchmark data.

Design new processes. Once the existing process is mapped and measured in terms of time and cost, the next step is to try to improve the process by designing a new one. Generally, alternative processes are suggested by competitors or consultants based on “best industry practice.” Firms should be able to at least achieve best practice used in their industry, and copy other firms. Several candidate new processes can be developed, and each modeled in terms of the time and cost of using each of the processes and then choosing the most cost effective.

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Model new processes. Once the new process is chosen, it’s still a theoretical process that needs more refinement. The new process can be physically modeled and then “run” and compared to the old process. For instance, firms can set up model offices using new processes and experiment with them to devise the best combinations of labor, technology, and equipment. Firms can experiment with new Web sites. Alternatively, processes can be refined and modeled with a computer program. The point of this exercise is to devise a theoretically optimal set of arrangements for the new process.

Optimize new processes. Once the new process has been implemented, and employees trained and accustomed to working with the new process, BPM managers ideally continue to experiment with improvements. Many improvements will be recommended by employees who actually work in the process. Any process can always be improved, and here’s where the continuous improvement goal of BPM really comes into its own.

Implement new processes. Once the new process is thoroughly modeled and understood at the theoretical and experimental level, it’s time to roll it out into the field. Most firms adopt a phased roll-out of new processes, starting with business units most likely to adopt the new process, or where support among employees might be strongest. At this stage, problems are usually uncovered and addressed.

Very few theoretical models capture all the nuances of a process, or the difficulties of dealing with people who may like the old process better than the new one.

Continuous Measurement. Once designed and implemented, and optimized, business processes need to be continually measured. Why? Processes can deteriorate over time as field employees can fall back on old methods. Processes should improve over time as employees go up the learning curve and become more familiar and polished in the new system. Continuous measurement may also be demanded by senior management.

BPM is not without its difficulties. Executives report that the largest single barrier to BPM is organizational culture. Employees are set in their ways, do not like to change, and do not like unfamiliar routines. New business processes can be both more efficient than old ones, but also less flexible and more difficult to adapt to change. The costs of measuring existing processes, designing new ones, experimenting, implementing, optimizing and measuring can be very expensive. The existing information systems in a firm may not be capable of providing the information required to measure old or new business processes. In other words, a major system investment may be required to implement BPM.

3.0 BPM Software: the Technology Connection Implementing a BPM approach in any but the smallest of firms will require investments in new systems and technologies. The complexity of the task is quite high. Many software firms produce BPM suites of software to enable BPM. Figure 2 provides a conceptual graphic that illustrates some of the systems required by BPM.

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BPM System Requirements

When properly implemented, a BPM approach to management involves business process tools, a service oriented architecture (SOA), and new activities in the firm. Source: National Institutes of Health, 2009

Let’s take a closer look at the BPM graphic. At its heart is a BPM suite of software tools that can capture business rules (for existing and new systems), design workflows and processes, model business processes, simulate processes, and provide continuous measurement. On the left side of the graphic are a set of services that allow managers to gain access to the system. On the right side of the diagram are a set of databases and applications which can supply information to the BPM suite, and store information.

As you can see from this diagram, BPM requires a fully modernized IT infrastructure based on a service oriented architecture (SOA) in order to receive data from existing systems. Without this, the results of BPM cannot be measured against performance criteria and targets established by senior management. For this reason, most large firms rely on their primary enterprise systems vendors to provide the BPM suite. The largest vendors are IBM, SAP, and Oracle. There are many hundreds of other vendors which aim at middle market and smaller firms.

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REFERENCES Armistead, Colin; Jean-Philip Pritchard; and Simon Machin. “Strategic Business Process Management for Organisational Effectiveness.” ScienceDirect, June 1999.

Forrester Consulting, “Enabling Dynamic Business Processes With BPM and SOA.” Survey conducted for IBM, 2008.

Leymann, F.; D. Roller, and M.-T. Schmidt. “Web services and business process management.” IBM White Paper, 2001.

National Institutes of Health, “Workflow/Business Process Management (BPM) Service Pattern,” http://enterprisearchitecture.nih.gov/ArchLib/AT/TA/WorkflowServicePattern.htm, 2009.

Oracle Corporation. “Business Process Management in the Finance Sector.” White Paper, 2008.

Mohapatra, Sanjay Business Process Reengineering: Automation Decision Points in Process Reengineering. SpringerVerlag, 2013.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 14: Making the Business Case for Information Systems and Managing Projects

Learning Track 1: Capital Budgeting Methods for Information Systems Investments

Traditional Capital Budgeting Models Capital budgeting models are one of several techniques used to measure the value of investing in longterm capital investment projects. The process of analyzing and selecting various proposals for capital expenditures is called capital budgeting. Firms invest in capital projects to expand production to meet anticipated demand or to modernize production equipment to reduce costs. Firms also invest in capital projects for many noneconomic reasons, such as installing pollution control equipment, converting to a human resources database to meet some government regulations, or satisfying nonmarket public demands. Information systems are considered long-term capital investment projects.

Six capital budgeting models are used to evaluate capital projects: ◆ ◆ ◆ ◆ ◆ ◆

The payback method The accounting rate of return on investment (ROI) The net present value The cost-benefit ratio The profitability index The internal rate of return (IRR)

Capital budgeting methods rely on measures of cash flows into and out of the firm. Capital projects generate cash flows into and out of the firm. The investment cost is an immediate cash outflow caused by the purchase of the capital equipment. In subsequent years, the investment may cause additional cash outflows that will be balanced by cash inflows resulting from the investment. Cash inflows take the form of increased sales of more products (for reasons such as new products, higher quality, or increasing market share) or reduced costs in production and operations. The difference between cash outflows and cash inflows is used for calculating the financial worth of an investment. Once the cash flows have been established, several alternative methods are available for comparing different projects and deciding about the investment.

Financial models assume that all relevant alternatives have been examined, that all costs and benefits are known, and that these costs and benefits can be expressed in a common metric, specifically, continued

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money. When one has to choose among many complex alternatives, these assumptions are rarely met in the real world, although they may be approximated. Table 14-1 lists some of the more common costs and benefits of systems. Tangible benefits can be quantified and assigned a monetary value.

Intangible benefits, such as more efficient customer service or enhanced employee goodwill, cannot be immediately quantified but may lead to quantifiable gains in the long run.

TABLE 14-1 Costs and Benefits of Information Systems COSTS Hardware Telecommunications Software Services Personnel TANGIBLE BENEFITS (COST SAVINGS) Increased productivity Lower operational costs Reduced workforce Lower computer expenses Lower outside vendor costs Lower clerical and professional costs Reduced rate of growth in expenses Reduced facility costs INTANGIBLE BENEFITS Improved asset utilization Improved resource control Improved organizational planning Increased organizational flexibility More timely information More information Increased organizational learning Legal requirements attained Enhanced employee goodwill Increased job satisfaction Improved decision making Improved operations Higher client satisfaction Better corporate image

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You are familiar with the concept of total cost of ownership (TCO), which is designed to identify and measure the components of information technology expenditures beyond the initial cost of purchasing and installing hardware and software. However, TCO analysis provides only part of the information needed to evaluate an information technology investment because it does not typically deal with benefits, cost categories such as complexity costs, and “soft” and strategic factors discussed later in this section.

LIMITATIONS OF FINANCIAL MODELS Many well-known problems emerge when financial analysis is applied to information systems.

Financial models do not express the risks and uncertainty of their own costs and benefits estimates.

Costs and benefits do not occur in the same time frame—costs tend to be up-front and tangible, whereas benefits tend to be back loaded and intangible. Inflation may affect costs and benefits differently. Technology—especially information technology—can change during the course of the project, causing estimates to vary greatly. Intangible benefits are difficult to quantify. These factors wreak havoc with financial models.

The difficulties of measuring intangible benefits give financial models an application bias: Transaction and clerical systems that displace labor and save space always produce more measurable, tangible benefits than management information systems, decision-support systems, and computer-supported collaborative work systems. Traditional approaches to valuing information systems investments tend to assess the profitability of individual systems projects for specific business functions. Theses approaches do not adequately address investments in IT infrastructure, testing new business models, or other enterprise-wide capabilities that could benefit the organization as a whole (Ross and Beath, 2002).

The traditional focus on the financial and technical aspects of an information system tends to overlook the social and organizational dimensions of information systems that may affect the true costs and benefits of the investment. Many companies’ information systems investment decisions do not adequately consider costs from organizational disruptions created by a new system, such as the cost to train end users, the impact that users’ learning curves for a new system have on productivity, or the time managers need to spend overseeing new system-related changes. Benefits, such as more timely decisions from a new system or enhanced employee learning and expertise, may also be overlooked in a traditional financial analysis (Ryan, Harrison, and Schkade, 2002).

There is some reason to believe that investment in information technology requires special consideration in financial modeling. Capital budgeting historically concerned itself with manufacturing equipment and other long-term investments, such as electrical generating facilities and telephone networks. These investments had expected lives of more than 1 year and up to 25 years.

However, information systems differ from manufacturing systems in that their life expectancy is shorter. The very high rate of technological change in computer-based information systems means

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that most systems are seriously out of date in 5 to 8 years. The high rate of technological obsolescence in budgeting for systems means that the payback period must be shorter and the rates of return higher than typical capital projects with much longer useful lives. The bottom line with financial models is to use them cautiously and to put the results into a broader context of business analysis.

Case Example: Capital Budgeting for a New Supply Chain Management System Let’s look at how financial models would work in a real-world business scenario. Heartland Stores is a general merchandise retail chain operating in eight midwestern states. It has five regional distribution centers, 377 stores, and about 14,000 different products stocked in each store. The company is considering investing in new software and hardware modules to upgrade its existing supply chain management system to help it better manage the purchase and movement of goods from its suppliers to its retail outlets. Too many items in Heartland’s stores are out of stock, even though many of these products are in the company’s distribution center warehouses.

Management believes that the new system would help Heartland Stores reduce the amount of items that it must stock in inventory, and thus its inventory costs, because it would be able to track precisely the status of orders and the flow of items in and out of its distribution centers. The new system would reduce Heartland’s labor costs because the company would not need so many people to manage inventory or to track shipments of goods from suppliers to distribution centers and from distribution centers to retail outlets. Telecommunications costs would be reduced because customer service representatives and shipping and receiving staff would not have to spend so much time on the telephone tracking shipments and orders. Heartland Stores expects the system to reduce transportation costs by providing information to help it consolidate shipments to retail stores and to create more efficient shipping schedules.

The solution builds on the existing IT infrastructure at the Heartland Stores but requires the purchase of additional server computers, PCs, database software, and networking technology, along with new supply chain planning and execution software. The solution also calls for new radio-frequency identification technology to track items more easily as they move from suppliers to distribution centers to retail outlets.

Figure 14-1 shows the estimated costs and benefits of the system. The system had an actual investment cost of $11,467,350 in the first year (year 0) and a total cost over six years of $19,017,350. The estimated benefits total $32,500,000 after six years. Was the investment worthwhile? If so, in what sense?

There are financial and nonfinancial answers to these questions. Let us look at the financial models first. They are depicted in Figure 14-2.

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FIGURE 14-1 Costs and Benefits of the New Supply Chain Management System.

This spreadsheet analyzes the basic costs and benefits of implementing supply chain management system enhancements for a midsized midwestern U.S. retailer. The costs for hardware, telecommunications, software, services, and personnel are analyzed over a six-year period.

THE PAYBACK METHOD The payback method is quite simple: It is a measure of the time required to pay back the initial investment of a project. The payback period is computed as follows:

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FIGURE 14-2 Financial Models.

To determine the financial basis for a project, a series of financial models helps determine the return on invested capital. These calculations include the payback period, the accounting rate of return on investment (ROI), the cost-benefit ratio, the net present value, the profitability index, and the internal rate of return (IRR).

Original investment Annual net cash inflow

= Number of years to pay back

In the case of Heartland Stores, it will take more than two years to pay back the initial investment.

(Because cash flows are uneven, annual cash inflows are summed until they equal the original investment to arrive at this number.) The payback method is a popular method because of its simplicity and power as an initial screening method. It is especially good for high-risk projects in which the useful life of a project is difficult to determine. If a project pays for itself in two years, then it matters less how long after two years the system lasts.

The weakness of this measure is its virtue: The method ignores the time value of money, the amount of cash flow after the payback period, the disposal value (usually zero with computer systems), and the profitability of the investment.

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ACCOUNTING RATE OF RETURN ON INVESTMENT (ROI) Firms make capital investments to earn a satisfactory rate of return. Determining a satisfactory rate of return depends on the cost of borrowing money, but other factors can enter into the equation.

Such factors include the historic rates of return expected by the firm. In the long run, the desired rate of return must equal or exceed the cost of capital in the marketplace. Otherwise, no one will lend the firm money.

The accounting rate of return on investment (ROI) calculates the rate of return from an investment by adjusting the cash inflows produced by the investment for depreciation. It gives an approximation of the accounting income earned by the project.

To find the ROI, first calculate the average net benefit. The formula for the average net benefit is as follows: (Total benefits – Total cost – Depreciation)

= Net benefit

Useful life

This net benefit is divided by the total initial investment to arrive at ROI. The formula is as follows: Net benefit Total initial investment

= ROI

In the case of Heartland Stores, the average rate of return on the investment is 2.93 percent.

The weakness of ROI is that it can ignore the time value of money. Future savings are simply not worth as much in today’s dollars as are current savings. However, ROI can be modified (and usually is) so that future benefits and costs are calculated in today’s dollars. (The present value function on most spreadsheets can perform this conversion.)

NET PRESENT VALUE Evaluating a capital project requires that the cost of an investment (a cash outflow usually in year 0) be compared with the net cash inflows that occur many years later. But these two kinds of cash flows are not directly comparable because of the time value of money. Money you have been promised to receive three, four, and five years from now is not worth as much as money received today. Money received in the future has to be discounted by some appropriate percentage rate—usually the prevailing interest rate, or sometimes the cost of capital. Present value is the value in current dollars of a payment or stream of payments to be received in the future. It can be calculated by using the following formula:

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Payment x

1 – (1 + interest)-n Interest

8

= Present value

Thus, to compare the investment (made in today’s dollars) with future savings or earnings, you need to discount the earnings to their present value and then calculate the net present value of the investment.

The net present value is the amount of money an investment is worth, taking into account its cost, earnings, and the time value of money. The formula for net present value is this: Present value of expected cash flows – Initial investment cost = Net present value

In the case of Heartland Stores, the present value of the stream of benefits is $21,625,709, and the cost (in today’s dollars) is $11,467,350, giving a net present value of $10,158,359. In other words, for a $21 million investment today, the firm will receive more than $10 million. This is a fairly good rate of return on an investment.

COST-BENEFIT RATIO A simple method for calculating the returns from a capital expenditure is to calculate the cost-benefit ratio, which is the ratio of benefits to costs. The formula is Total benefits Total cost

= Cost-benefit ratio

In the case of Heartland Stores, the cost-benefit ratio is 1.71, meaning that the benefits are 1.71 times greater than the costs. The cost-benefit ratio can be used to rank several projects for comparison.

Some firms establish a minimum cost-benefit ratio that must be attained by capital projects. The costbenefit ratio can, of course, be calculated using present values to account for the time value of money.

PROFITABILITY INDEX One limitation of net present value is that it provides no measure of profitability. Neither does it provide a way to rank order different possible investments. One simple solution is provided by the profitability index. The profitability index is calculated by dividing the present value of the total cash inflow from an investment by the initial cost of the investment. The result can be used to compare the profitability of alternative investments.

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Present value ofcash inflows

9

= Profitability index

Investment

In the case of Heartland Stores, the profitability index is 1.89. The project returns more than its cost.

Projects can be rank ordered on this index, permitting firms to focus on only the most profitable projects.

INTERNAL RATE OF RETURN (IRR) Internal rate of return (IRR) is defined as the rate of return or profit that an investment is expected to earn, taking into account the time value of money. IRR is the discount (interest) rate that will equate the present value of the project’s future cash flows to the initial cost of the project (defined here as negative cash flow in year 0 of $11,467,350). In other words, the value of R (discount rate) is such that Present value – Initial cost = 0. In the case of Heartland Stores, the IRR is 33 percent.

RESULTS OF THE CAPITAL BUDGETING ANALYSIS Using methods that take into account the time value of money, the Heartland Stores project is cashflow positive over the time period under consideration and returns more benefits than it costs. Against this analysis, you might ask what other investments would be better from an efficiency and effectiveness standpoint. Also, you must ask if all the benefits have been calculated. It may be that this investment is necessary for the survival of the firm, or necessary to provide a level of service demanded by the firm’s clients. What are competitors doing? In other words, there may be other intangible and strategic business factors to consider.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 14: Making the Business Case for Information Systems and Managing Projects

Learning Track 2: Information Technology Investments and Productivity Information technology now accounts for about 40 to 50 percent of total business capital investment in the United States. Whether this investment has translated into genuine productivity gains remains open to debate, although most of the evidence suggests that the answer is positive. Productivity is a measure of the firm’s efficiency in converting inputs to outputs. It refers to the amount of capital and labor required to produce a unit of output. For more than a decade, researchers have been trying to quantify the bene­fits from information technology investments by analyzing data collected at the economy level, industry level, firm level, and information systems application level. The results of these studies have been mixed and the term productivity paradox was coined to describe such findings.

Information technology has increased productivity in manufacturing, especially the manufacture of information technology products, as well as in retail. Wal-Mart, which dominates U.S. retailing, has experienced increases in both productivity and profitability during the past decade through managerial innovations and powerful supply chain management systems. Competitors, such as Sears, Kmart, and Costco, are trying to emulate these practices. One study estimated that Wal-Mart’s improved productivity alone accounted for more than half of the productivity a­ cceleration in U.S. general merchandise retailing.

However, the extent to which computers have enhanced the productivity of the service sector remains unclear. Some studies show that investment in information technology has not led to any appreciable growth in productivity among office workers. The banking industry, which has been one of the most intensive users of information technology, did not experience any gains in productivity throughout the 1990s and 2000s. Corporate downsizings and cost-reduction measures have increased worker efficiency but have not yet led to sustained enhancements signifying genuine productivity gains. Cell phones, tablet and laptop computers, and information appliances like smartphones enable highly paid knowledge workers to get more work done by working longer hours and bringing their work home, but these workers are not necessarily getting more work done in a specified unit of time.

Researchers have not made a systematic effort to measure the impact of these devices on unit output or quality of product or service. For instance, university professors who answer their students’ e-mail, text, or Facebook queries within set office hours are clearly communicating with their students more

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than in the past, and in that sense the service of higher education has improved. Measuring the value of this improvement is a challenge.

The contribution of information technology to productivity in information and knowledge i­ ndustries may be difficult to measure because of the problems of identifying suitable units of output for information work. How do you measure the output of a law office? Should productivity be measured by examining the number of forms completed per employee (a measure of physical unit productivity) or by examining the amount of revenue produced per employee (a measure of financial unit productivity) in an information- and knowledge-intense industry?

Other studies have focused on the value of outputs (essentially revenues), profits, ROI, and stock market capitalization as the ultimate measures of firm efficiency. A number of researchers have found that information technology investments have resulted in increased productivity and better financial performance, including higher stock valuations.

Information technology investments are more likely to improve firm performance if they were accompanied by complementary investments in new business processes, organizational ­structures, and organizational learning that could unleash the potential of the new technology. In a­ ddition to this organizational and management capital, complementary resources, such as up-to-date IT infrastructures, have been found to make e-commerce investments more effective in improving firm performance. Firms that have built appropriate infrastructures—and view their ­infrastructures as sets of services providing strategic agility—have faster times to market, higher growth rates, and more sales from new products.

In addition to reducing costs, computers may increase the quality of products and services for consumers or may create entirely new products and revenue streams. These intangible benefits are difficult to measure and consequently are not addressed by conventional productivity measures.

Moreover, because of competition, the value created by computers may primarily flow to customers rather than to the company making the investments.

For instance, the investment in automatic teller machines (ATMs) by banks has not resulted in higher profitability for any single bank, although the industry as a whole has prospered and consumers enjoy the benefits without paying higher fees. Productivity gains may not ­necessarily increase firm profitability. Hence, the returns of information technology investments should be analyzed within the competitive context of the firm, the industry, and the specific way in which information technology is being applied.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

Management Information Systems MANAGING THE DIGITAL FIRM

Kenneth C. Laudon ● Jane P. Laudon Chapter 14: Making the Business Case for Information Systems and Managing Projects

Learning Track 3: Enterprise Analysis: Business Systems Planning and Critical Success Factors

Establishing Organizational Information Requirements To develop an effective information systems plan, the organization must have a clear understanding of both its long- and short-term information requirements. Two principal methodologies for establishing the essential information requirements of the organization as a whole are enterprise analysis and critical success factors.

ENTERPRISE ANALYSIS (BUSINESS SYSTEMS PLANNING) Enterprise analysis (also called business systems planning) argues that the firm’s information requirements can be understood only by examining the entire organization in terms of organizational units, functions, processes, and data elements. Enterprise analysis can help identify the key entities and attributes of the organization’s data.

The central method used in the enterprise analysis approach is to take a large sample of managers and ask them how they use information, where they get their information, what their objectives are, how they make decisions, and what their data needs are. The results of this large survey of managers are aggregated into subunits, functions, processes, and data matrices. Data elements are organized into logical application groups—groups of data elements that support related sets of organizational processes.

Figure 1 is an output of enterprise analysis conducted by the Social Security Administration as part of a massive systems redevelopment effort. It shows what information is required to support a particular process, which processes create the data, and which use them. The shaded boxes in the figure indicate a logical application group. In this case, actuarial estimates, agency plans, and budget data are created in the planning process, suggesting that an information system should be built to support planning.

The weakness of enterprise analysis is that it produces an enormous amount of data that is expensive to collect and difficult to analyze. The questions frequently focus not on management’s critical objectives and where information is needed but rather on what existing information is used. The result is a tendency to automate whatever exists. But in many instances, entirely new approaches to how business is conducted are needed, and these needs are not addressed. continued

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Process/Data Class Matrix.

This chart depicts which data classes are required to support particular organizational processes and which processes are the creators and users of data.

STRATEGIC ANALYSIS OR CRITICAL SUCCESS FACTORS The strategic analysis, or critical success factors, approach argues that an organization’s information requirements are determined by a small number of critical success factors (CSFs) of managers. If these goals can be attained, success of the firm or organization is assured. CSFs are shaped by the industry, the firm, the manager, and the broader environment. New information systems should focus on providing information that helps the firm meet these goals.

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The principal method used in CSF analysis is personal interviews—three or four—with a number of top managers identifying their goals and the resulting CSFs. These personal CSFs are aggregated to develop a picture of the firm’s CSFs. Then systems are built to deliver information on these CSFs. (See Table 1 for an example of CSFs. For the method of developing CSFs in an organization, see Figure 2.)

TABLE 1

Critical Success Factors and Organizational Goals

Example

Goals

CSF

Profit concern

Earnings/share

Automotive industry

Return on investment

Styling

Market share

Quality dealer system

New product

Cost control

Energy standards Nonprofit

Excellent health care

Regional integration with other hospitals

Meeting government regulations

Improved monitoring of regulations

Future health needs

Efficient use of resources

Source: Rockart (1979)

FIGURE 2

Using CSFs to Develop Systems The CSF approach relies on interviews with key managers to identify their CSFs. Indivi-dual CSFs are aggregated to develop CSFs for the entire firm. Systems can then be built to deliver information on these CSFs.

The strength of the CSF method is that it produces less data to analyze than does enterprise analysis.

Only top managers are interviewed, and the questions focus on a small number of CSFs rather than requiring a broad inquiry into what information is used in the organization. This method explicitly asks managers to examine their environments and consider how their analyses of them shapes their information needs. It is especially suitable for top management and for the development of continued

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decision-support systems (DSS) and executive support systems (ESS). Unlike enterprise analysis, the CSF method focuses organizational attention on how information should be handled.

The method’s primary weakness is that the aggregation process and the analysis of the data are art forms. There is no particularly rigorous way in which individual CSFs can be aggregated into a clear company pattern. Second, interviewees (and interviewers) often become confused when distinguishing between individual and organizational CSFs. These types of CSFs are not necessarily the same.

What may be considered critical to a manager may not be important for the organization as a whole.

This method is clearly biased toward top managers, although it could be extended to elicit ideas for promising new systems from lower-level members of the organization.

COPYRIGHT NOTICE Copyright © 2022 Kenneth Laudon and Jane Laudon.

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including online) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.