Management Information Systems Managing the Digital Firm, 15th 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? 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. Business functions, 19 Business model, 14 Business processes, 12 Complementary assets, 26 Computer hardware, 21 Computer literacy, 18 Computer software, 21 Culture, 20 Data, 16 Data management technology, 21 Data workers, 19 Digital firm, 12 Extranets, 22 Feedback, 18 Information, 16 Information system, 16
Information technology (IT) infrastructure, 22 Input, 17 Internet, 21 Intranets, 22 Knowledge workers, 19 Management information systems (MIS), 18 Middle management, 19 Network, 21 Networking and telecommunications technology, 21 Operational management, 19 Organizational and management capital, 27 Output, 18 Processing, 17 Production or service workers, 19 Senior management, 19 Sociotechnical view, 30 1-1 ..
Information systems literacy, 18 Information technology (IT), 16
World Wide Web, 22
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 any requirements you may have for the course, try to give an overview of the course stressing that this is not a technical course. Usually, you can’t do enough to put non-technical types at ease. The opening case, “The Grocery Store of the Future: Look at Kroger,” shows students that even some of 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 many different kinds of businesses have had to change the way they operate. By collecting data about customer shopping patterns, purchase transactions, staffing levels, and store layouts, Kroger can predict ways to meet customer demands and workloads more efficiently and effectively. Stores have considerably reduced food waste by using technology to measure cold food storage temperature changes that previously were done by workers. New sensor-based systems cut down the number of cold products that go bad and have to be thrown out, reduce labor, and save energy. Because the grocery business is extremely competitive and low-margin, customer loyalty is especially critical. Enhancing the mundane tasks of grocery shopping through enhanced services made possible by technology goes a long way towards improving Kroger’s competitive advantage over its rivals. 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 to survival. This would be a good time to ask students to discuss how their own schools are using information systems to enhance their product offering.
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Table 1-1 is a great way to introduce students to much of the new IT jargon that has developed over the last several years. Most of the technologies will be discussed in future chapters. Ask students how much hands-on experience they’ve had with some of the new business tools as either an employee or a customer. Globalization is affecting virtually every country in the world. The most striking evidence of this trend is the increasing presence of cell phones in the very small villages of Africa. As technology becomes more pervasive and, in some cases easier to use, globalization will continue its steady march. China, Singapore, and Russia are good examples of how globalization has flattened the world. They have become major exporters to other countries, especially industrialized and advanced countries like the United States and many European countries. Emerging countries like Poland, the Ukraine, and Ireland, are excellent examples of increasing globalization. Ask students to provide examples of truly digital firms (Cisco Systems and Dell Computers) 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 back to these six objectives as reasons why firms should incorporate and integrate business processes with information systems. Interactive Session: Management: The Mobile Pocket Office Case Study Questions 1. What kinds of applications are described here? What business functions do they support? How do they improve operational efficiency and decision making? Email, messaging, social networking, and salesforce management are described in this case study. The applications support business functions including collaboration, locationbased services, and communications with colleagues. These applications improve operational efficiency and decision making by allowing people to communicate from wherever they are. They are no longer tethered to one place or one machine. They can receive information and data instantaneously that allows them to make better, faster decisions.
2. Identify the problems that businesses in this case study solved by using mobile digital devices. Sonic Automotive uses mobile device apps to speed up sales and service. Sales associates have immediate access to vehicle information, pricing, trade-in values, interest rates,
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special promotions, financing, and what competitors are charging for identical vehicles. The apps have speeded up and simplified trade-in appraisals and pricing. SKF, a global engineering company, uses mobile devices and apps to monitor factory production lines. Operators using the apps are able to use secure instant messaging to communicate with managers and each other, update maintenance logs, and track products in real time as they move through the factory line. Other employees use apps to access product literature, catalogs, product specifications and interactive marketing materials. 3. What kinds of businesses are most likely to benefit from equipping their employees with mobile digital devices such as iPhones and iPads? Any business with a need to communication with customers, suppliers, and business colleagues can benefit from equipping employees with mobile digital devices. Student answers will vary as they relate their own experiences and knowledge of using mobile digital devices. Try to encourage the students’ creativity and imagination with this question. Here are a couple of examples: Insurance companies: claims adjusters or agents writing new policies or updating old ones, can take pictures of property as-is or that’s been damaged, update data on the condition of a property, and document property damage for claims processing. Real estate agents: can take pictures of homes for sale and send to prospective buyers, send information to other agents or prospective buyers and sellers, answer questions and complete documents related to buying and selling property. Winemakers: can receive up-to-date weather forecasts, track crop information via GPS coordinates, store and access data on crop varieties for later analysis, track employee productivity during harvest time, take pictures of crops to include in a database, and communicate with suppliers and customers. 4. One company deploying iPhones has said, “The iPhone is not a game changer,
it’s an industry changer. It changes the way that you can interact with your customers and with your suppliers.” Discuss the implications of this statement. First and foremost, those that effectively and efficiently deploy mobile digital device technology gain a huge competitive advantage over those who do not use the technology to stay in constant touch with customers and suppliers. Sales and Marketing can take a hit by not having access to information that can close business deals faster and more efficiently. Costs can increase without the ability to contact suppliers and track product shipments, especially for those companies who use just-in-time supply chains. 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 1-4 ..
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 expert, 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. 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?
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Technologies include handheld computers (DIADs), barcode 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 Service by investing heavily in advanced information technology.
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New products, services, and business models: In June 2009 UPS launched a new web-based Post Sales Order Management System (OMS) that manages global service orders and inventory for critical parts fulfillment. The system enables high-tech electronics, aerospace, medical equipment, and other companies anywhere in the world that ship critical parts to quickly assess their critical parts inventory, determine the most optimal routing strategy to meet customer needs, place orders online, and track parts from the warehouse to the end user.
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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.
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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. UPS estimates its delivery trucks save 28 million miles and burn 3 million fewer gallons of fuel each year as a result of using this technology.
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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 won systems and infrastructure. 1-6 ..
4. What would happen if UPS’s information systems were not available? Arguably, UPS might not be able to compete effectively without technology. If the technology were not available then UPS would, as it has through most of its history, attempt to provide that information to its customers, but at higher prices. From the customers’ perspective, these technologies provide value because they help customers complete their tasks more efficiently. Customers view UPS’s technology as valueadded 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.
Review Questions 1-1 How are information systems transforming business and why are they so essential for running and managing a business today? Describe how information systems have changed the way businesses operate and their products and services. Wireless communications, including computers and mobile hand-held computing devices, are keeping managers, employees, customers, suppliers, and business partners connected in every way possible. Email, online conferencing, the web, and the Internet, are providing new and diverse lines of communication for all businesses, large and small. Through increased communication channels and decreased costs of the communications, customers are demanding more of businesses in terms of service and product, at lower costs. E-commerce is changing the way businesses must attract and respond to customers. (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.) 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 emerging mobile
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digital platforms, the growth of online software-as-a-service, and the growth of cloud computing. Table 1-1 (page 8) outlines new MIS changes and their impact on business. The table is organized by the three dimensions of information systems: technology, management, 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. • • • • •
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 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 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. Businesses must avoid markets for goods and serves that can be produced offshore much more cheaply. 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 1-8 ..
(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.) 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. 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. 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 1-9 ..
information systems provide genuine value for organizations? AACSB: Application of knowledge.) Distinguish between data and information and between information systems literacy and computer literacy. • • • •
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. Information is data that have been shaped into a form that is meaningful and useful to human beings. 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. 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? 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 1-10 ..
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 1-3 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.) 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.) 1-11 ..
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.)
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
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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. 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.
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Which products should be restocked? Which stores and sales regions would benefit from a promotional campaign and additional marketing? Which times of the year should products be offered at full price? Which times of the year should products be discounted?
The answers to these questions can be found in the Microsoft Access File named: MIS15ch01_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? AACSB: Written and oral communication, Analytical thinking, Reflective thinking, Application of knowledge.)
Collaboration and Teamwork Project 1-11 In MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: Are Farms Becoming Digital Firms? 1-12 List and describe the technologies used in this case study. Farmers are using global positioning system navigation systems running on tablet computers to manage equipment and issue instructions during planting and harvesting seasons. Farmers and agricultural companies are using data analysis technologies to 1-14 ..
determine the right kinds and amounts of seed to plant, how much fertilizer to add, and the right amount of water to use during the growing season. Computerized planting equipment follows recommendations from agricultural companies and historic data collected by farmers. (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: Analytical thinking, Application of knowledge.) 1-13 In what sense are U.S. farms now digital firms? Explain your answer. Prescriptive planting uses data provided by farmers on field boundaries, historic crop yields, and soil conditions to agricultural data analysis companies that analyze that data along with data about seed performance and soil types in different areas. The company sends a computer file with recommendations back to the farmer, who uploads the data into computerized planting equipment. The data analysis company monitors weather and other factors to advise farmers how to manage crops as they grow. (Learning Objective 13: What academic disciplines are used to study information systems and how does each contribute to an understanding of information systems? AACSB: Analytical thinking, Application of knowledge.)
1-14 How is information technology changing the way farmers run their business? Data gathered from aircraft, self-driving tractors, and other forms of automated and remote sensors provide information to farmers about crop yields, soil moisture content and soil quality. Technology is helping save money and time while increasing crop yields. Prescriptive planting takes much of the guess work out of planting and harvesting crops. Just the right amount of seed and fertilizer are laid down to improve the average corn harvest thereby increasing profits. (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: Analytical thinking, Application of knowledge.)
1-15 How do the systems described in this case improve farming operations? Monsanto estimates that data-driven planting advice could increase worldwide crop production by about $20 billion a year. However, output from predictive planting system has not achieved those levels yet. Regardless of whether the farm is big or small, the impact of the new data-driven software programs will be minimal in good years because yields would be high regardless of the decisions made. The technology is likely to have a bigger impact in years when conditions aren’t so propitious. Many farmers are worried about the intrusion of big data into their once-insular businesses and are especially suspicious of what the big seed companies might do with 1-15 ..
the collected data. Other farmers worry about seed prices rising too much since the companies that developed predictive planting technology are the same ones that sell seeds. Farmers also fear that rivals could use the data to their own advantage. The American Farm Bureau Federation has warned members that seed companies touting higher crop yields from prescriptive planting have a vested interest in persuading farmers to plant more. (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: Analytical thinking, Application of knowledge, Reflective thinking.) 1-16 How do precision agriculture systems support decision making? Identify three different decisions that can be supported. Monsanto’s software application called FieldScripts takes into account variables such as the amount of sunlight and shade and variations in soil nitrogen and phosphorous content when determining the type and amount of seed to plant. The data are analyzed in conjunction with the genetic properties of the seeds and combines all the information with climate predictions. Precise planting instructions or scripts are delivered to iPads connected to planting equipment in the field. These kinds of tools allow farmers to pinpoint areas that need more or less fertilizer, saving them the cost of spreading fertilizer everywhere, while boosting their yields in areas that have performed poorly and reducing the amount of excess fertilizer that enters the water table. Three decisions prescriptive planting supports include the amount of seed and the type of seed for the soil conditions; the amount of fertilizer to add in each area of the fields; weather and other factors to help farmers manage crops as they grow. (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: Analytical thinking, Application of knowledge.)
1-17 How helpful is precision agriculture to individual farmers and the agricultural industry? Explain your answer. Small farmers will be hard-pressed to afford the technology required by the new programs because of the cost of the service itself along with the cost of retrofitting existing planting equipment or buying more modern equipment that includes the electronic gear. Large farmers will have an easier time of purchasing the software and retrofitting their equipment. (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: Analytical thinking, Application of knowledge, Reflective thinking.) 1-18 What are the strategic objectives that firms try to achieve by investing in information systems and technologies? For each strategic objective, give an example of how a firm could use information systems to achieve the objective.
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Visit MyMISLab for suggested answers.
1-19 Describe the complementary assets that firms need in order to optimize returns from their information system investments. For each type of complementary asset, give an example of a specific asset a firm should have. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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 Why are systems for collaboration and social business so important, and what technologies do they use? 2-4 What is the role of the information systems function in a business? 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. Business intelligence, 48 Chief data officer (CDO), 68 Chief information officer (CIO), 68 Chief knowledge officer (CKO), 68 Chief privacy officer (CPO), 68 Chief security officer (CSO), 68 Collaboration, 57 Customer relationship management (CRM) systems, 55 Decision-support systems (DSS), 49 Digital dashboard, 51 Electronic business (e-business), 56 Electronic commerce (e-commerce), 56 E-government, 56 End users, 68 Enterprise applications, 54 Enterprise systems, 54
Executive support systems (ESS), 50 Information systems department, 68 Information systems managers, 68 Interorganizational system, 55 IT governance, 69 Knowledge management systems (KMS), 55 Management information systems (MIS), 48 Portal, 50 Programmers, 68 Social business, 58 Supply chain management (SCM) systems, 55 Systems analysts, 68 Teams, 57 Telepresence, 62 Transaction processing systems (TPS), 46
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Teaching Suggestions The opening vignette, "Enterprise Social Networking helps ABB innovate and grow," provides an outstanding example of how the company embraced social business tools to significantly reduce its expenses while it also increased the amount of learning and education available to its employees. These technologies are the very same ones every business needs to succeed. Collaboration and sharing information are essential for ABB’s continued growth and business success among its 135,000 employees in 100 countries. Even though the company already had an intranet, it was too static and outmoded to meet its current needs for empowering and energizing employees. Employees were storing information in a variety of places other than the intranet including wikis, local file servers, and other knowledge platforms. ABB needed a central resource that would support dynamic knowledge sharing and give employees tools to help them work more closely together. A dynamic and social-media enabled platform called Inside+ gave ABB employees a single entry point to all the information and tools they need including Microsoft Yammer, Office 365, and SharePoint. Inside+ integrates all the key internal platforms that employees use while making Yammer conversations searchable through archives. Employees use the new tools to collaborate on projects, share ideas, and discover people in other department with useful expertise. Discussions are more productive and have improved employee engagement. Staff can access Inside+ from smartphones and tablets making them more productive. The company has also saved on conference costs using online tools. And thanks to the new system, many more employees feel closely involved with the business as a whole. 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 back 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 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.
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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’s likely 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 of 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 in order 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 shouldn’t share data or information with anyone outside the 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. 2-3 ..
Customer relationship management systems: Ask students how many times they’ve quit doing business with a company because of poor customer service. Ask them how many times they’ve 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: Few, if any, students have probably 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’s important 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 are very reluctant to impart with their individual knowledge due to fear or self-preservation. 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: New Systems Help Plan International Manage Its Human Resources Case Study Questions 1. Describe the problem faced by Plan International. What management, organization, and technology factors contributed to this problem? Plan International is a worldwide organization that promotes rights and opportunities for children in need. While headquartered in the United Kingdom, it has operations in 70 countries and has worked with 81.5 million children in more than 86,676 communities. It requires a highly coordinated approach when emergencies strike. It must locate and deploy the most appropriate resources wherever they are required within hours or days. Management: Plan’s old system was outdated and decentralized, causing much of the work to be done manually. It kept track of employees by using a patchwork of 30 human 2-4 ..
resources systems, spreadsheets, and documents. There was no way for individual employees to update their own records with new training or experiences. Organization: Plan International did not have a way to track the skills people bring when they are hired and any additional training or experiences they have acquired for disaster response emergencies. Technology: Plan International must sift through data on all its 10,000 aid workers in 70 countries to see which people have the appropriate skills and experience in medical aid, child protection, education, and shelter management. When a disaster struck, Plan had to send an email to everyone, asking whether staff knew any people who could speak the appropriate language, had the appropriate disaster management skills, and were available to help. 2. Describe the system solution to this problem. Describe the types of systems used for the solution. Plan now has the ability to see data about all its workers’ skills the moment an emergency occurs because of its new human resources systems. The cloud-based HR system was implemented in only 16 weeks at Plan’s headquarters and all international regions were brought onto the system by 2014. It is accessible through the Internet for all users. Employees can now update all their own information, creating an easily searchable directory that every employee can access. 3. Why is human resources so important at Plan International? When disaster strikes, it is people who make the difference in the recovery. Because Plan International did not have a way to track experience, training, skills, or expertise of its employees, it was not able to deploy the appropriate resources to the disaster site in a timely manner. 4. How did these systems improve operational efficiency? Plan International’s new human resources systems provide a bird’s eye view of the entire workforce. Managers know immediately how many people work for Plan, where they are, what skills they possess, their job responsibilities, and their career paths. Employees can access their own records online and update information such as address, family details, and emergency contacts. Plan can also show its donors exactly how their contributions were spent and what the results are. Much of this information used to take days or months to compile. Now all it takes is the press of a button. The new HR system saves valuable human resources staff time that can be directed towards more value-adding work. 5. How did these systems improve decision-making? Give examples of two decisions improved by Plan’s new systems. 2-5 ..
With the new technology Plan International staff can identify and dispatch relief workers to disaster areas within hours. Two examples of improved decision making are: --Workers can now be deployed to disaster sites within 72 hours. Being able to deploy staff to emergencies so rapidly has saved more lives. --The improved response time has helped Plan International secure new sources of funding by giving it more credibility with governments, corporations, and other sources of grants and donations. 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 2-2 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. Many times 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 Software Tools” to help select the best tool.
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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, or IBM’s Notes and Domino Wiki at http://www-10.lotus.com/ldd/dominowiki.nsf/. Both 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. Interactive Session: Technology: Cisco IX5000: What State-of-the-Art Telepresence can do for Collaboration Case Study Questions 1. Describe the capabilities of Cisco’s IX5000 telepresence system. How do they promote collaboration and innovation? The Cisco’s IX5000 immersive telepresence system offers leading-edge telepresence and is much more affordable and easier to use than in the past. It is sleekly sculpted, with three 4K ultra-high-definition cameras clustered discreetly above three 70-inch LCD screens. The cameras provide crisp, high-definition video. Theater-quality sound emanates from 18 custom speakers and one powerful subwoofer, creating a high-quality lifelike collaboration experience for 8 to 18 people. Video and other content can move across any of the screens. The system creates a more natural setting than previous systems because the camera and graphic processors are able to capture the whole room in fine detail so you can stand up and move around or go the whiteboard. Using the 4K cameras, the IX 5000 creates an image four times larger than what’s actually needed to fill the system’s three screens. The images can be cropped down to show participants seated behind their tables, but when someone stands up, the crop is removed to show both standing and sitting participants. 2. Why would a company like Produban want to invest in a telepresence system such as Cisco’s IX5000? How are videoconferencing technology and telepresence related to Produban’s business model and business strategy? With more than 5,500 employees working in nine different countries, Produban services more than 120 companies in areas such as data center design and operation, IT infrastructure design and operation as a service, IT platform design and operation as a service, technology risk management and business continuity, and management of end user computing mobility and self-service management. The company is dedicated to technology innovation and continuous improvement. By using Cisco’s IX5000 system Produban brings people from all over the world together to make better decisions faster and more efficiently. Over the years it has invested in 76 Cisco TelePresence rooms worldwide. The IX500 technology has a lower total cost of ownership and can be installed into a space as small as 19 feet by 14 feet. With 50 percent less power usage, 50 percent less data transmission capacity, and half the 2-7 ..
installation time of earlier systems (only eight hours), the IX5000 reduces TCO by 30 percent over three years. Because Produban’s business model and strategy is to maximize technology innovation and continuous improvement for other companies, using the latest telepresence technology for its own inner workings fits. 3. What kinds of other companies might benefit from a telepresence service such as IX5000? Why? Other companies that might benefit from using telepresence services are those who have operations in multiple locations like vehicle manufacturers or household product makers and distributors. When problems or opportunities arise in one location, people can meet and resolve the situation more quickly and efficiently than they would be having to travel in person to the location. 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 actually 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 the operational efficiency and sheer survival in a very competitive marketplace. Most importantly, students should understand that the IT staff is responsible for the wellbeing of all users in an organization. Users and the IT staff are teammates not polarizing opposites.
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 defines 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
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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 decisionmakers 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 wouldn’t 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, and how systems that link the enterprise improve organization performance. 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. 2-9 ..
• • • • •
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. 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 a 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.
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•
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. • ESS are designed to incorporate data about external events, such as new tax laws or competitors, but they also draw summarized information from 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 flowing seamlessly throughout an organization, improving coordination, efficiency, and decision making • Giving companies the flexibility to respond rapidly to customer requests while producing and stocking only that inventory necessary to fulfill existing orders • Increasing customer satisfaction by improving product shipments, minimizing costs, and improving a firm’s performance • Improving 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
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In short, supply chain management (SCM) systems help businesses better manage relationships with their suppliers. Objective of SCM: Get the right amount of products from the companies’ source to their point of consumption with the least amount of time and with the lowest cost. SCM provides 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 2-12 ..
and 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. 2-13 ..
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: • 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 ides. • Growth of professional work. Professional jobs in the service sector require close coordination and collaboration. • Changing organization of the firm. Work is less often organized in a hierarchical fashion because 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 that 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 actually 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 face-to-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 among 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. • Virtual worlds house online meetings, training sessions, and “lounges” where real-world people meet, interact, and exchange ideas. 2-15 ..
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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). • •
• • •
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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 mangers, or database specialists. The chief information officer is a senior manager who oversees the use of information technology in the firm. The 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. The 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. 2-16 ..
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The 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 ABB. Student answers to this question will vary.
Hands-on MIS Projects Management Decision Problems 2-8 Don’s Lumber Company: The price of lumber and other building materials are constantly changing. When a customer inquires about the price on 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. Who would make those decisions? 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 2-17 ..
necessary, sales reps consult the most current information immediately. That would lead 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 functions 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: MIS15ch02_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 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 2-18 ..
early. These numbers are useful when trying to determine who is the vendor with 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 Obviously, the shortest amount of time is more cost effective than the shortest distance since there’s only a difference of 27.05 miles. Saving the 27 miles will take 2 hours, 24 minutes longer. Encourage students to use the Advanced Tools option to quickly change back and forth between “shortest time” and “shortest distance.” 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 MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: Social Business: Full Speed Ahead or Proceed with Caution? 2-13 Identify the management, organization, and technology factors responsible for impeding adoption of internal corporate social networks.
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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 providing that incentive: only a small number of social software users believe the technology to be necessary to their jobs. 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 can prove difficult. Enterprise social networking systems were not at the core of how most of the surveyed companies collaborate. 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 that 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 two organizations. Why were they successful? What role did management play in this process? Bayer Material Sciences made social collaboration a success by making the tools more accessible, demonstrating the value of these tools in pilot projects, employing a reverse mentoring program for senior executives, and training employee experts to spread knowhow of the new social tools and approaches within the company and demonstrate their usefulness. Bayer Material Sciences uses IBM Connections, a social platform for collaboration, cooperation, and consolidation of social networks. It features tools for employee profiles, communities of people with common interests and expertise; blogs; wikis; viewing, organizing, and managing tasks; forums for exchanging ideas with others; and polls and surveys of customers and fellow employees along with a home page for each user to see what is happening across that person’s social network and access important social data. A year after the new collaboration tools were introduced, adoption had plateaued. Working with company information technology and business leaders, management established an ambitious set of goals for growing social business along with seven key performance indicators (KPIs) to measure success. The goals included fostering global collaboration, creating stronger networks across regions and departments, creating a less
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hierarchical culture of sharing, and reducing the confusion of which tools are intended for which job. These efforts are now paying off: 50 percent of employees are now routinely active in the company’s enterprise social network. Bayer Material Sciences has benefited from faster knowledge flows, increased efficiency, and lower operating costs. Carlo’s Bake Shop has 10 locations in New Jersey, New York, and Las Vegas, and people can order custom cakes from its website. Carlo’s implemented Salesforce CRM with the Salesforce social networking tool Chatter. Some employees and members of Carlo’s management team initially resisted the new system. They believed that because they already used e-mail, Facebook, and Twitter, they didn’t need another social tool. The company was able to demonstrate the benefits of social business, and bakers and Chatter changed the way they worked. Carlo’s produces a very large volume of custom cakes from a 75,000-square-foot commissary in Jersey City operating around the clock. Chatter is now the de facto standard for internal communication from order to delivery. If a key cake decorator is away, that person is still included in the communication and discussion process. Upon returning, the decorator can view any changes in color, shape, or design. Because Carlo’s employees now work more socially, errors are down by more than 30 percent, and crews are able to produce cakes and other custom products more rapidly and efficiently. Managers have access to a data and analytics dashboard that allows them to instantly view store performance and which products are hot and which are not. They can see sales and transaction patterns in depth. As Carlo’s expands nationally and perhaps globally, the ability to connect people and view order streams is critical. Social business tools have transformed an organization that was gradually sinking under the weight of paper into a highly efficient digital business. (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 2-21 ..
are systems for collaboration and social business so important, and what technologies do they use? AACSB: Analytical thinking, Application of knowledge.)
2-16 Identify and describe the capabilities of enterprise social networking software. Describe how a firm could use each of these capabilities. Visit MyMISLab for suggested answers. 2-17 Describe the systems used by various management groups within the firm in terms of the information they use, their outputs, and groups served. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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? 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, 90 Benchmarking, 104 Best practices, 104 Business ecosystem, 108 Competitive forces model, 95 Core competency, 107 Disruptive technologies, 87 Efficient customer response system, 98 Mass customization, 98 Network economics, 107 Organization, 82
Platform, 109 Primary activities, 103 Product differentiation, 97 Routines, 84 Strategic transitions, 112 Support activities, 103 Switching costs, 99 Transaction cost theory, 89 Value chain model, 101 Value web, 105 Virtual company, 108
Teaching Suggestions 3-1 ..
The opening case, “Verizon or AT&T: Which Company has the best Digital Strategy?” illustrates some of the ways that information systems help businesses compete and also the challenges of sustaining a competitive advantage. While each company is a major player in the telecommunications industry, each one is moving in a different direction. AT&T is betting on satellite-based television and aims to manage all sorts of digital things using software in remote online cloud computing centers. Verizon is focusing more on wireless telecommunications and recently launched its own standalone wireless video service. Verizon sees mobile ads and video as an investment in the future and is beefing up its advertising and media business. 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 process, politics, culture, reciprocal relationship with environments, and structure. Table 3-2 defines the five organizational structures. All 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, iPods vs. CD players, and satellite radio vs. local radio, are all examples of disruptive technologies currently taking place. 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 3-2 ..
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 don’t 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 aren’t good fits. In those cases, the organization must align itself with the information system rather than the other way around.
Interactive Session: Management: Can Technology Replace Managers? Case Study Questions 3-3 ..
1. How do flat organizations differ from traditional bureaucratic hierarchies? Flat organizations try to minimize headcount and maximize agility be eliminating management hierarchy. User-friendly software and low-cost web-based services are used to store corporate data, analyze the data, and present the results in dashboards that anyone in the firm can use. Flat organizations allow all employees to access the same data as its top managers. “Holocracies” allow workers to manage themselves without the aid of middle managers. Instead these types of organizations use overlapping, self-governing circles and roles. Each role belongs to a circle rather than a department. The circles overlap and individuals hold many different roles.
2. How has information technology made it possible to eliminate middle manager positions? At Chubbies clothing start-up, an event planner working alone can use an array of dashboards to determine exactly how many Facebook likes, Instagram posts, and sales arose from a particular event, and she is able to decide on her own whether future events should be scheduled. With the right data and tools to back up her decision, she doesn’t need a manager to validate her choices. With a holocracy organization like Zappos.com Inc., individuals assigned roles in circles work together and their meeting outcomes are recorded using web-based software called Glass Frog. This system allows anyone in the company to view who’s responsible for what role and what they’re working on. Glass Frog provides a “to-do” list that teams use to define the work they’re supposed to be doing and to hold themselves accountable for those tasks. 3. What management, organization, and technology issues would you consider if you wanted to move from a traditional bureaucracy to a flatter organization? Management: Managers must be confident in themselves and in their employees. Organization: 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 don’t like change and will resist it in a variety of ways. New information systems require changes in personal, individual routines that can be painful for those involved and require retraining and additional effort that may or may not be compensated. Technology: 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, 3-4 ..
thanks to information technology. Professional workers become more self-managing. Decision making becomes more decentralized. Workers rotate from team to team depending on the tasks at hand. 4. Can technology replace managers? Explain your answer. The short answer to the question is not necessarily. As Zappos.com has found out, with experience and expertise downplayed, less senior employees with fresh ideas receive more attention. Introverts have benefited from the expectation that everybody speak in meetings. Other employees were confused and frustrated by numerous mandates, endless meetings, and uncertainty about who did what. To whom would they report to if there were no bosses? What was expected of them if they did not have a job title, and how would they be compensated? Within weeks after Zappos embraced holocracy, about 14 percent of employees had left the company. The employee exodus has continued. Zappos’s turnover rate for 2015 was 30 percent, 10 percentage points above its typical annual attrition rate. According to Quy Huy, professor of strategy at the Singapore campus of the prestigious graduate business school, middle managers are often vilified as symptoms of corporate bloat, but things fall apart without them. 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 and services, customers, and supplier intimacy. It’s a great exercise 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: Technology: Smart Products, Smart Companies Case Study Questions
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1. What competitive strategies are the companies discussed in this case pursuing? It’s not just about selling products with these companies. Now it’s about creating relationships with customers that keep them connected. Nike has traditional competitors in other clothing and shoe manufacturers but it has a deep reputation for continuously devising new products and services that make it hard for competitors to catch up. It also has a great deal of product differentiation that keeps customers coming back for more and better products that most of its competitors. Nike has new market entrant competitors for its activity tracker worn on the wrist with Fitbit and Jawbone. But it has a competitive advantage over the two others based on the point system created in conjunction with the gadget called NikeFuel. The point system locks people into the Nike+ ecosystem of movement-tracking devices making it harder to switch to other wearable computing devices. Nike is using product differentiation, focus on market niches, and strengthening customer intimacies to enhance its competitive strategies against its competitors. By embedding so much technology in its products that are interconnected to each other, Nike has increased switching costs tremendously for its customers. If a runner should switch to another product line, many of the other products that person uses would be less valuable because they wouldn’t all be connected and transfer information and data between all the products. Nike’s integration of information and information technology into its products keeps people coming back to Nike’s own website and apps.
2. How are information technology and smart products related to these strategies? Describe the role of information technology in these products. Nike is known for its leading-edge technologies to make its products more appealing and enhance user performance. It uses advanced technology to support sports superstars. It also developed the technology used in running shoes that use “supergases” encased in urethane plastic to provide superior cushioning for running shoes. Because it has so many useful and popular apps associated with its products, Nike has quite an edge over its competitors. Athletes like to track their progress and measure one activity against others. Nike’s apps and gadgets make that easy to do – easier than other Nike competitors. Nike provides many different channels through which users can manage their activities like Facebook pages, online training programs, coaching tips, and daily workouts. Users of multiple Nike + devices can visit the nikeplus.com site to access all their data in one place – including lifetime NikeFuel points accumulated from all their Nike+ devices. No other sporting goods retailer offers that.
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Nike has also embraced the “Internet of Things” in which individual devices such as sensors, meters, and electrical appliances are connected to the Internet so that their performance can be monitored and analyzed. Under Armour has teamed up with e-commerce retailer Zappos to send users a pop-up notification when their sneakers need replacement, based on workout data logged in MapMyFitness apps. Under Armour sees their clothing items as a means to track movement and biorhythms and provide customers with powerful data regarding their physical fitness. 3. Are there any ethical issues raised by these smart products such as their impact on consumer privacy? Explain your answer. Privacy is the number one issue with these companies and their customers. The companies have a great responsibility to protect data collected by their products from their customers. The data falling into the wrong hands could be disastrous for both the companies and the customers. 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.
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. 3-7 ..
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: 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, vertical and horizontal integration, and small-company 3-8 ..
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 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.) 3-9 ..
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 acquisition costs. By using the Internet, organizations may reduce several levels of management, enabling closer and quicker communication between upper levels of management and the 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, 3-10 ..
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.) 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. 3-11 ..
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 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.) 3-12 ..
Define the value web and show how it is related to the value chain. 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. 3-13 ..
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. (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 advantages. 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. 3-14 ..
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 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 3-15 ..
firm leverages its core competencies; verify how the industry supply chain and customer base are changing; establish the benefit of strategic partnerships and 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. 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 that’s 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. 3-16 ..
Improving the efficient customer response system would directly link local consumer behavior to distribution and production and supply chains. Focusing on market niches 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 3-4: 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 deserting because of poor customer service, uneven network coverage, wireless service charges, or competition from carriers with Apple iPhone service? 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 3-17 ..
hotel owners should be able to find ways of generating more revenue. The 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 out 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 oceanfront 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: MIS15ch03solutionfile.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 3-4: 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 Focus, 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 websites. This will allow them to see from line-to-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 back to the reviews to explain the decision they made and should include a review of the three websites with suggestions for improvement. (Learning Objective 3: How do Porter’s competitive forces model, the 3-18 ..
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 MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: Can Technology Save Sears? 3-13 Analyze Sears using the competitive forces and value chain models. What are Sears’s strengths? What are its weaknesses? Efforts to invest more heavily in information technology have not translated into a competitive advantage for Sears over the years because its cost structure has been one of the highest in its industry. Even though early on it installed new point-of-sale terminals that allowed sales staff to issue new credit cards, accept charge card payments, issue gift certificates, and report account information to card holders, it hasn’t helped. Sears moved its suppliers to an electronic ordering system which it hoped would eliminate paper throughout the order process and expedite the flow of goods into its stores. It also was among the first major retailers to change the way it sold based on shifting consumer habits. It started letting shoppers buy online and pick up their goods in stores well ahead of competitors Walmart and Target. It’s been out front with a new service that let shoppers reserve goods online and pay cash for them in stores. It even launched an online layaway program for its customers. It has tried to improve its value chain by improving its sourcing and procurement systems with suppliers and its customer relationship management systems. Sears’ main problem is that it has one of the highest cost structures in its industry. Experts believe that all of Sears’ experiments are a diversion for the company’s overarching problems: a deteriorating store network and a brand image that doesn’t resonate with today’s consumers. (Learning Objective 3-3: 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 What was the problem facing Sears? What management, organization, and technology factors contributed to this problem?
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Management: When Sears opened a test store in 2009 called Mygofer it did not stock items for sale. Instead, shoppers would place their orders at computers in the front of the store and then pick up their goods at a delivery bay out back. However, some days, more people returned goods than bought them. Shoppers didn’t like the fact that they couldn’t see and touch things. Annual sales struggled to top $1 million at the new store when Sears predicted $8 million in annual sales. Organization: Sears still struggles to find a viable business strategy that will pull it out of its rut. Expectations were that deeper knowledge of customer preferences and buying patterns would make promotions, merchandising, and selling much more effective. Technology: It continues to use technology strategies to revive flagging sales: online shopping, mobile apps, and an Amazon.com-like marketplace with other vendors, along with heavy in-store promotions. It continues to pin its hopes on technology, aiming for even more intensive use of technology and mining of customer data. Sears legacy systems were incapable of supporting personalized marketing campaigns coupons, and offers down to the individual customer. So far these efforts have not paid off and sales have continued to decline since the 2005 merger with Kmart. (Learning Objective 3-3: 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 What solution did Sears select? What was the role of technology in this solution? The customer data Sears is collecting are changing how its sales floors are arranged and how promotions are designed to attract shoppers. To use complex analytic models on large data sets, Sears revamped its data management technology using Hadoop. Old models were able to use 10 percent of available data, but the new models can work with 100 percent. Hadoop processing is about one-third the cost of conventional relational databases. It takes a little more than one minute longer to process two billion records than it did to process 100 million records. Sears improved its online ordering system so that orders could be shipped more quickly and economically by using Sears’ physical stores as well as distribution centers. Initiatives like digital signs and radio tags on inventory could bring in $500 million a year in savings and increased sales. (Learning Objective 3-3: 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.) 3-16 How effective was the solution Sears selected? Explain your answer.
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Sears’ poor financial position prompted it to start embracing e-commerce much earlier than other retailers to reduce its physical storefront presence. However, it remains a fading brand saddled with too many nonperforming physical stores in undesirable locations. Sears Holdings spends nearly $1.90 a square foot on Sears stores and roughly 60 cents a square foot on Kmart stores, according to Matt McGinley, an analyst with Evercore ISI Institutional Equities. That compares with $9.70 a square foot spent by Walmart and $5.75 by Macy’s. While Sears spent more than $1 million setting up the Mygofer store in Joliet, the company was starving a profitable crosstown Kmart. Sears has made some headway with e-commerce. Customers appreciate the in-store pickup for online orders. Shop Your Way, considered a leader in creating personalized offers, is driving more business. Tech should be a bright spot for Sears. But what good is that if no one wants to buy what Sears has to offer? For example, Fortune reported a January 2016 survey by Prosper Analytics & Insights that found women preferred Goodwill stores over Sears when shopping for clothing. Net losses in the past five years have totaled $8 billion. The company’s annual comparable sales have not grown since Sears and Kmart merged in 2005. Even with better data analytics, knowledge of customers, loyalty programs, and ecommerce innovations, questions still linger about whether Sears is using technology effectively to solve its enormous business problems. (Learning Objective 3-3: 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.) 3-17 Describe the impact of the Internet on each of the five competitive forces. Visit MyMISLab for suggested answers. 3-18 What are the main factors that mediate the relationship between information technology and organizations and that managers need to take into account when developing new information systems? Give a business example of how each factor would influence the development of new information systems. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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? 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. Accountability, 131 Carpal tunnel syndrome (CTS), 152 Computer abuse, 149 Computer crime, 149 Computer vision syndrome (CVS), 154 Cookies, 138 Copyright, 142 Digital divide, 153 Digital Millennium Copyright Act, (DMCA), 145 Due process, 131 Ethical “no free lunch” rule, 133 Ethics, 126 Fair Information Practices (FIP), 134 Golden Rule, 132 Immanuel Kant’s Categorical Imperative, 132 Information rights, 128 4-1 ..
Liability, 131 Nonobvious relationship awareness (NORA), 130 Opt-in, 140 Opt-out, 140 Patent, 142 Privacy, 134 Profiling, 130 Repetitive stress injury (RSI), 152 Responsibility, 131 Risk aversion principle, 133 Safe harbor, 137 Slippery slope rule, 133 Spam, 149 Spyware, 139 Trade secret, 141 Utilitarian principle, 133
Informed consent, 137 Intellectual property, 141
Web beacons, 139
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, “The Dark Side of Big Data” shows that technology can be a doubleedged sword. It can be the source of many benefits. It can also create new opportunities for breaking the law or taking benefits away from others. The web has created new opportunities and challenges regarding privacy issues. Broadband communications technology and the global nature of the Internet have made ethical issues an important consideration. The misuse and abuse of content creates moral and ethical dilemmas that students are likely to face in the workplace. Is it okay to use content like music, movies, and books without paying for it simply because it’s available and ‘everyone else does?’ Students should understand that content creation is expensive and relies on someone’s talents. The creators have a reasonable expectation to be compensated for their work. Predictive policing, insurance rate adjustments, computerized hiring, and targeting financially vulnerable individuals are all issues that have been created by technology but must be dealt with by humans. Privacy laws and regulations haven’t caught up with big data technology.
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’s 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 4-2 ..
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.
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’s 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 fivestep 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 don’t 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.
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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’s a good way to discuss how involved they should be in determining a company’s privacy policies. Facebook has 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 opinions. Interactive Session: Technology: Volkswagen Pollutes its Reputation with Software to Cheat Emissions Testing Case Study Questions: 1. Does the Volkswagen emission cheating crisis pose an ethical dilemma? Why or why not? If so, who are the stakeholders? Yes, the Volkswagen emission cheating crisis poses an ethical dilemma. Volkswagen had intentionally programmed turbocharged direct injection diesel engines to activate certain emissions controls only during laboratory emissions testing. The programming caused the vehicle’s nitrogen oxide (NOx) output to meet U.S. standards during regulatory testing but emit up to 40 times more NOx when the cars were actually driven on the road. Volkswagen put this software in about 11 million cars worldwide, and in 500,000 in the United States, during model years 2009 through 2015. Stakeholders include those who purchased the vehicles believing the company’s promises, government officials who relied on the testing data, the general public who relied on having clean air, and the stockholders who saw their share value drop by a third after the scandal was revealed. 2. Describe the role of management, organization, and technology factors in creating VW’s software cheating problem. To what extent was management responsible? Explain your answer. Management: In 2007 Volkswagen decided to abandon a pollution-control technology developed by Mercedes- Benz and Bosch and instead used its own internally developed technology. This took place at the same time that VW’s hard-driving chief executive 4-4 ..
Martin Winterkorn started pressuring his managers with much higher growth targets for the U.S. car market. It is unclear who in VW management was responsible for this decision. Lawsuits by New York, Maryland, and Massachusetts have charged that dozens of engineers and managers, including VW’s chief executive, were involved. Volkswagen became the target of regulatory investigations in multiple countries, and Volkswagen’s stock price fell in value by a third in the days immediately following the cheating revelation. Chief executive Winterkorn resigned, and the head of brand development Heinz-Jakob Neusser, Audi research and development head Ulrich Hackenberg, and Porsche research and development head Wolfgang Hatz were suspended. Organization: In order to increase market share, VW needed to build the larger cars favored by Americans—and it also had to comply with the Obama administration’s toughening standards on mileage. All automakers developed strategies to meet the new mileage rules, and VW’s focused on diesel. However, diesel engines, while offering better mileage, also emit more smog forming pollutants than conventional engines. VW’s strategy came up against American air pollution standards, which are stricter than those in Europe. Cheating on emissions tests solved multiple problems. Cars equipped with the “cheating” software were able to deliver better mileage and performance while VW avoided having to pay for expensive and cumbersome pollution-control systems. VW started installing the software to cheat emissions tests in 2008 after learning that its new diesel engine developed at great expense for its growth strategy, could not meet pollution standards in the U.S. and other countries. Rather than halt production and discard years of research and development, VS decided the best course of action was to game the system. Technology: Volkswagen was able to get away with cheating on emissions tests for years because it was hidden in lines of software code. Diesel-powered cars use sensors and engine management software to monitor and limit emission levels. The software can control how much NOx is produced during combustion by regulating the car’s mix of diesel fuel and oxygen or by deploying NOx traps to capture the pollutant and catalysts to clean emissions. 3. Should all software-controlling machines be available for public inspection? Why or why not? The entire automobile industry has a history of trying to rig emissions and mileage data, which began as soon as governments began regulating automotive emissions in the early 1970s. Auto manufacturers have also used other ploys to demonstrate better performance and gas mileage, such as taping cars doors and grilles to improve aerodynamics or making test vehicles lighter by removing the back seats. The emissions crisis has also sparked discussions about how to deal with other kinds of software controlled machinery besides automobiles. It is believed that such machines will 4-5 ..
generally be prone to cheating and that their software source code should be made accessible to the public.
Interactive Session: Organizations: Are we relying too much on computers to think for us? Case Study Questions: 1. Identify the problem described in this case study. In what sense is it an ethical dilemma? Nicholas Carr’s book, The Glass Cage: Automation and Us, lays out the case that our overreliance on computers has dulled our reflexes and eroded expertise. He cites two cognitive failures that undermine humans’ performance. Complacency— overconfidence in the computer’s ability—causes our attention to wander. Bias—overconfidence in the accuracy of the data we are receiving from the computer—causes us to disregard outside data sources, including conflicting sensory stimuli. When pilots, soldiers, doctors, or even factory managers lose focus and lack situational awareness, they ignore both suspect data coming from the computer and the external cues that would refute it. To the point, Carr worries that pilots have come to rely so much on computers to help them guide airplanes that they are forgetting how to fly. Massive data compilation and complex analytical capabilities now mean that decision making, heretofore the sole province of the human brain, is increasingly being accomplished by computers. Australian researchers found that accountants at two international firms using advanced auditing software had a significantly weaker understanding of the different types of risk than did those at a firm using simpler software that required them to make risk assessment decisions themselves. 2. Should more tasks be automated? Why or why not? Explain your answer. Andrew McAfee, a researcher at the MIT Sloan School of Management, points out that people have lamented the loss of skills due to technology for many centuries, but on balance, automation has made the world better off. There may be a high-profile crash, but he believes greater automation, not less, is the solution. Offloading tasks to computers liberates us from complex thinking while requiring us to pursue mundane tasks such as inputting data, observing output, and absentmindedly awaiting equipment failure. Sensory assessment, environmental awareness, coordinated movement, and conceptual knowledge are included in programming that has enabled Google to begin testing its driverless cars on public roads. Some argue that this is precisely the direction in which 4-6 ..
we should be going: autonomous computers with no human oversight or intervention at all. The solution to pilot error during automation failures? A wholly autonomous autopilot. The solution to doctors’ declining diagnostic skills due to complacency and bias? Cut doctors out of the equation altogether. 3. Can the problem of automation reducing cognitive skills be solved? Explain your answer. One solution is to design programs that promote engagement and learning, for example, by returning control to the operator at frequent, but irregular, intervals or by ensuring that challenging tasks are included. If operators must perform and repeat complex manual and mental tasks, the generation effect will be reinforced. Unfortunately, introducing these changes necessarily includes software slowdown and productivity decline. Businesses are unlikely to value long-term expertise preservation and development over short-term profits.
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. 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. 4-7 ..
Table 4-2 summarizes the four key technological trends responsible for heightening ethical concerns. These trends include: • Computing power doubling every 18 months • Data storage costs rapidly declining • Data analysis advances • Networking advances and the Internet 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. • 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: 4-8 ..
• • • • • •
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. Fair information practices is 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 4-9 ..
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 selfregulatory 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 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 43: 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. 4-10 ..
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. 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.) 4-11 ..
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 are: • Jobs can be lost when computers replace workers or tasks become unnecessary in reengineered business processes. • The ability to own and use a computer may be exacerbating socioeconomic disparities among different racial groups and social classes. • 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.
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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 are: • Designing workstations for a neutral wrist position, 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. 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 and businesses. Users can purchase marketing lists of consumers broken down by location, age, income level, and 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? 4-13 ..
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 a number of 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 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 0 0 35 15 4-14 ..
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 4-10 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
•
Name the blog, give it a title, and choose a template
•
Post at least four entries
•
Upload an image
•
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
•
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 4-15 ..
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, Mozilla Firefox, or Google Chrome. Makes a table comparing the features of two of these browsers in terms of functions provided and ease of use. •
How do these privacy protection features protect individuals?
Internet Explorer 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 webpages 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 a large number 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. 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 webpages 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 4-16 ..
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?
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 does the best job of protecting privacy? Why?
Answers will vary based on individual preferences and experiences. For instance, some students may not care if 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
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understanding and reasoning; written and oral communication, Application of knowledge.)
Collaboration and Teamwork Project 4-12 In MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: Facebook Privacy: There is No Privacy 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, data collecting agencies, Electronic Privacy Information Center (EPIC), 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. 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. 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 4-1: 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. (Learning Objective 4-3: Why do contemporary information systems technology and the Internet pose challenges to the 4-18 ..
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 people, organization, and technology factors have contributed to those weaknesses? People: Ninety-three percent of people polled believe that Internet companies should be forced to ask for permission before using their personal information. 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 its more robust privacy settings from 2009. If it does that, some of its value to advertisers will diminish. Organization: Facebook’s value and growth potential is determined by how effectively it can leverage the personal data that’s 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 that raise doubts about whether it should be responsible for the personal data of hundreds of millions of people. It has 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. It has also come under fire for collecting information about users who are not even logged into Facebook or have accounts with the company. It keeps 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 sit with those features, regardless of whether or not you click on them. (Learning Objective 4-2: 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. Could Facebook take any measures 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.
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The company can also 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. (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, Application of knowledge.) 4-17 What are the five principles of Fair Information Practices? For each principle, describe a business situation in which the principle comes into play and how you think manager should react. Visit MyMISLab for suggested answers. 4-18 What are five digital technology trends that characterize American business today that raise ethical issues for business firms and managers? Provide an example from business or personal experience in which an ethical issue resulted from each of these trends. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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? 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. Android, 180 Application server, 171 Apps, 198 BYOD, 184 Chrome OS, 180 Client/server computing, 171 Clients, 171 Cloud computing, 172 Consumerization of IT, 184 Extensible markup language (XML), 193 Green computing, 191 Hypertext markup language (HTML), 193 HTML5, 193 Hybrid cloud, 191 iOS, 180
On-demand computing, 180 Open-source software, 192 Operating system, 180 Outsourcing, 197 Private cloud, 190 Public cloud, 190 Quantum computing, 185 Scalability, 199 Server, 171 Service level agreement (SLA), 197 Service-oriented architecture (SOA), 197 Software as a service (SaaS), 187 Software package, 196 Software-defined storage (SDS), 185 Tablet computers, 182
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Java, 193 Legacy systems, 182 Linux, 180 Mainframe, 169 Mashup, 197 Minicomputers, 169 Moore’s Law, 173 Multicore processor, 192 Multitiered (N-tier) client/server architecture, 171 Multitouch, 180 Nanotechnology, 175
Technology standards, 176 Total cost of ownership (TCO), 200 UNIX, 180 Virtualization, 185 Web browser, 193 Web hosting service, 181 Web server, 171 Web services, 194 Windows, 172 Windows 10, 180 Wintel PC, 170
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 know most of this material, and some of the nontechnical types may not find the chapter’s contents particularly interesting. 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 understand 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 about “EasyJet Flies High with Cloud Computing,” describes how the company used cloud computing to build services that communicate wirelessly at airports without running up major airport charges for new services desks. EasyJet uses a hybrid cloud strategy in which only specific functions that its internal IT infrastructure can’t easily handle are in the cloud. It enhanced its systems by adding new features in the cloud and allowed the company to get more value out of its earlier IT investments, which amounted to many millions of dollars. 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 (see Figure 5-9, page 176). Each component is briefly explained in this section with a broader explanation provided in later parts of the text. What’s important here is that students understand there’s more to a firm’s IT infrastructure than merely hardware and software. Because most of their experience is with PCs, students probably don’t realize that mainframe computers still exist. Even though IBM is the only manufacturer, mainframes have taken on a new life as massive data storage and processing needs have grown, thanks to the Internet. 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 don’t realize that consulting and system integration services are an important and separate component of an organization’s IT infrastructure. There’s 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’s where many businesses are headed and students are likely to bump into these trends when they enter the workforce. All of 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. Interactive Session: Technology: Wearable Computers Change How We Work Case Study Questions 5-3 ..
1. Wearables have the potential to change the way organizations and workers conduct business. Discuss the implications of this statement. Wearable devices offer a broad-based allure of hands-free data delivery that enables workers to perform tasks while receiving visual and aural cues. The devices contain multiple sensors that track various types of data ultimately improving the workplace environment and lowering corporate costs. Feedback from the devices may promote productive collaboration and formulate personal benchmarks for effective communication among employees. Workers may couple the wearable devices with smartphones to access data that are displayed on a screen in front of the user’s eyes. The worker will interact with the device using voice commands and maneuver around a warehouse or manufacturing plant to accomplish tasks. As the technology progresses many other uses for wearable devices will hopefully improve workers’ productivity and enhance the workplace environment. 2. How would a business process such as ordering a product for a customer in the field be changed if the salesperson were wearing a smartwatch equipped with Salesforce software? The salesperson can use the smartwatch to check inventory levels, current prices, and delivery dates and methods on the spot with the customer. Questions about the product can be quickly answered. Purchase orders can be made using the smartwatch as the salesperson is meeting with the customer. Billing information can be accessed on the spot. 3. What management, organization, and technology issues would have to be addressed if a company were thinking of equipping its workers with wearable computing devices? Management: Managers must ensure they seek employee buy-in for wearable devices by demonstrating how the workers’ environment will improve and their jobs will be enriched by the technology. Organization: The possibilities for using collected and consolidated data that incorporates location, environment, and health information along with purchasing, search, and interaction histories is enticing to organizations that adopt wearable devices in the workplace. Technology: Successful adoption of wearable computing depends not only on cost effectiveness, but also on the development of new and better apps and integration with existing IT infrastructure and the organizations tools for managing and securing mobile devices. 5-4 ..
4. What kinds of businesses are most likely to benefit from wearable computers? Select a business and describe how a wearable computing device could help that business improve operations or decision making. “The implications and uses of wearable technology are far reaching and can influence the fields of health and medicine, fitness, aging, disabilities, education, transportation, enterprise, finance, gaming and music. The goal of wearable technologies in each of these fields will be to smoothly incorporate functional, portable electronics and computers into individuals’ daily lives.” (Tehrani, Kiana, and Andrew Michael. “Wearable Technology and Wearable Devices: Everything You Need to Know.” Wearable Devices Magazine, WearableDevices.com, March 2014. Web. http://www.wearabledevices.com/what-is-awearable-device/) Law enforcement officers and other public safety workers can use wearable devices to not only keep themselves safe but also help others. Police officers are already using body cameras to record their activities. Firefighters can use wearable devices during calls to monitor their own bodies to prevent injury. They can record the fire’s activity as they fight it. Through the data collected, the Fire Chief can make decisions about fighting the fire while keeping people safe. Later, they can use the data to analyze the fire and to help train for future emergencies.
Interactive Session: Organizations: Computing Takes Off in the Cloud Case Study Questions 1. What business benefits do cloud computing services provide? What problems do they solve? • • • • • • • •
Eliminates need for large up-front capital investments in systems. 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-scenes software updates. Better scalability eliminates the 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. 5-5 ..
• • • • •
Security risks and chances of data compromises are increased. Risk diminishing system reliability. Increase dependency on a third party making 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’s 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. 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’s 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.
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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’s grounded in the realities of running a business. Table 5-3 will help students understand all the hidden costs of technology ownership.
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. 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. The five stages of IT infrastructure evolution are: • 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. • Personal computer era (1981 to present): Dominated by the widespread use of standalone desktop computers with office productivity tools. • Client/server era (1983 to present): Consists of desktop or laptop clients 5-7 ..
•
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networked to more powerful server computers that handle most of the data management and processing. 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. 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. • •
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. (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 • •
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 of these 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 5-8 ..
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: The 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: There is 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. IT infrastructure includes hardware, software, and services: • Computing platforms: Includes mainframes, midrange computers, desktop and laptop computers, and mobile handheld devices—anything that connects employees, customers, and suppliers into a coherent digital environment. • Telecommunications services: Data, voice, and video connectivity among 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.
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(Learning Objective 5-2: What are the components of IT infrastructure? AACSB: Application of knowledge.) 5-3 What are the current trends in computer hardware platforms? Describe the evolving mobile platform, quantum computing, 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. Quantum computing: It gains enormous processing power through the ability to be in many different states at once, allowing it to perform multiple operations simultaneously and solve scientific and business problems millions of times faster than can be done today. 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. 5-10 ..
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 single-core 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.) 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’s 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 open-source programs are available from hundreds of websites. Businesses can choose from a range of open-source software including operating systems, office suites, web browsers, and games. Open-source 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 computer software platforms and trends? AACSB: Application of knowledge.) 5-11 ..
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 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 computer software platforms and trends? 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. 5-12 ..
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 computer software platforms and trends? 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 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, which frequently are 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’s often cheaper to outsource the maintenance of an IT infrastructure and the development of new systems to external vendors, a business must weight the pros and cons carefully. (Learning Objective 5-4: What are the current computer software platforms and trends? 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 particular 5-13 ..
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 most from these new tools and trends by not having to reinvent 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 don’t have to reinvent the previous applications from scratch—merely use them in the new processes. (Learning Objective 5-4: What are the current computer software platforms and trends? 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. 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.) 5-14 ..
Explain how using a competitive forces model and calculating the TCO of technology assets help firms make 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 are 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 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 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
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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 as a way 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 Quantas 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 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. Quantas 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 Quantas. 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 computer software platforms and trends? 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
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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 computer software platforms and trends? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.) An example solution file can be found in the Microsoft Excel file named: MIS15ch05solutionfile.xls. 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 for all of the hotel requirements to help keep them on track. You can show this in class or distribute it for your students to use. They 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 computer software platforms and trends? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.) An example template can be found in the Microsoft Excel file named: MIS14ch05 electronic business project template.xls.
Collaboration and Teamwork Project 5-12. In MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: BYOD: Business Opportunity or Big Headache? 5-14 What are the advantages and disadvantages of allowing employees to use their 5-17 ..
personal smartphones for work? Advantages: Employees using their own smartphones would allow companies to enjoy all the same benefits of a mobile workforce without spending company funds on the devices. 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. (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 factors should be addressed when deciding whether to allow employees to use their personal smartphones 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 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 most popular employer-issued smartphone was Research in Motion’s BlackBerry, which is considered the most secure mobile platform available. The mobile digital landscape is now much more complicated, with a variety of devices and operating systems on the market that do not have well-developed tools for administration and security. To access company information, the company’s networks must be configured to receive connections from a device. Virtualization helps companies manage mobile devices easier. (Learning Objective 5-3: What are 5-18 ..
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 Compare the BYOD experiences of Michelin North America and Rosendin Electric. Why did BYOD at Michelin work so well? Michelin: Management at Michelin North America believed BYOD would make the business more flexible and productive. The company created a team composed of executives and representatives from the IT, human resources, finance, and legal departments as well as the business units to share in the development, rollout, and management of a new mobile strategy for corporate-owned and personal mobile devices. The team decided to transition the mobility business model from corporateowned to personal-liable. Since implementing its version of BYOD, Michelin North America increased the number of mobile-enabled employees from 90 to 7,000. Employee efficiency, productivity, and satisfaction have improved from updating the mobile technology and functionality available to employees and giving them choices in mobile devices and wireless carrier plans. The program is cost-neutral. Michelin has obtained new vendor discounts across all wireless vendors in the United States and Canada and has reduced the cost of deploying each mobile device by more than 30 percent. Rosendin Electric: Management at Rosendin Electric worried that BYOD would become a big headache. Rosendin has thousands of employees and deploys hundreds of smartphones, more than 400 iPads, and a few Microsoft Surface tablets. These mobile devices have greatly enhanced the company’s productivity by enabling employees to order equipment and supplies on the spot at a job site or check on-site to see whether ordered items have arrived. However, CIO Sam Lamonica does not believe BYOD would work for this company. He worries employees would be too careless using apps, cloud, and technology devices. Lamonica feels more confident about equipping employees with company-owned devices because they can be more easily managed and secured. Rosendin’s mobile security is not iron-clad. An employee might be able to put company data in his or her personal Dropbox account instead of the company-authorized Box account. However, MobileIron can encrypt data before it gets into a Dropbox account and this lowers the risk. With company-owned and managed devices, Rosendin still benefits from volume discounts from wireless carriers and does not have to do the extra work involved in reimbursing employees when they use their own devices for work. (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.)
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5-17 Allowing employees to use their own smartphones for work will save the 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 can 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. (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.) 5-18 What are the distinguishing characteristics of cloud computing and what are the three types of cloud services? Visit MyMISLab for suggested answers.
5-19 What is the total cost of ownership of technology assets and what are the cost components? Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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 information policy, data administration, and data quality assurance essential for managing the firm’s data resources? 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. Analytic platform, 231 Attribute, 215 Big data, 227 Bit, 214 Byte, 214 Data administration, 237 Data cleansing, 238 Data definition, 220 Data dictionary, 220 Data governance, 237 Data inconsistency, 216 Data manipulation language, 220 Data mart, 229 Data mining, 233 Data quality audit, 238
Entity, 215 Entity-relationship diagram, 224 Field, 214 File, 214 Foreign key, 219 Hadoop, 230 In-memory computing, 230 Information policy, 237 Key field, 219 Non-relational database management systems, 225 Normalization, 223 Online analytical processing (OLAP), 232 Primary key, 219 Program-data dependence, 216 Record, 214
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Data redundancy, 216 Data warehouse, 227 Database, 217 Database administration, 237 Database management system (DBMS), 217 Database server, 235
Referential integrity, 224 Relational DBMS, 218 Sentiment analysis, 234 Structured Query Language (SQL), 220 Text mining, 234 Tuple, 219 Web mining, 234
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, "Better Data Management Helps the U.S. Postal Service Rebound” shows that data are not easy to access and analyze without the properly configured systems. However, the Postal Service is working hard to update its systems and efficiently and effectively manage its data. For instance, bar codes for USPS letters and parcels contain as much data as possible, ranging from the type of mail being delivered to a parcel’s destination. The system can gather data from more than a billion tracking events each day. The IMB system provides more detailed and precise information about the mail stream, enabling the USPS to better manage cycle times, predict mail volume, and increase efficiencies at postal processing facilities and delivery routes. Another use for USPS big databases is to detect fraud and help retailers and catalog companies drive more sales. The organization also signed a deal with Amazon to deliver packages on Sundays in select cities, increasing its share of the profitable package delivery market. But the USPS must adhere to privacy statutes binding U.S. government agencies, which ties its hands. Although the service has data on every single piece of mail exchanged among hundreds of millions of Americans and the companies that sell to them, it is not supposed to use data for any purpose other than delivering the mail effectively. The USPS may or may not be able to use its data for other commercial purposes. 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 printout 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 6-2 ..
(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 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. 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 actually 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 aren’t 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. 6-3 ..
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. Interactive Session: Organizations: New York City Moves To Data-Driven Crime Fighting Case Study Questions: 1. What are the benefits of intelligence-driven prosecution for crime fighters and the general public? Proactive crime prevention programs rely on data collected and processed into information that’s passed to precincts and officers to help them effectively deploy resources to the places that need it most. The CompStat system analyzes the data and produces a weekly report on crime complaint and arrest activity at the precinct, patrol borough, and citywide levels. CompStat data can be displayed on maps showing crime and arrest locations, crime hot spots, and other relevant information to help precinct commanders and NYPD’s senior leadership quickly identify patterns and trends and develop a targeted strategy for fighting crime, such as dispatching more foot patrols to high-crime neighborhoods 2. What problems does this approach to crime fighting pose? When prosecutors begin to compile databases for data-driven crime fighting, one needs to ask what people have been selected for inclusion in these databases, what are the selection criteria, and how harmful is this practice? Could the criminal justice databases include people who shouldn’t be there and nevertheless are targets for police scrutiny? According to Steven Zeidman, director of the criminal-defense clinic at the City University of New York (CUNY) School of Law, the answer is yes. More than 1,000 people are arrested in New York City each day. An overwhelming and disproportionate number are people of color arrested for minor offenses like riding a bicycle on the sidewalk or jaywalking. People with arrest and conviction records find it next to impossible to find legitimate work on release, and this result lasts for as long as the records are retained.
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3. What management, organization, and technology issues should be considered when setting up information systems for intelligence-driven prosecution? Management: District attorneys must have enough information to make fine-grained decisions about charges, bail, please, or sentences. They must have a process to quickly separate minor delinquents from serious offenders. Organization: Police departments all over the nation must be able to effectively and efficiently deploy scarce resources rather than use those resources where they aren’t necessarily needed. Using intelligence-driven prosecution allows police officers and prosecutors to concentrate their efforts on the more hard-core offenders. Technology: The alert system helps assistant district attorneys ensure that charging decisions, bail applications, and sentencing recommendations address the defendant’s impact on criminal activity in the community. The information gathered by CSU and disseminated through the arrest alert system differentiates among those for whom incarceration is an imperative from a community-safety standpoint and those defendants for whom alternatives to incarceration are appropriate and will not negatively affect overall community safety. Section 6-4, “Why are information policy, data administration, 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. Interactive Session: Management: Keurig Green Mountain Embraces Data Governance 6-5 ..
Case Study Questions 1. Discuss the role of data governance at Keurig Green Mountain. Managing 80 brands and nearly 600 product varieties along with dozens of vendor partners requires efficient data management. Previously, the company used a “hero culture” for data governance. Different groups set up data they found useful but other groups could change the data to fit their needs. That creates unreliable data on which management must make decisions and limits the number and types of decisions that can be made. 2. What management, organization, and technology issues had to be addressed in order to establish enterprise-wide data governance? Management: By 2013 Keurig Green Mountain had outgrown its legacy ERP system and switched to SAP ERP. This gave the entire company the opportunity to review how it was managing data and to take the necessary steps toward master data management, well-defined processes, standards for the maintenance of data across the organization, and comprehensive data cleansing. Organization: Master data management (MDM) is the organizational effort to create one single master reference source for all critical business data, leading to fewer errors and less redundancy in business processes. By providing one point of reference for critical information, MDM eliminates costly redundancies that occur when organizations rely upon multiple conflicting sources of data. Technology: Keurig Green Mountain enlisted DATUM LLC to help it establish a strong data governance framework. This was necessary to ensure that as the company’s volume of data increased, it wouldn’t return to disparate data management practices that would negate the efficiencies and benefits of the SAP ERP software. 3. What were the business benefits of data governance for Keurig Green Mountain? Information Value Management (IVM) can be integrated with SAP Information Steward software, which provides a single environment to discover, assess, define, monitor, and improve the quality of enterprise data assets. Information Steward’s functionality includes modules for discovering data characteristics and relationships, creating and running data validation rules, identifying bad data and improving data quality, cataloging data, defining business terms for data and organizing the terms into categories, and data cleansing tools. Information Steward helps ensure companywide reporting consistency so that the company’s data stewards can easily monitor hanging data and make sure these changes are reflected in the organization’s master data management. IVM can also be used with other SAP solutions for enterprise information management (EIM), including data quality assurance, master data management, content management, and information lifecycle management. 6-6 ..
4. How did data governance improve operations and management decision making? Keurig Green Mountain has used Information Steward to implement data quality reports. As data are collected, the tool alerts users to missing required fields. This capability lessens the need for a “hero culture,” repeated errors, and repeated fixes to data downstream. Better data quality leads to more informed business decisions, and users of company data will have more trust in the data behind their business processes.
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 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 6-7 ..
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. 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 6-8 ..
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. • 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’s 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 6-9 ..
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.) 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 don’t fit into that mold. Big data describes datasets with volumes so huge they are beyond the ability of typical database management system to capture, store, and analyze. The term doesn’t 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, 6-10 ..
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 make in-memory processing possible. Analytic platforms: Uses both relational and non-relations technology that’s 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 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-structure 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 6-11 ..
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.) 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. 6-12 ..
• •
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 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 information policy, data administration, and data quality assurance essential for managing the firm’s data resources? Describe the roles of information policy and data administration in information management. An information policy specifies the organization’s rules for sharing, disseminating, acquiring, standardizing, classifying, and inventorying information. Information policy lays out specific procedures and accountabilities, identifying which users and organizational units can share information, where information can be distributed, and who is responsible for updating and maintaining the information. Data administration is responsible for the specific policies and procedures through which data can be managed as an organizational resource. These responsibilities include developing information policy, planning for data, overseeing logical database design and data dictionary development, and monitoring how information systems specialists and end-user groups use data. In large corporations, a formal data administration function is responsible for 6-13 ..
information policy, as well as for data planning, data dictionary development, and monitoring data usage in the firm. (Learning Objective 6-4: Why are information policy, data administration, and data quality assurance essential for managing the firm’s data resources? AACSB: Application of knowledge.) Explain why data quality audits and data cleansing are essential. Data that are inaccurate, incomplete, or inconsistent create serious operational and financial problems for businesses because they may create inaccuracies in product pricing, customer accounts, and inventory data, and lead to inaccurate decisions about the actions that should be taken by the firm. Firms must take special steps to make sure they have a high level of data quality. These include using enterprise-wide data standards, databases designed to minimize inconsistent and redundant data, data quality audits, and data cleansing software. A data quality audit is a structured survey of the accuracy and level of completeness of the data in an information system. Data quality audits can be performed by surveying entire data files, surveying samples from data files, or surveying end users for their perceptions of data quality. Data cleansing consists of activities for detecting and correcting data in a database that are incorrect, incomplete, improperly formatted, or redundant. Data cleansing not only corrects data but also enforces consistency among different sets of data that originated in separate information systems. (Learning Objective 6-4: Why are information policy, data administration, and data quality assurance essential for managing the firm’s data resources? AACSB: Analytical thinking.)
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 6-14 ..
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 actually entered data in multiple ways. Assess the potential business impact of these data quality problems. What decisions have to be made and which steps taken to reach a solution? Managers and employees can’t make accurate and timely decisions about customer activity because of inaccurate and redundant data. The company could be wasting resources pursuing customers it shouldn’t, 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 information policy, data administration, 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. •
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 can’t 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 6-15 ..
administrators, managers, and employees may have to track the data conversion and manually convert some data. •
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 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: MIS15ch06solutionfile.mdb. •
Prepare a report that identifies the five most expensive bicycles. The report should list the bicycles in descending order from most expensive to least 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. 6-16 ..
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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. However, it may be simpler to direct your students to go to www.aol.com. The website for the Nationwide Business Directory of Australia is www.nationwide.com.au. (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 MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: Can We Trust Big Data?
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6-13 What business benefits did the companies and services described in this case achieve by analyzing and using big data.
Big data helps streaming music service Spotify create a service that feels personal to each of its 75 million global users. Spotify uses the big data it collects on user listening habits (more than 600 gigabytes daily) to design highly individualized products that captivate its users around a particular mood or moment in time rather than offering the same tired genres. By constantly using big data to fine-tune its services, Spotify hopes to create the perfect user experience. A recent McKinsey Global Institute report estimated that the U.S. healthcare system could save $300 billion each year—$1,000 per American—through better integration and analysis of the data produced by everything from clinical trials to health insurance transactions to “smart” running shoes. Healthcare companies are currently analyzing big data to determine the most effective and economical treatments for chronic illnesses and common diseases and provide personalized care recommendations to patients. People collect big data from wearable devices that translate to information about their exercise routines, diets, and sleeping patterns. Online services provide vast amounts of information about airline flights and hotel options allowing customers to book their own travel arrangements. (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: • Travelers can obtain information about airlines tickets and hotel rooms faster and easier and make their own arrangements. • Spotify uses its big data to fine-tune its services and improve the listening experience for its customers. Not Improved: • Boston’s Street Bump app creates a map of potholes but mostly in areas that favor young, affluent people who own smartphones. The data often contain systematic biases. • Google used an algorithm to collect data from web searches to determine exactly how many people had influenza and how the disease was spreading. However, the service consistently overestimated flu rates. (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.) 6-18 ..
6-15 List and describe the limitations to using big data. A number of companies have rushed to start big data projects without first establishing a business goal for this new information. Swimming in numbers and other data doesn’t 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 don’t know what they’re 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-intime 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 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 doesn’t mean it has good information. There’s a stark difference. Organizations must first determine a business goal for the information and then process the data towards that goal. 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 doesn’t accomplish much. People must be trained in using big data tools like Hadoop. Big data analysis doesn’t necessarily show causation or which correlations are meaningful. 6-19 ..
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 tools 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.)
6-17 Identify the five problems of a traditional file environment and explain how a database management system solves them. Visit MyMISLab for suggested answers. 6-18 Discuss how the following facilitate the management of big data: Hadoop, inmemory computing, analytic platforms. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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? Learning Catalytics is a “bring your own device” student engagement, assessment, and classroom intelligence system. It allows instructors to engage students in class with real-time 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. 3G networks, 278 4G networks, 278 Bandwidth, 259 Blog, 276 Blogosphere, 276 Bluetooth, 279 Broadband, 252 Cable Internet connections, 260 Chat, 266 Digital subscriber line (DSL), 260 Domain name, 260 Domain name systems (DNS), 260 E-mail, 265 File Transfer Protocol (FTP), 265
Personal-area networks (PANs), 279 Predictive search, 272 Protocol, 256 Radio frequency identification (RFID), 281 Router, 253 RSS, 276 Search engine marketing, 275 Search engine optimization (SEO), 275 Search engines, 271 Semantic search, 272 Shopping bots, 274 Smart phones, 278 Social networking, 277 Social search, 272 Software-defined networking (SDN), 253 7-- 1 ..
Hertz, 259 Hotspots, 281 Hubs, 253 Hypertext Transfer Protocol (HTTP), 270 Instant messaging, 266 Internet of Things, 277 Internet Protocol (IP) address, 260 Internet service provider (ISP), 260 Internet2, 265 IPv6, 264 Local-area network (LAN), 258 Metropolitan-area network (MAN), 258 Microblogging, 276 Modem, 257 Near field communication (NFC), 283 Network operating system (NOS), 253 Packet switching, 255 Peer-to-peer, 258
Switch, 253 T1 lines, 260 Telnet, 265 Transmission Control Protocol/Internet Protocol (TCP/IP), 256 Unified communications, 267 Uniform resource locator (URL), 271 Virtual private network (VPN), 269 Visual web, 274 Voice over IP (VoIP), 266 Web 2.0, 276 Web 3.0, 277 Website, 270 Wide-area networks (WAN), 258 Wi-Fi, 280 Wiki, 276 WiMax, 281 Wireless sensor networks (WSNs), 283
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, “RFID Helps Macy’s Pursue an Omnichannel Strategy,” illustrates some of the new capabilities and opportunities provided by contemporary networking technology. To remain competitive and relevant amid other powerful retail chains that also have an Internet presence, Macy’s has adopted an omnichannel retail strategy. An omnichannel approach seeks to provide the customer with a seamless shopping experience, whether the customer is purchasing online from a desktop or mobile device, by telephone, or in a brick-and-mortar store. Macy’s wants its customers to be able to shop anywhere, anytime, and anyway they choose. To maximize revenue from going omnichannel, Macy’s implemented an item-level radio frequency identification (RFID) system called Pick to the Last Unit (P2LU) based on Tyco’s TrueVUE RFID Inventory Visibility Platform. P2LU attempts to ensure that the last unit of an item in any store can be easily located and made available for sale. Deploying RFID has reduced costs by lowering interim inventory requirements by a third, eliminating $1 billion of inventory from Macy’s stores. And, of course, having more items available when customers need them boosts sales. 7-- 2 ..
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 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 help show how much we rely on communications today is to ask students to count the number of text messages, phone calls, e-mails, 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’ve 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. 7-- 3 ..
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, 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 e-mail, 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. It also compares Web 2.0 with Web 3.0 that is now in the conceptual stage. 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: Organizations: The Battle over Net Neutrality Case Study Questions: 1. What is network neutrality? Why has the Internet operated under net neutrality up to this point in time? Network neutrality is the idea that Internet service providers must allow customers equal access to content and applications regardless of the source or nature of the content. Presently the Internet is indeed neutral: all Internet traffic is treated equally on a first-come, first-serve basis by Internet backbone owners. The Internet is neutral because it was built on phone lines, which are subject to ‘common carriage’ laws. These laws require phone companies to treat all calls and customers equally. They cannot offer extra benefits to customers willing to pay higher premiums for faster or clearer calls, a model knows as tiered service. 2. Who’s in favor of network neutrality? Who’s opposed? Why?
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Those in favor of network neutrality include organizations like MoveOn.org, the Christian Coalition, the American Library Association, every major consumer group, many bloggers and small businesses, and some large Internet companies like Google and Amazon. Verizon and Google proposed a split proposition – enforce net neutrality on wired connections, but not on wireless networks. Some members of the U.S. Congress also support network neutrality. This group argues that the risk of censorship increases when network operators can selectively block or slow access to certain content. Others are concerned about the effect of slower transmission rates on their business models if users can’t download or access content in a speedy fashion. Those who oppose network neutrality include telecommunications and cable companies who want to be able to charge differentiated prices based on the amount of bandwidth consumed by content being delivered over the Internet. Some companies report that 5 percent of their customers use about half the capacity on local lines without paying any more than low-usage customers. They state that metered pricing is “the fairest way” to finance necessary investments in its network infrastructure. Internet service providers point to the upsurge in piracy of copyrighted materials over the Internet as a reason to oppose network neutrality. Comcast reported that illegal file sharing of copyrighted material was consuming a large percentage of its network capacity. The company posits that if network transmission rates were slower for this type of content, users would be less likely to download or access it. Those who oppose network neutrality argue that it removes the incentive for network providers to innovate, provide new capabilities, and upgrade to new technology. 3. What would be the impact on individual users, businesses, and government if Internet providers switched to a tiered service model for transmission over land lines as well as wireless? Proponents of net neutrality argue that a neutral Internet encourages everyone to innovate without permission from the phone and cable companies or other authorities. A more level playing field spawns countless new businesses. Allowing unrestricted information flow becomes essential to free markets and democracy as commerce and society increasingly move online. Heavy users of network bandwidth would pay higher prices without necessarily experiencing better service. Even those who use less bandwidth could run into the same situation. Network owners believe regulation like the bills proposed by net neutrality advocates will impede U.S. competitiveness by stifling innovation and hurt customers who will benefit from ‘discriminatory’ network practices. U.S. Internet service already lags behind other nations in overall speed, cost, and quality of service, adding credibility to the providers’ arguments. Obviously, by increasing the cost of heavy users of network bandwidth, telecommunication and cable companies and Internet service providers stand to increase their profit margins. 4. It has been said that net neutrality is the most important issue facing the Internet since the advent of the Internet. Discuss the implications of this statement. As more people use the Internet for more functions, the Internet will displace and/or replace many traditional channels of communications and other processes. Keeping the ‘pipes’ clear, free, and available to all on an equal footing will become more important than ever. However, 7-- 5 ..
achieving that goal as the infrastructure ages and yet takes on more users it will be extremely expensive for service providers to keep up with demand. 5. Are you in favor of legislation enforcing network neutrality? Why or why not? Student answers will vary. Some components and principles to consider in answering this question include: • Price differentials: how much more would heavy bandwidth users pay than those who consume less bandwidth? • Speed: how much faster would network transmissions be with a tiered service model? • Stifle innovation: would a tiered service model stifle innovation by charging more for heavy bandwidth use or would it free up bandwidth thus allowing more innovation? • Censorship: would telecommunication and cable companies and Internet service providers increase censorship of content transmitted over networks? • Discrimination by carriers: would the end of network neutrality be the beginning of more discrimination? Interactive Session: People: Monitoring Employees on Networks: Unethical or Good Business? Case Study Questions 1. Should managers monitor employee e-mail and Internet usage? Why or why not? Answers will vary on this question. The case study statistics show that corporate misuse and abuse of e-mail 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 e-mail leakage of trade secrets. Other legal and regulatory problems involve the safe keeping of all e-mails 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 e-mail and web use policy for a company. Like all policies an effective e-mail and web use policy must be carefully designed and clearly communicated to all persons who use these corporate resources. There are a number of different policies in existence. Some companies allow absolutely 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 7-- 6 ..
articulate sanctions that will be followed for any and all offenses in relation to the policy. Most of all, rules for Internet usage should be tailored to specific business needs and organizational cultures. As an instructor you might wish to show students an example of the University of South Australia’s policy at http://www.unisa.edu.au/policies/policies/corporate/C22.asp 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 e-mail 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 e-mail, blogging, or web surfing. The policies should also inform employees whether these activities are monitored and explain why. 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 appliance. 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 in order 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 appliances to connect and utilize these technologies on their campus?
Review Questions 7-1 What are the principal components of telecommunications networks and key networking technologies? 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 7-- 7 ..
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. (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 7-- 8 ..
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.) 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.
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A domain name is the English-like 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 7-2 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. •
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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. 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.) 7-- 10 ..
List and describe alternative ways of locating information on the web. • • • • • •
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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. Rich Site Summary or Really Simple Syndication (RSS) is a simple way for people to have content they want pulled from websites and fed automatically to their computers, where it can be stored for later viewing. It’s commonly used with blogs. Wikis are collaborative websites where visitors can add, delete, or modify content on the site, including the work of previous authors. Web 2.0 provides second-generation interactive Internet-based services that enable people to collaborate, share information, and create new services online. Web 2.0 software applications run on the web itself instead of the desktop and bring the vision of web-based computing closer to realization. Web 3.0 (Semantic Web) reduces the amount of human involvement in searching for and processing web information. It’s still in its infancy but promises to establish 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 and 4G networks. 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 107-- 11 ..
meter 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 75 Mbps, 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 a short term 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 short term 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. (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. (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 7-- 12 ..
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 devices 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? 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-- 13 ..
7-8 Floor tile company: 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? 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 7-- 14 ..
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. 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. 7-- 15 ..
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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 features of the mobile handsets and wireless plans offered by each of these vendors. Assume that each of the 35 salespeople will need to spend three hours per weekday between 8 a.m. and 6 p.m. on mobile voice communication, send 30 text messages per weekday, use 1 gigabyte of data per month, and send five photos per week. 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 MIS15ch07solutionfile.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 7-- 16 ..
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 that 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 e-business? AACSB: Analytical thinking, reflective thinking, application of knowledge.)
Collaboration and Teamwork Project 7-12. In MyMISLab, 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, Google +, or other open source collaboration tools 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 that returns superior search results for web users. It also has developed 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, most 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. 7-- 17 ..
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 websites 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 76 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. 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 7-- 18 ..
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 What is the significance of search to the success or failure of mobile computing? How have Apple and Facebook attempted to compete with Google? Will their strategies succeed? Mobile computing is eclipsing desktop computing as the main entry point to the Internet. Today people spend more than half their time online using mobile devices. Mobile devices take advantage of a growing cloud of computing capacity available to anyone with a smartphone and Internet connectivity. Apple’s attempt to compete with Google came in the form of Siri, a combined search, navigation, and personal assistant app. Google countered by quickly releasing its own AI tool, Google Now. Apple’s Siri may be good for setting an alarm or making a phone call, but she can’t carry on a conversation or execute complex tasks across many apps and services the way her rivals can. Within Facebook Messenger, you can send money to a friend, order an Uber ride, or obtain customer service from airlines like United and Delta. Google’s Allo messaging app for iOS and Android will enable users to chat with an assistant to have it perform tasks such as getting the news, finding out travel times —just about anything you could search for on the web. It can even suggest responses or web searches while you’re in conversations with other humans. Facebook mines Facebook’s vast repository of user-generated data and delivers results based on social signals such as Facebook ‘likes’ and friend recommendations. Facebook can’t achieve long-term growth and prosperity based on social networking alone. During the past few years Facebook has moved into virtual reality, messaging, video, and more. Facebook is challenging YouTube as the premier destination for personal videos, and it is making its messages “smarter” by deploying chatbots. Chatbots are stripped-down software agents that understand what you type or say and respond by answering questions or executing tasks, and they run in the background of Facebook’s Messenger service. (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.) 7-16 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: 7-- 19 ..
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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 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.)
7-17 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.) 7-18 Compare Web 2.0 and Web 3.0. 7-- 20 ..
Visit MyMISLab for suggested answers. 7-19 How do social search, semantic search, and mobile search differ from searching for information on the web using conventional search engines? Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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? 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. Acceptable use policy (AUP), 313 Antivirus software, 319 Application controls, 309 Authentication, 316 Biometric authentication, 317 Botnet, 301 Bugs, 306 Business continuity planning, 315 Click fraud, 304 Computer crime, 302 Computer forensics, 308 Computer virus, 298 Controls, 295 Cybervandalism, 301 Cyberwarfare, 305 Deep packet inspection, 322 Denial-of-service (DoS) attack, 301 Digital certificates, 321
Information systems audit, 315 Intrusion detection systems, 319 Key loggers, 300 Malware, 298 Managed security service providers (MSSPs), 323 Online transaction processing, 322 Password, 316 Patches, 306 Pharming, 303 Phishing, 303 Public key encryption, 320 Public key infrastructure (PKI), 322 Ransomware, 300 Risk assessment, 310 Sarbanes-Oxley Act, 308 Secure Hypertext Transfer Protocol (S-HTTP), 320 Secure Sockets Layer (SSL), 320 Security, 295 8-1 ..
Disaster recovery planning, 314 Distributed denial-of-service (DDos) attack, 301 Downtime, 322 Drive-by download, 299 Encryption, 320 Evil twin, 303 Fault tolerant computer systems, 322 Firewall, 318 General controls, 309 Gramm-Leach-Bliley Act, 308 Hacker, 301 HIPAA, 307 Identity management, 313 Identify theft, 303
Security policy, 313 Smart card, 317 Sniffer, 301 Social engineering, 305 Spoofing, 301 Spyware, 300 SQL injection attack, 300 Token, 316 Trojan Horse, 300 Two-factor authentication, 317 Unified threat management (UTM), 320 War driving, 297 Worms, 298 Zero day vulnerabilities, 306
Teaching Suggestions The opening case, “Hackers Attack the SWIFT Global Banking Network” demonstrates the need to continuously upgrade and improve security in technology. And, it points out that all network nodes are vulnerable and not just the core system. SWIFT is a highly secure system, but apparently not secure enough. In early 2016 revelations surfaced about multiple attempts to use SWIFT messaging to rob financial institutions. Each bank in the SWIFT network is identified by a set of codes. Hackers somehow managed to steal the Bangladesh bank’s credentials to transmit the messages and used malware targeting a PDF reader for checking statements. The Bangladesh bank may have been especially vulnerable, using $10 routers and no firewalls. SWIFT’s core messaging system was not compromised. Security breaches occurred in the computers of individual institutions that interact with the system, and these computers remain the responsibility of individual SWIFT members. The hackers had access only to the compromised banks’ funds but not to the funds of the thousands of other institutions that use SWIFT. SWIFT plans to toughen software requirements, expand the use of two-factor authentication (which provides additional identity checking), monitor compliance more rigorously, and provide more information about fraud detection. Ultimately, however, SWIFT can only do so much. The real solution must come from the participating banks themselves.
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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 to research this request. www.symantec.com/index.htm www.mcafee.com www.pandasecurity.com
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 on 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 control. Ask your students to research what types of security and controls 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 8-3 ..
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. Interactive Session: Organizations: The Flash Crash: A New Culprit Case Study Questions: 1. Identify the problem and the control weaknesses described in this case. Experts initially attributed the crash to structural and organizational features of the electronic trading systems that execute the majority of trades on the Dow and the rest of the world’s major stock exchanges. The huge wave of flash crash sell orders intensified because of high-speed computerized trading programs. High-frequency traders (HFTs) have taken over many of the responsibilities once filled by stock exchange specialists and market makers whose job was to provide the majority of stock market liquidity. But many electronic systems, such as those HFTs use, are automated, using algorithms to place their nearly instant trades. In situations like the flash crash, when an algorithm is insufficient to handle the complexity of the event in progress, electronic trading systems have the potential to make a bad situation much worse. Five years later, another explanation emerged. A single trader who operated out of his West London home was largely responsible for the event. On April 21, 2015, the United States Justice Department had British authorities arrest 36-year-old Navinder Sarao, charging him with profiting from the flash crash by boldly manipulating markets and using illegal trading strategies between 2009 and 2014. 2. What management, organization, and technology factors contributed to this problem? To what extent was it a technology problem? To what extent was it a management and organizational problem? Management: Adequate controls were not in place to prevent traders like Sarao from manipulating the markets. Management is responsible for ensuring general controls like software, hardware, implementation, and administrative are in place and are adequate to prevent these kinds of situations. Organization: Long before the flash crash, the exchange had questioned Sarao about his trading activity, but the exchange did not take any action against him, and Sarao continued his trading activities until a whistleblower brought forward new information. The organization should have fully investigated Sarao and taken appropriate action. Technology: investigators overlooked evidence available hours after the flash crash that could have led them to Sarao. At that time, investigators had access to the full set of data from the day of the flash crash but focused only on the data related to actual trades. If they had included all bids and offers entered, they would have more likely noticed the pattern of Sarao’s market manipulation
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3. To what extent was Sarao responsible? Explain your answer. The Commodity Futures Trading Commission did not blame the crash solely on Sarao, but according to the Commission’s director of enforcement, Aitan Goelman, Sarao’s conduct was significantly responsible for the order imbalance that led to the crash. Sarao’s lawyers argued that the crash was caused by other factors and market participants. Certainly, if adequate safeguards and controls had been in place and Sarao’s conduct fully investigated, it’s likely he never would have been able to pull it off. 4. Is there an effective solution to this problem? Can another flash crash be prevented? Explain your answer. Yes, another flash crash can be prevented but only if all the necessary safeguards are put in place and controls fully enforced. After the flash crash, several reforms were implemented, including a system to slow trading in stocks if they became too volatile and a requirement for trading firms sending orders into the market to tighten their risk controls. The financial industry is also working on a consolidated audit trail, or CAT, that would enable regulators to monitor stock and options orders in real time and quickly pinpoint manipulators. CAT has yet to be completed. 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. 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. Ask your students to read the information on developing a security policy at this website: www.sun.com/blueprints/1201/secpolicy.pdf Interactive Session: Technology: BYOD: A Security Nightmare? 8-5 ..
Case Study Questions 1. It has been said that a smartphone is a computer in your hand. Discuss the security implications of this statement. Smartphones have many of the same computing features and capabilities as any laptop, desktop, or client/server computing network, making them as vulnerable to malware. Hardly anyone would consider not protecting the "typical" computer from security threats but don't think about doing the same for a smartphone. With millions of people bringing their personal mobile devices to work and accessing the Internet and corporate networks from them, business firms are increasingly having a tough time keeping up. Mobile devices are continually opening new avenues for accessing corporate data that need to be closely monitored and protected. Experts believe that smartphones and other mobile devices now pose one of the most serious security threats for organizations today. 2. What kinds of security problems do mobile computing devices pose? Smartphones of all kinds are susceptible to browser-based malware that takes advantage of vulnerabilities in all browsers. In addition, most smartphones, including the iPhone, permit the manufacturers to remotely download configuration files to update operating systems and security protections. Fifty-nine percent of businesses who were questioned about security reported that employees circumvented or disabled security features such as passwords and key locks. Intruders can also gain physical access to mobile devices by plugging into a device using a USB connection or SD card slot. Mobile security breaches carry a hefty price tag. Security breaches can also cause huge intangible losses to a company’s reputation. The Securities and Exchange Commission requires unauthorized disclosure of confidential information, whether from unsecured devices, untrusted apps, or weak cloud security, must be announced publicly if the information could affect a company’s stock price. 3. What management, organizational, and technology factors must be addressed by smartphone security? Management: One of the biggest problems with people using their personal smartphones to access corporate data is that they lose the devices. They aren’t diligent about protecting them from unauthorized access by leaving the devices laying around for others to access within seconds or minutes. Personal carelessness is the number one threat. It is almost impossible to prevent employees from downloading apps that might track critical information when people use their own devices in the workplace.
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Organizational: Cloud services are causing continually escalating problems because employees are not careful about what documents they upload to the ‘open’ services. Some free cloud services like Dropbox and Google Drive are more open to unauthorized access than employees realize. Apple iTunes app rules make some user information available to all app programs by default, including the user's GPS position and name. Security on the Android platform is much less under Google's control because it has an open app model. Google removes from its official Android Market any apps that break its rules against malicious activity. Technology: Apple has removed hundreds of apps because of security concerns. Google relies on technical hurdles to limit the impact of malicious code, as well as user and security expert feedback. Google can perform a remote wipe of offending apps from all Android phones without user intervention. That's good but it could become a security threat itself if hackers gain access to the remote wipe capability at Google. 4. What steps can individuals and businesses take to make their smartphones more secure? First of all, and most importantly, employees using their personal devices on the job need to protect them more – both from theft and accidental access. All smartphone users and businesses should treat a smartphone - and now tablet devices just like they would a full-blown computer system and adequately protect it from malware and intrusion. Download appropriate and adequate security protection software and keep it updated. For security analysts, large-scale smartphone attacks are just disasters waiting to happen.
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: technical, organizational, and environmental factors compounded by poor management decisions. Figure 8-1 includes the following: • • • •
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 8-7 ..
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failure, and software failure. Power failures, floods, fires, or other natural disasters can also disrupt computer systems. 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 among a virus, a worm, and a Trojan horse. Malware (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.) 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 8-8 ..
• • • • •
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 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, ecommerce 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. 8-9 ..
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: 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.
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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.) 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 8-3 describes each type of general 8-11 ..
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. 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 actually 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.)
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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 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 8-13 ..
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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 antivirus 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. Antivirus 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, antivirus 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.) 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 8-14 ..
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’s 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 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 measure for improving software quality and reliability. Software metrics are objective assessments of the system in the form of quantified 8-15 ..
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.)
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 Reloaded Games: Operates online game sites that accommodate millions of players at once and played simultaneously by people all over the world. 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 8-16 ..
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. • Intrusion detection systems: full-time monitoring tools placed at the most vulnerable points or “hot spots” to detect and deter intruders. • Antivirus/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. Since this seems to be a relatively small company, 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 HIGH MEDIUM LOW COMPUTERS RISK RISK RISK Windows Server (corporate 1 11 37 19 applications) Windows Vista Ultimate 3 56 242 87 (high-level administrators) Linux (email and printing 1 3 154 98 services) Sun Solaris (UNIX) (e2 12 299 78
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TOTAL VULNERABILITIES 67 1155 255 778
commerce and web servers) Windows Vista Ultimate 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. • 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 Vista Ultimate (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
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Fourth platform to protect: Windows Vista Ultimate 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 Vista Ultimate (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
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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, and 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. 8-19 ..
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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.) 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: • • • • •
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. Answer to the questions can be found in the sample solution found in the Microsoft Excel file named MIS15ch08solutionfile.xls. (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
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• • •
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 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 MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: U.S. Office of Personnel Management Data Breach: No Routine Hack 8-13 List and describe the security and control weaknesses at OPM that are discussed in this case. OPM was saddled with outdated technology and weak management. A DHS Federal Information Security Management Act (FISMA) Audit for fiscal year 2014 audit of the Office of the Inspector General found serious flaws in OPM’s network and the way it was managed. OPM did not maintain an inventory of systems and baseline configurations, with 11 servers operating without valid authorization. The auditors could not independently verify OPM’s monthly-automated vulnerability scanning program for all servers. There was no senior information security specialist or chief information security officer (CISO) responsible for network security. OPM lacked an effective multifactor authentication strategy and had poor management of user rights, inadequate monitoring of multiple systems, many unpatched computers, and a decentralized and ineffective cybersecurity function. Sensitive data were unencrypted and stored in old database systems that were vulnerable. OPM used contractors in China to manage some of its 8-21 ..
databases. These deficiencies had been pointed out to OPM many times since a FISMA audit in 2007. OPM had the vulnerabilities, no security-oriented leadership, and a skillful and motivated adversary. (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? How much was management responsible? Management: Most attacks are the work of highly skilled professionals. However, when people don’t take the problem seriously and constantly be on alert for hacking incidents and other network vulnerabilities, cyberattacks can go unnoticed until it’s too late. In some cases, even though appropriate safeguards are in place, people may override them and open a hole for the malware to enter systems just as happened at OPM. Organization: Organizations, public and private, continually do not adequately plan for security before building any kind of computer system thus opening the way for cyberattacks. The OPM had been warned multiple times of security vulnerabilities and failings. A March 2015 OPM Office of the Inspector General semiannual report to Congress mentioned persistent deficiencies in OPM’s information system security program, including incomplete security authorization packages, weaknesses in testing information security controls, and inaccurate plans of action and milestones Technology: Tracing the identities of specific attackers through cyberspace is next to impossible. Security experts have stated that the biggest problem with the breach was not OPM’s failure to prevent remote break-ins but the absence of mechanisms to detect outside intrusion and inadequate encryption of sensitive data. if someone has the credentials of a user on the network, then he or she can access data even if they are encrypted, so encryption in this instance would not have protected the OPM data. (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 What was the impact of the OPM hack? The attackers had stolen user credentials from a contractor to access OPM networks, most likely through social engineering. The hackers then planted malware, which installed itself within OPM’s network and established a backdoor for plundering data. From there, attackers escalated their privileges to gain access to a wide range of OPM systems. Information targeted in the breach included personally identifiable information such as social security numbers as well as names, dates and places of birth, and addresses. Also stolen was detailed security clearance–related background information. The hackers’ biggest prize was probably more than 20 years of background check data like information about family members, college roommates, foreign contacts, and psychological information. 8-22 ..
OPM systems containing information related to the background investigations of current, former, and prospective federal government employees, including U.S. military personnel, and those for whom a federal background investigation was conducted may have been extracted. Government officials say that the exposure of security clearance information could pose a problem for years. (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 Is there a solution to this problem? Explain your answer. As data breaches rise in significance and frequency, the Obama administration and Congress are proposing new legislation that would require firms to report data breaches within specific time frames, and sets standards for data security. There are other measures every organization, public and private can and should take to secure their systems and information. Section 8.4, What are the most important tools and technologies for safeguarding information resources, of this chapter provides a list: • • • • •
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 the OPM hack. The memo lists generally recommended security practices for OPM to adopt, including encrypting data, activating a personal firewall at agency workstations, monitoring users’ online habits, and blocking potentially malicious sites. The Obama administration ordered a 30-day Cybersecurity Sprint across all agencies to try to fix the big problems. Without a strong foundation, this investment could prove futile in the long run. OPM and the federal government as a whole need to invest more in managers with IT security expertise and give those individuals real authority to act. (Learning Objective 8-4: What are the most important tools and technologies for safeguarding information resources? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.) 8-17 Describe three spoofing tactics employed in identity theft using information systems. Visit MyMISLab for suggested answers. 8-18 Describe four reasons mobile devices used in business are difficult to secure. 8-23 ..
Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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? 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. Analytical CRM, 355 Bullwhip effect, 345 Churn rate, 359 Cross-selling, 354 Customer lifetime value (CLTV), 358 Demand planning, 346 Employee relationship management (ERM), 353 Enterprise software, 341 Just-in-time strategy, 345 Operational CRM, 355
Partner relationship management (PRM), 353 Pull-based model, 348 Push-based model, 348 Sales force automation (SFA), 353 Social CRM, 361 Supply chain, 343 Supply chain execution systems, 346 Supply chain planning system, 345 Touch point, 352
Teaching Suggestions
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The opening case, “Skullcandy Rocks with ERP in the Cloud” illustrates why companies need enterprise applications that integrate different business functions and provide consistent information throughout the company. Skullcandy’s business processes were primarily manual, with individual spreadsheets serving as the system of record for its business transactions. In order to grow to a company that could ship a million items each year, Skullcandy needed to automate its processes and use a new set of information systems to support them. The company replaced its spreadsheets and manual processes with cloud-based software providing a single enterprise resource planning (ERP) system supporting finance, planning, purchasing, inventory management, and order management. The new system functionality has been credited with helping the business pursue a strategic acquisition, expand internationally, and significantly increase its customer base. In 2011, Skullcandy acquired Astro Gaming, a premium gaming headset company based in San Francisco. The system absorbed the acquisition and ran its transactions as a new and separate legal entity. The system also supports Sarbanes-Oxley (SOX) compliance, which is one of the requirements for filing as a public company, smoothing the way for Skullcandy to issue an IPO (initial public offering). Everything is so interconnected and automated that from the time a customer clicks “buy,” it takes less than a half hour for the transaction to move through Skullcandy’s systems with a credit check, a check for fraud, interfacing with SAP Business ByDesign, checking availability, and warehouse fulfillment. Skullcandy can better manage its inventory, accounts, and information as it grows. 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. Interactive Session: Management: Logistics and Transportation Management at LG Electronics 9-2 ..
Case Study Questions: 1. Identify the supply chain management problems LG Electronics faced. What was the business impact of its inability to manage its supply chain well? Led primarily by exploding demand for flat-screen televisions and mobile phones in the past 15 years, LG Electronics’ European operations grew exponentially. LG’s logistics network was inadequate and severely overtaxed. Most of its transportation needs were outsourced to third-party logistics (3PL) providers. Internal knowledge and expertise were nonexistent. Dependent on their 3PL providers, managers had little to no control over transportation planning. 2. What management, organization, and technology factors contributed to LG’s supply chain problems? Management: Management was clamoring for increased logistics visibility so that it could preempt bottlenecks rather than fashioning reflexive, and often imprudent, remedies. Organization: By creating a collaborative effort with its partners, LG believed that it could better control coordination of its transportation networks and realize aggregate cost savings. Technology: Fixed routing in outsourced systems hamstrung management’s ability to optimize carriers, loads, and overall capacity.
3. How did implementing JDA Software solutions change the way LG ran its business? LG Electronics already had a relationship with JDA Software, a leading vendor of supply chain management Systems. The ease of use and exceptional data-sharing capabilities of this unified supply chain planning, optimization, and business analytics platform immediately drew favorable reviews. Once all managers could log in to a single source where all logistics data were shared, they could collaborate to find the most efficient and cost-effective transportation options. Transportation strategies could now be flexible and easily adapted to respond to fluctuations in product demand, shipping rates, fuel costs, and other factors. All transportation plans are archived so that they can be used in historical analysis and future what-if scenario construction, and previous asset allocations and carrier assignments are considered as new transportation plans are created. Multiple users can access and edit any active plan.
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4. How did LG’s new logistics and transportation management system improve management decision making? Describe two decisions that the new system solution improved. Once a logistics system model has been settled upon, it is run through Transportation Manager to generate a new network. Transportation orders can then be dynamically managed. Freight audits reveal comprehensive statistical insight into logistics spending. Truck-loading efficiency ratios are used to optimize the vehicle-miles needed to transport like tonnages of freight. Consolidation ratios show how to combine two or more shipments to yield maximum cost savings. Transportation Planner weighs product availability, customer delivery commitments, and facility, inventory, and transportation network constraints to create benchmarks. By focusing managerial attention only on activities that fall outside of these accepted norms, labor productivity is maximized. This built-in exception-based management functionality minimizes the need for human intervention and review. A true supply chain transportation knowledge base and increased visibility into LG’s transportation network quickly produced significant cost savings, yielding a generous profit. Dedicated performance analysis using the built-in business intelligence (BI) tools resulted in improvements in all transportation metrics. Managers can now see a load plan’s optimized cost compared with its implemented cost or how shipment costs are calculated from loads along with 60 other key metrics by selecting a report or dashboard directly within their current transportation workflow. Improved service (in-stock) levels, faster order cycle times, reduced time to implementation, and improvements in the freight audit process have all been achieved. Section 9-3, “How do customer relationship management systems help firms achieve customer intimacy?” As the book states, “…the Internet, and electronic commerce have put more power in the hands of customers.” A good example you can use to explain this statement 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: Customer Relationship Management Helps Celcom Become Number One Case Study Questions
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1. What was the problem at Celcom described in this case? What management, organization, and technology factors contributed to this problem? To become number one in the Malaysian market again, Celcom’s senior management knew that the company had to build better networks and market more aggressively. But the real key to success lay in improving the customer experience. Management: Malaysia’s customer base of 14 million is large and diverse, which requires multiple approaches to interacting with them. Older customers prefer in-person service from Celcom dealers or retail outlets, while sophisticated young urban users prefer to do business online. Everyone wanted reliable mobile service. Organization: Celcom service representatives wasted valuable company and customer time making sense of a customer’s multiple SIM IDs scattered among various records in the system. The company wanted to be able to see a customer as a specific person, not a SIM or a number. Technology: Celcom was saddled with a siloed information technology architecture and business processes that could not provide a complete view of customers. Customer data from one system such as billing were not easily available to other systems such as inventory. 2. What was Celcom’s business strategy, and what was the role of customer relationship management in that strategy? Celcom’s solution involved changes to the company’s technology, processes, and people. At the core is an Oracle-based business support system (BSS) that consolidated customer records, centralized inventory management, and sped up business processes. This system consolidates customer information into a single view of the customer to improve customer service across online, call center, and retail channels. The Oracle implementation included new customer portal sites and retail stores as well as an Oracle Siebel call center system and Oracle inventory management and Communications Order and Service Management applications. 3. Describe Celcom’s solution to its problem. What management, organization, and technology issues had to be addressed by the solution? Management: The company wanted the most complete suite of customer relationship management (CRM) tools that would support multichannel and cross-channel marketing efforts. Management understood the importance of cross-channel customer experiences and wanted to make this differentiate the company among its competitors. Organization: The new system helped Celcom manage and integrate customer interactions across multiple channels to improve customer support, reduce problem resolution time, customize marketing to narrow market segments, and expedite time-tomarket for new products and services. The BSS provides a single customer record, 9-5 ..
regardless of how many services (mobile, landline, and data) and devices a customer purchases, that is populated with data from various touchpoints. By consolidating customer data into a unified customer record, Celcom can offer tailored promotions offers in real time that fit a customer’s individual history. Celcom’s holistic view of a customer includes family relationships, which has special significance when marketing in Asia. The company can see every aspect of service each customer uses, which makes cross-marketing and up-selling more efficient. Technology: Celcom’s transformation plan entailed retaining some of Celcom’s existing systems, and the Celcom team liked Oracle Communications’ modularity and interoperability as well as its cross-channel capabilities. 4. How effective was this solution? How did it affect the way Celcom ran its business and its business performance? Celcom’s integrated systems make it possible for call center representatives to respond much more rapidly to customer queries. In the past, customer agents needed to toggle between two to five screens to do their work. Now they work with just a single screen, which increases efficiency. Using fewer screens cuts average call-handling time by 15 to 20 percent. BSS includes a new tablet-based app for Celcom dealers that makes signing a customer up for a new mobile phone completely paperless. New phone activation time has been cut from two hours to two minutes. Fewer activations require manual follow-up. Celcom dealers and customers are happier. Section 9-4, “What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies?” This section explains 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 can’t afford expensive licensing fees. The text mentions Salesforce.com’s “Ideas” application that essentially replaces the outdated suggestion box. The website has an excellent demonstration of the product that you can direct students to at www.salesforce.com/products/ideas/.
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 9-6 ..
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.) 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, 9-7 ..
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 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. 9-8 ..
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 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 pullbased 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 of the 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 9-9 ..
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). 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 all of 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: 9-10 ..
Sales: • Sales force automation modules in CRM systems help sales staff increase their productivity by focusing sales efforts on the most profitable customers, those who are good candidates for sales and services. • Provide sales prospect and contact information, product information, product configuration capabilities, and sales quote generation capabilities. • Enable sales, marketing, and delivery departments to easily share customer and prospect information. • Increase salespeople’s efficiency in reducing the cost per sale as well as the cost of acquiring new customers and retaining old ones. • Capabilities for sales, forecasting, territory management, and team selling. • 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: • Provide 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: • Support 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. Provides information related to customer lifetime values. (Learning Objective 9-3: How do customer relationship management systems help firms achieve 9-11 ..
customer intimacy? AACSB: Analytical thinking.) 9-4 What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies? List and describe the challenges posed by enterprise applications. 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 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.) How are enterprise applications taking advantage of SOA, cloud computing, and open source software? 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. 9-12 ..
(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, 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? 9-13 ..
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. 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 1,600 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 9-14 ..
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.)
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: MIS15ch9solutionfile.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’ll use the web to research and evaluate two of these business services. Investigate the websites of two companies, UPS Logistics and Schneider Logistics, 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,
Schneider Taken from the Schneider website: You have a set of logistic challenges. 9-15 ..
we've got the expertise to help make your business run better. Benefit from our established network of facilities and worldclass technology, and let our logistics team help you reduce costs and increase your global reach.
Schneider Logistics has the solutions. Managing supply chains is a complicated business. You know it isn’t just about moving goods. It’s about replacing inventory with information. It’s about creating product-level visibility. It’s about staying connected with your supply chain partners. 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
Success requires you to be in the right place, at the right time, with the right tools. Logistics puts you there. 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 website 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. 9-16 ..
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 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’s 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 MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: How Supply Chain Management Problems Killed Target Canada 9-13 How important was supply chain management for Target Canada? How did it relate to its business model? Explain your answer. The company spent $7 billion on expanding into Canada and was not projected to show a profit until 2021 at the earliest. After only a couple years of failure, all of Target Canada’s 133 stores were closed, and 17,600 employees lost their jobs.
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Target’s expansion into Canada was highly anticipated by consumers and feared by rivals, but it failed miserably. Target’s business was geared to operating domestically in the United States but none of its systems were adaptable to doing business in a foreign country. (Learning Objective 9-1: How do enterprise systems help businesses achieve operational excellence? 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, Application of knowledge.) 9-14 Identify all the problems Target Canada encountered that prevented it from becoming a successful retailer. What were the management, organization, and technology factors that contributed to these problems? All of the problems are almost too numerous to mention. Management: Target’s management had to decide whether to customize these domestic systems so they could work abroad or move to completely new systems for Canada. Because it would require considerable time and effort to internationalize these systems, Target’s management opted for a new ready-made software package solution, thinking that it could be implemented faster, even if the company had little experience actually using the new system. However, managers sorely underestimated the amount of time it would take to implement the new system. Organization: Target quickly moved to build three new gigantic distribution centers in Canada. Target Canada was unable to keep track of its products or make sure that the right amounts of products were being ordered, stored, and shipped. At first too few products were arriving at the distribution centers, leaving store shelves bare and Canadian customers empty-handed. Later the distribution centers became overwhelmed with too much product. Target Canada also had higher product prices and less product selection than U.S. Target stores. Technology: Target’s supply chain management and pricing software would have to be modified to handle multiple measurement systems and currencies. Target’s information systems could not properly compute shelving locations. The retail store checkout system was unreliable and didn’t process transactions properly. (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.) 9-15 How much of Target Canada’s problems were technology based? Explain your answer. Target’s rush to launch pressured suppliers to enter data quickly into SAP for roughly 75,000 different products. The data had to either be imported from other systems or entered from scratch. A record for a single item might have dozens of fields to fill out, such as fields for the manufacturer, the model, the dimensions, the weight, and how many units can fit into a shipping case. Much of the data were entered incorrectly.
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The company’s software for running its warehouses did not communicate well with SAP. Target had purchased a sophisticated and highly regarded system from JDA Software for supply chain forecasting and replenishment. However, this software typically requires years of historical data before it can provide accurate sales forecasts. Lacking such data to feed the system, Target’s buying team instead used wildly optimistic projections, which assumed Canadian store sales from the start would be as high as operational stores in the United States even though Target Canada was not yet that well established. Adding to Target Canada’s system woes, the point-of-sale (POS) system was not working properly. Terminals for cash payments took too long to boot up and sometimes froze, items wouldn’t scan, the self-checkout stations gave incorrect change, or the POS system would not provide the correct price. (Learning Objective 9-1: How do enterprise systems help businesses achieve operational excellence? AACSB: Application of knowledge.) 9-16 How responsible was management for Target Canada’s problems? Explain your answer. Management apparently did not adequately plan for changes, adaptations, and considerations necessary to doing business in a foreign country. Target Canada’s replenishment system had a feature to notify distribution centers to ship more product when a store ran out. Some of the business analysts responsible for this function, however, were purposely turning it off. These business analysts were judged based on the percentage of their products that were in stock at any given time. When the auto-replenishment switch was turned off, the system wouldn’t report an item as out of stock, so the analyst’s numbers would look good on paper. To prevent further gaming the system, Target’s IT team built a tool that reported when the system was turned on or off and determined whether there was a legitimate reason for it to be turned off (for example, if an item was seasonal.) The analysts were denied access to these controls. (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, Application of knowledge.) 9-17 What things should Target Canada have done differently to be successful? Management should have allowed more time for implementation of the new enterprise planning system. They shouldn’t have rushed to build three new expensive distribution centers before they had appropriate and adequate systems in place to handle the differences in measurements, prices, and other considerations. They should have more adequately addressed how much organizational changes were required between Target U.S. and Target Canada. (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, Application of knowledge.) 9-18 What are three reasons a company would want to implement an enterprise resource planning (ERP) system and two reasons why it might not want to do so. 9-19 ..
Visit MyMISLab for suggested answers. 9-19 What are the sources of data for analytical CRM systems? Provide three examples of outputs from analytical CRM systems. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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? Learning Catalytics is a “bring your own device” student engagement, assessment, and classroom intelligence system. It allows instructors to engage students in class with real-time 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. Advertising revenue model, 387 Affiliate revenue model, 389 Behavioral marketing, 390 Business-to-business (B2B), 384 Business-to-consumer (B2C), 384 Community providers, 387 Consumer-to-consumer (C2C), 384 Cost transparency, 379 Crowdsourcing, 397 Customization, 379 Digital goods, 382 Direct goods, 399 Disintermediation, 381 Dynamic pricing, 381 Electronic data interchange (EDI), 398 E-tailer, 385
Long tail marketing, 389 Market creator, 386 Market entry costs, 379 Marketspace, 377 Menu costs, 381 Micropayment systems, 388 Mobile commerce (m-commerce), 384 Native advertising, 393 Net marketplaces, 399 Personalization, 379 Podcasting, 386 Price discrimination, 379 Price transparency, 379 Private exchange, 399 Private industrial networks, 399 Revenue model, 387 10-1 ..
Exchanges, 401 Free/freemium revenue model, 388 Geoadvertising services, 402 Geoinformation services, 402 Geosocial services, 402 Indirect goods, 400 Information asymmetry, 380 Information density, 379 Intellectual property, 386 Location-based services, 402
Richness, 379 Sales revenue model, 388 Search costs, 379 Social graph, 394 Social shopping, 395 Streaming, 386 Subscription revenue model, 388 Transaction costs, 377 Transaction fee revenue model, 389 Wisdom of crowds, 395
Teaching Suggestions The opening case, “Uber Digitally Disrupts the Taxi Industry,” illustrates the evolution of ecommerce from that of simply buying goods or services online to creating social experiences shared by hundreds, thousands, or millions of people. Uber is digitally disrupting a traditional and highly regulated industry as are other ‘on-demand’ businesses and service providers. Uber, Lyft, Airbnb, and Instacart are examples of new e-commerce businesses that don’t sell goods; instead, they have built a platform by which people who want a service can find a provider to fill the demand. On-demand e-commerce firms are currently considered the hottest business model in e-commerce. These on-demand companies have the potential for creating a society of part-time, low-paid, temp work, displacing traditionally full-time, secure jobs, according to critics. The companies respond to the criticism by saying they are lowering the costs of services, expanding the demand for services, and expanding opportunities for workers who want the freedom the companies may provide. E-commerce is becoming more "localized" because of the vast amounts of data collected about users and because technology allows more targeted ad campaigns. Mobile e-commerce has grown by leaps and bounds the last few years. However, it's still questionable if some of the business strategies will work in the long run, namely that of making a profit. 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 10-2 ..
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. 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 stock brokers 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. 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 almost every Internet user, marketers can target potential customers much easier than ever before 10-3 ..
through behavioral targeting messages. Social networking and the wisdom of crowds helps students understand the most popular Web 2.0 service—social media. Rather than looking at social networking sites from a personal, user point of view, students should explore the business opportunities these kinds of websites provide. Interactive Session: Technology: Getting Social with Customers Case Study Questions 1. Assess the management, organization, and technology issues for using social media to engage with customers. Management: Companies can use social media to help build interest in their brands as long as customers feel connected and at ease with the promotions. Personalizing the company can be a huge success. Using Facebook to show what friends purchased by using the “Like” button can draw customers into the company’s site. Organization: Some companies use a dedicated team of Twitter responders to answer user questions and respond to complaints. The company can then mine the data through text mining and convert the data to useful information about the company’s products. The company can also use the information to gauge the success of promotions, which products are hot and which are duds, and the impact of advertising campaigns. However, companies must be careful not to just rush in and create Facebook pages and Twitter accounts. They must engage in meaningful ‘conversations’ with customers and collect feedback and input. They must slowly build relationships over time with customers. Technology: Lowe’s uses a variety of technologies to engage their customers including Facebook mobile video, Snapchat image messaging, and FlipSide videos. GM has 26 full-time social media customer care advisers who are available to customers 16 hours a day, seven days a week. 2. What are the advantages and disadvantages of using social media for advertising, brand building, market research, and customer service? Advantages: • •
•
Advertising: Twitter has developed new offerings for advertisers like Promoted Tweets and Promoted Trends. These features give advertisers the ability to have their tweets displayed more prominently when Twitter users search for certain keywords. Brand building: Lowe’s uses a variety of social media to build its brand and provide potential customers with information and knowledge that of course rely on purchases from the store. Management is trying to create awareness of what the company stands for, not just its products and services. Market research: GM uses social media to gather a wealth of information that it uses in product development. Real-time customer feedback identifies potential issues
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for the company and is relayed to the company’s brand quality and engineering leaders. Disadvantages: •
Twitter accounts have been hacked with negative results. Many companies simply flood social media channels with sales and marketing pitches, touting themselves, and they don’t engage in conversations with customers where they could collect customer feedback and input.
3. Give an example of a business decisions in this case study that was facilitated by using social media to interact with customers. GM’s social media team identified a faulty climate-control part when a customer posted the issue on a product-owner blog. The complaint received dozens of replies and thousands of views, prompting GM that it needed to investigate further. Once GM specialists determined the root cause of the issue, the company released a technical service bulletin to all dealerships to replace the affected HVAC control modules on vehicles already built. GM fixed the original customer’s vehicle within 10 days and adjusted production to ensure no additional customers would be affected. 4. Should all companies use Facebook and Twitter 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’s 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 10-5 ..
to consumers. Wireless mobile devices are turning up everywhere. The newer appliances integrate a number of features traditionally only found in specialized products. For example, cell 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. Interactive Session: Organizations: Can Instacart Deliver? Case Study Questions 1. Analyze Instacart using the value chain and competitive forces models. What competitive forces does the company have to deal with? What is its value proposition? Instacart is the new market entrant so traditional stores must deal with the upstart who can potentially take the service away from them. Instacart’s suppliers are the very grocery and retail stores who it is competing against. However, Instacart co-founder and CEO Apoorva Mehta, believes Instacart’s competitive advantage is twofold. First, customers are not limited to a single vendor and can combine items from multiple stores on one order, so product selection is truly customized. (Instacart uses special software that can track inventory across multiple supermarkets.) And since personal shoppers are on call around the clock, customers neither have to order many hours in advance of delivery nor wait for a delivery window. In fact, customers can have their grocery list filled and delivered in under an hour! Its value proposition lies in customer convenience, catering to shoppers who are willing to pay a premium to have both quality and selection delivered to their door in an expeditious manner. 2. Explain how Instacart’s business model works. How does the company generate revenue? Instacart bypasses the expenses of warehousing and transportation altogether by using a legion of independent contractors. These personal shoppers receive orders via the Instacart smartphone app, fill them from grocery store aisles, and use their own vehicles to deliver them to customers’ doors. Like fellow “sharing economy” firm Uber, Instacart minimizes labor costs by requiring its personal shoppers to pay for their own auto and health insurance and Social Security contributions. Purportedly paid between $15 and $30 an hour, depending on how quickly they can fill and deliver an order, most Instacart shoppers work part-time on flexible schedules.
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At first, item prices were marked up (20 percent in one sampling) and a $3.99 delivery fee charged. An Amazon Prime-like service called Instacart Express requires a certain volume of business and a $99.00 yearly fee in exchange for free delivery. Instacart caters to shoppers who are willing to pay a premium to have both quality and selection. Instacart’s 2014 revenue grew more than ten times over 2013, with fourth quarter sales doubling. While many analysts predict that matching the bargain basement prices of Amazon and Walmart is unavoidable, Instacart is instead modifying its business model. Partnerships with Petco and Tomlinson’s Pet Supplies in Austin, Texas, hint of additional product areas on the horizon, while Mehta speculates that expansion into general logistics is conceivable. Many of Instacart’s grocery store partners now set their own prices, paying Instacart a cut of each order. This has freed Instacart of the burden of markups, protected it from the vagaries of variable food prices, and provided a more stable profit structure. Retailers have been willing to pay Instacart in the hope of gaining more business, because Instacart enables a single store to serve people across a larger geographic area. 3. What is the role of information technology in Instacart’s business model? Instacart’s app provides a detailed map of each local establishment including store aisle contents. The customer’s grocery list, compiled using extensive drop-down menus either on the website or in the app, is organized by merchant and aisle to provide maximum order fulfillment efficiency. Inventory is tracked for all of Instacart-affiliated merchants. As a personal shopper skims an aisle, items can be selected for different orders placed at different times. The software can also plan delivery routes and predict future customer orders. 4. Is Instacart’s model for selling online groceries viable? Why or why not? With national chains achieving just 1 to 2 percent margins on grocery delivery, the Instacart model of layering labor on top of the existing grocery infrastructure is still unproven. According to a Wall Street Journal analysis, an order of 15 common items such as frozen peas, milk, cereal, and fresh fruit costing about $68 from a San Francisco Safeway store would produce a profit of only $1.50 for Instacart. If the order were smaller by one 28-ounce jar of peanut butter, Instacart would break even, and a smaller order could push it into the red. Without price concessions from participating merchants, can Instacart attract enough customers? And maintain a pay scale that ensures the topnotch customer service demanded by its target market? And still make a profit? And can retailers’ sales gains from Instacart be sustained? Instacart may be a great idea, but it’s a very big bet. Section 10-6 “What issues must be addressed when building an e-commerce website?” 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 10-7 ..
made before the site goes live. 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 10-10 provides alternatives to consider about building and hosting an e-commerce site in-house or outsourcing part or all of 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.
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. Table 10-2 outlines eight unique features of e-commerce: • 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. 10-8 ..
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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.) 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 Web 2.0 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 ecommerce business and revenue models? AACSB: Application of knowledge.)
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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? 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 ecommerce transformed marketing? AACSB: Analytical thinking.) Define behavioral targeting and explain how it works at individual websites and on advertising networks.
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Behavioral targeting refers to tracking the click-streams of individuals for the purpose of understanding their interests and intentions, and exposing them to advertisements that 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 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. Marketers’ 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 $3 billion on social network marketing in 2012. That’s twice the amount of money spent in 2010 and about nine percent of all online marketing. Table 10-7 has four features of social commerce that include: social sign-on, collaborative shopping, network notification; and social search recommendations. (Learning Objective 103: 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. Web sites 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
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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 ecommerce 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 mcommerce 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: • 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. Figure 10-10 lists the four types of e-commerce presence businesses should consider: • Web sites: traditional, mobile, and/or tablet platforms with search, display, apps, affiliates, sponsorships as possible activities • E-mail: internal lists and/or purchased lists as a platform with newsletters, updates, and sales as possible activities 10-12 ..
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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? 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 a web presence help? What Internet business model would be appropriate? What functions should the website perform? A website has the potential to introduce thousands and 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. Web-cams 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 websites. 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.) 10-13 ..
10-11 Company-sponsored blog: Visit Blue Nile, 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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Blue Nile: This company would probably benefit from a blog that would discuss different kinds of diamond products and other jewelry. The blog written by one of the company’s diamond experts could help educate customers on what to look for, how to evaluate products, and what some of the latest products are. 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 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 would 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.)
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
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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 to calculate shipping costs and taxes. Initially you would like to display photos and descriptions of 40 different products. Visit Yahoo! Small Business, GoDaddy, and iPage and compare the range of e-commerce hosting services they offer to small businesses, their capabilities and costs. Also 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 both.
Starter $39.95/month 1.5% transaction fee $50 setup fee
YAHOO! Small Business Merchant Solutions Standard Professional $99.95/month $299.95/month 1.0% transaction fee 0.75% transaction fee $50 setup fee $50 setup fee
Economy Plan 3 mo: $4.99/mo 12 mo: $4.74/mo SAVE 5% 24 mo: $4.50/mo SAVE 10% ‡
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GoDaddy.com Deluxe Plan 1 mo: $6.99/mo 12 mo: $6.64/mo SAVE 5% 24 mo: $6.29/mo SAVE 10% ‡
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Unlimited Plan 1 mo: $14.99/mo 12 mo: $14.24/mo SAVE 5% 24 mo: $13.49/mo SAVE 10% 36 mo: $12.74/mo SAVE 15%
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36 mo: $4.25/mo SAVE 15%
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36 mo: $5.94/mo SAVE 15%
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iPage.com 36-month term 24-month term 12-month terms Monthly term (subject to availability)
$7.49 a month (billed $269.64 for 3 years) $8.49 a month (billed $203.76 for 2 years) $9.49 a month (billed $113.88 for 12 months) $9.49 a month (billed monthly, applies to the first year of service only)
In addition to writing a report explaining the strengths and weaknesses, ask them 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 the 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 ecommerce presence? AACSB: Written and oral communication, Analytical thinking, Reflective thinking, Application of knowledge.)
Collaboration and Teamwork Project 10-14. In MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment. 10-15 ..
Case Study: Walmart and Amazon Duke It Out for E-Commerce Supremacy Business Problem-Solving Case: Walmart and Amazon Duke it out for E-Commerce Supremacy 10-15 Analyze Walmart and Amazon.com using the competitive forces and value chain models. Walmart: It is a traditional competitor with strong supplier intimacy. It continually works to develop and strengthen its customer intimacy by offering low prices on a wide variety of products that may or may not be offered elsewhere. It relies on its low-cost leadership to bring customers back. Its continuous supply replenishment chain with its efficient customer response system is based on using information technology to strengthen its value chain concentrated in its primary activities including inbound logistics, operations, sales and marketing, and service. Amazon: It is a new market entrant that uses substitute products and services to draw in new customers and keep old ones coming back. Using a lot of third-party suppliers, Amazon often plays the role of middleman by simply taking orders and having the supplier ship the goods to the customer. That strategy requires strong relationships with suppliers. It does use product differentiation in its strategy to individually tailor products and services under mass customization. It focuses on market niches for many of its products especially with books and music preferences recorded and stored for individual customers. By offering its Amazon Prime shipping service, it has increased switching costs for customers who may order from another site. Its value chain also relies on efficient information systems that improve inbound and outbound logistics, sales and marketing, and service. (Learning Objective 10-2: What are the principal ecommerce business and revenue models? Learning Objective 10-5: What is the role of mcommerce in business, and what are the most important m-commerce applications? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.) 10-16 Compare Walmart and Amazon’s business models and business strategies. Walmart has built its empire through 4,000-plus brick-and-mortar stores. It has not been that involved in online shopping but now it’s being forced to increase its Internet presence based on Amazon’s success. Amazon can concentrate all of its corporate resources on its web business because it doesn’t have to support traditional brick-and-mortar stores. Amazon attracts new customers and keeps its old ones by offering low-price shipping through its Prime annual subscription. Its shipping costs are lower than Walmart’s ranging from $3 to $4 per package while Walmart’s online shipping can run $5 to $7 per parcel. While Walmart has literally invented efficient customer response systems that enable it to maintain its low-cost leadership strategy for its physical stores, re-creating a different or separate logistics supply chain is proving difficult and expensive. Walmart’s physical stores provide customers with instant gratification of their purchases while Amazon customers must wait at least a day for their items to arrive. Most purchases are shipped 10-16 ..
within a week’s time. (Learning Objective 10-1: What are the unique features of e-commerce, digital markets, and digital goods? Learning Objective 10-2: What are the principal e-commerce business and revenue models? Learning Objective 10-3: How has e-commerce transformed marketing? AACSB: Analytical thinking, Reflective thinking, Application of knowledge.) 10-17 What role does information technology play in each of these businesses? How is it helping them refine their business strategies? Walmart is developing a smartphone app that will allow customers to order items from Walmart.com if the local physical store is out of stock. Walmart’s Sam’s Clubs are testing a new subscription service that will allow customers to order items online but not have to pay shipping fees. Walmart is also working to improve links between its store inventory, website, and mobile phone apps so that more customers can order online and pick up their purchases at stores without waiting in line. Walmart’s website monitors prices at other retailers and lowers its online prices if necessary. It is also increasing the number of third-party retailers to compete with Amazon’s vast field of suppliers. That helps increase the number of items available to customers without Walmart having to create new shipping logistics chains. Amazon has developed its own smartphone that gives customers a better platform for purchasing products and services online. It also established Mayday, a 24-hour customer support service for users of its devices, offering one-tap access to customer service agents who can help them immediately through the phone. The phone also lets users point it at a product wherever they are and order it through Amazon. To date, the Fire Phone has not lived up to expectations. Amazon is also increasing the number of order fulfillment centers, especially near urban areas, which allows it to offer same-day delivery of purchases. It has a supply chain optimized for online commerce that Walmart just can’t match. (Learning Objective 10-1: What are the unique features of e-commerce, digital markets, and digital goods? Learning Objective 10-2: What are the principal e-commerce business and revenue models? Learning Objective 10-3: How has ecommerce 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 Will Walmart be successful against Amazon.com? Explain your answer. Student answers will vary. The winner of this epic struggle will be the company that leverages its advantage better. While Walmart is struggling to improve its online presence, its real focus remains its brick-and-mortar stores. While Amazon appears to be ahead of Walmart in the ecommerce battle, it still doesn’t have physical stores to service its customers. Amazon is working on expanding its selection of goods to be as exhaustive as Walmart’s. Amazon has allowed third-party sellers to sell goods through its website for a number of years, and it has dramatically expanded product selection through acquisitions such as its 2009 purchase of online shoe shopping site Zappos.com to give Amazon an edge in footwear. 10-17 ..
(Learning Objective 10-3: How has e-commerce transformed marketing? Learning Objective 105: 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.)
10-19 Describe four features of social commerce. Visit MyMISLab for suggested answers. 10-20 Describe three ways in which businesses are able to sell to other businesses using the Internet. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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Chapter 11 Managing Knowledge Student Learning Objectives 11-1 What is the role of knowledge management systems in business? 11-2 What types of systems are used for enterprise-wide knowledge management, and how do they provide value for businesses? 11-3 What are the major types of knowledge work systems, and how do they provide value for firms? 11-4 What are the business benefits of using intelligent techniques for knowledge management? 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. 3-D printing, 430 Agent-based modeling, 442 Artificial intelligence (AI), 432 Augmented reality (AR), 431 Backward chaining, 434 Case-based reasoning (CBR), 436 Chatbox, 442 Communities of practice (COPs), 423 Computer-aided design (CAD), 430 Data, 420 Digital asset management systems, 428 Enterprise content management (ECM), 425 Enterprise-wide knowledge management systems, 424 Expert systems, 432 Explicit knowledge, 420
Intelligent agents, 442 Intelligent techniques, 424 Knowledge, 420 Knowledge base, 434 Knowledge discovery, 432 Knowledge management, 421 Knowledge work systems (KWS), 424 Learning management system (LMS), 428 Machine learning, 439 Massive open online course (MOOC), 428 Neural networks, 439 Organizational learning, 421 Structured knowledge, 425 Tacit knowledge, 420 Taxonomy, 427
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Forward chaining, 434 Fuzzy logic, 438 Genetic algorithms, 441 Hybrid AI systems, 443 Inference engine, 434
Virtual Reality Modeling Language (VRML), 431 Virtual reality, 431 Wisdom, 420
Teaching Suggestions The opening case, “Cadillac Creates Virtual Dealerships,” demonstrates how an old and entrenched industry is trying to improve its business performance by using new tools and technology. Cadillac, a luxury division of General Motors, has a problem and its using virtual reality to help to solve it. It has too many dealers—about three times as many U.S. dealerships as German luxury automakers or Toyota’s Lexus—but sells only half as many cars as they do. That means that there’s a lot of excess inventory in car lots waiting too long to be sold. The inventory must be financed by the dealership, which must also pay for insurance and sales staff. Some of these charges, called “dealer’s prep,” show up in the final price of a new car, and these can amount to $500 or more. Using VR may help Cadillac reduce its unsold inventory and help dealers become more price-competitive. Cadillac plans to remove new-vehicle inventory from a portion of its 925 U.S. dealerships and use virtual reality headsets to display cars that previously would have been on dealer lots. Dealers would have a few tester cars on site, but Cadillacs purchased would be obtained from regional inventory centers instead of dealer lots. If Cadillac can sell via virtual showrooms, the company might be able to bypass dealers altogether. Some dealers believe that with today’s customers wanting immediate gratification, it might be impossible to compete without having real cars on the sales lot. These dealers argue that there’s nothing like the feel and smell of leather in luxury cars and the touch of the controls and nothing like the real thing when it comes to sales. It’s a chancy process. Section 11-1, What is the role of knowledge management systems in business? Most students don’t 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 11-2 ..
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 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 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. Interactive Session: Organizations: ECM in the Cloud Empowers New Zealand Department of Conservation? Case Study Questions 1. Describe the knowledge management problem discussed in this case study. Because personnel and government funding are inadequate to cover all vital services and research, the DOC depends upon private conservation groups, universities, scientists, and other constituencies to perform fieldwork, compile data, run statistical analysis, and document findings. Fourteen regional conservation boards and six regional conservation partnerships engage local business, community groups, and volunteers. In order for all stakeholders to effectively coordinate activities and share outcomes, research findings and data analysis must be accessible to all parties. In the past DOC couldn’t produce documents quickly on demand because it had 2.3 million of them stored in folders with 11-3 ..
poor searching ability. As collaborative efforts increased between 2010 and 2015, the DOC recognized that a state-of-the art enterprise content management (ECM) system was required. 2. What management, organization, and technology factors contributed to the problem? Management: The New Zealand government wanted to maintain its government data center and connected wide area network (WAN), so TEAM Asparona developed ContentWorX as a private cloud behind the government’s firewall. Government agencies can purchase ContentWorX from a catalog of business application services. Organization: The New Zealand Department of Conservation (DOC) is charged with overseeing the national parks, protecting endangered wildlife and ecosystems, and safeguarding one of the world’s largest marine sanctuaries. Its mission includes preserving natural habitats over more than a third of New Zealand’s land mass and protecting numerous offshore havens harboring 44 marine reserves and six marine mammal sanctuaries. Educational programs for both public-land users (hikers, hunters, campers, fishermen, boaters, mountain bikers, cavers, etc.) and the general public expand knowledge about protecting endangered wildlife and fragile ecosystems across nearly 20 million acres of territory. Specific tasks include flood warnings, managing threats to native species from invasive plants, animals, pests, and diseases, wetlands restoration, and conservation of historic sites. Technology: DOC CIO Mike Edginton felt the department was not yet ready to fully transition to a public cloud platform but wanted the benefits of cloud architecture concept and cloud pricing. A subscription model charges users per-month fees that decrease as user numbers rise. In order for all stakeholders to effectively coordinate activities and share outcomes, research findings and data analysis must be accessible to all parties. In the past DOC couldn’t produce documents quickly on demand because it had 2.3 million of them stored in folders with poor searching ability. 3. How did implementing enterprise content management solve the problem? How did the new ECM system change the way the DOC worked? Automated document tagging and classification using Smartlogic’s Semaphore software enabled the DOC to jettison its traditional hierarchical folder structure. A directory of 95,000 commonly used key terms forms the basis of a relational classification system. The relationships between terms are the key to document analysis that will ultimately flag sensitive documents and guide the management of the content life cycle, identifying documents for deletion or retention based on departmental and governmental policies. WebCenter Content also audits document creation, access, and editing. Each document interaction identifies the user, date, and time. Users manage version control themselves, reverting to earlier document versions with no system administrator intervention required. 11-4 ..
4. How successful was this solution? Explain. The new system reduced the time DOC staff has to invest in document auditing processes. It has also simplified compliance with national archiving requirements set forth in New Zealand’s Public Records Act of 2005. Since implementation of the law, every document must be open to the public absent a compelling reason for sealing it, a reversal of previous policy in which all information was closed unless an agency decided to make it publicly available. Document retrieval time has been cut to seconds as opposed to the up to four minutes previously required for users to navigate the folder hierarchy. Even scientists on remote islands or in isolated forests can quickly access reports. Knowledge and learning are easily transferred to regional offices, supporting enhanced conservation efforts and cooperation with partners. Section 11-3 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 time permits you may wish to demonstrate a quick virtual reality project. There are a number of projects that you can download and run from this site: www-vrl.umich.edu/projects.html. Section 11-4, “What are the business benefits of using intelligent techniques for knowledge management? In this section, students are introduced to artificial intelligence, expert systems, casedbased reasoning, fuzzy logic systems, neural networks, genetic algorithms, and intelligent agents. 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 11-5 ..
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: Will Robots Replace People in Manufacturing? Case Study Questions 1. Why have robots caught on in manufacturing? What knowledge do they require? Robots have become smaller, more mobile, more collaborative and more adaptable, and their uses are widening. New robot models can work alongside humans without endangering them and help assemble all types of objects, as large as aircraft engines and as small and delicate as smartphones. They can also sense whether parts are being assembled correctly. Robots are becoming easier to operate. Companies no longer need a software engineer to write program code to get a robot to perform a task. With some of today’s robots, you can simply push a button, turn the robot’s arm, and move it through the operation you want it to perform. The robot learns by doing. Robots are especially useful to go into places people find hard to access. Some robots have reach of more than 50 inches and six rotating joints to do the work. They also verify that parts are properly fastened and check to make sure the correct part is being used. Some robots are lightweight enough that they can easily be moved around to different locations as needed. They are also “collaborative,” designed to work in proximity to people. Using sonar, cameras, or other technologies, these robots can sense where people are and slow down or stop to avoid hurting them. 2. Can robots replace human workers in manufacturing? Explain your answer. At this point in time, it’s highly unlikely that robots will replace all human workers in manufacturing. They still lack the flexibility, delicacy, and insight provided by humans. For example, today’s collaborative robots often must slow down or stop whenever people veer into their paths, disrupting production. Sales of robots used primarily for simple tasks such as moving materials, picking up parts, and packing or unpacking boxes have been slow. The robot’s speed is restricted by safety considerations. For all their recent advances, robots that still can’t duplicate a human being’s fine motor skills in manipulating materials and small parts. Robots still have trouble dealing with soft or floppy material, such as cloth or bundles of electrical wire. Although robots are good at reliably and repeatedly performing defined tasks, they’re not good at adapting. 3. If you were considering introducing robots in your manufacturing plant, what management, organization, and technology issues would you need to address?
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Management: As robots become more widespread, manufacturing tasks performed by humans will become higher level and more complex. Workers will be expected to supervise and perhaps even program robots, and there will be fewer low-level manufacturing jobs. Workers will need more sophisticated skills to succeed in tomorrow’s manufacturing plants. Organization: Using primarily human workers, a manufacturing plant can shift a production line in a weekend. It would take weeks to reprogram robots and shift assembly patterns, and during that downtime, production would be at a standstill. Technology: Among all the other drawbacks listed in previous questions, robots can’t deal with the amount of variation in options required to run all manufacturing plants.
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, and 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. • 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’s 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’s conditional; it’s related to context. (Learning Objective 11-1: What is the role of knowledge management systems in business? AACSB: Application of Knowledge.) 11-7 ..
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 are: •
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 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 11-8 ..
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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, experts 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 11-2: 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. •
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 11-2: What types of systems are used for enterprise-wide knowledge management, and how do they provide value for businesses? AACSB: Application of Knowledge.)
11-3 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 11-9 ..
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 11-3: 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 actually 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 11-3: What are the major types of knowledge work systems, and how do they provide value for firms? AACSB: Application of Knowledge.)
11-4 What are the business benefits of using intelligent techniques for knowledge management? Define an expert system, describe how it works, and explain its value to business.
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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 11-4: What are the business benefits of using intelligent techniques for knowledge management? AACSB: Analytical thinking; Application of Knowledge.) Define case-based reasoning and explain how it differs from an expert system. Case-based reasoning (CBR) uses descriptions of past experiences of human specialists, representing them as “cases” and storing them in a database for later retrieval when the user encounters a new case with similar parameters. The system searches for stored cases similar to the new one, locates the closest fit, and offers the solution to the old case for use with the new case. If the new case fits the solution, it is added to the case database. If not, the case will be added with a new solution or explanations as to why the solution did not work. CBR differs from expert systems in that it captures the knowledge of the organization rather than a single expert, and the knowledge is captured as cases rather than if-then rules. Also, expert systems work by applying IF-THEN-ELSE rules against a knowledge base whereas CBR represents knowledge as a series of cases. With case-based reasoning, the knowledge base is continuously updated by the users. (Learning Objective 11-4: What are the business benefits of using intelligent techniques for knowledge management? AACSB: Analytical thinking; Application of Knowledge.) Define machine learning and give some examples. 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 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 11-4: What are the business benefits of using 11-11 ..
intelligent techniques for knowledge management? AACSB: Reflective thinking; Application of Knowledge.) Define a neural network and describe how it works and how it benefits businesses. 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. (Learning Objective 11-4: What are the business benefits of using intelligent techniques for knowledge management? AACSB: Analytical thinking; Application of Knowledge.) Define and describe fuzzy logic, genetic algorithms, and intelligent agents. Explain how each works and the kinds of problems for which each is suited. Fuzzy logic is a rule-based AI technology that tolerates imprecision by creating rules that use approximate or subjective values and incomplete or ambiguous data. Fuzzy logic represents more closely the way people actually think than traditional IF-THEN rules. For example, if we all agree that 120 degrees is hot and -40 degrees is cold, then is 75 degrees hot, warm, comfortable, or cool? The answer is fuzzy at best and cannot be programmed in an IF-THEN manner. Japan’s Sendai subway system uses a fuzzy logic system to control acceleration so it will operate more smoothly. 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 geneticallybased 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 11-12 ..
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 11-4: What are the business benefits of using intelligent techniques for knowledge management? AACSB: Analytical thinking; 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 Your company wants to do more with knowledge management. Describe the steps it should take to develop a knowledge management program and select knowledge management applications. 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 11-13 ..
specifications relevant to internal systems and databases, external sources of 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 11-2: 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 that sell 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 11-3: 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. If they want a good resource for their PDA, try 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. Other sites to direct students to include: • •
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 can’t 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_mis15_ch11_solution_file.xls. (Learning Objective 11-4: What are the business benefits of using intelligent techniques for knowledge management? 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 SX530 or the Olympus Tough TG-4. Visit MySimon (www.mysimon.com), BizRate.com (www.bizrate.com), and Google Product Search to do price comparisons for your purchase. Evaluate these shopping sites in terms of their ease of use, number of offerings, speed in obtaining information, thoroughness of information offered about the product 11-15 ..
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 doesn’t 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 11-3: 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 MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: Does IBM’s Watson Have a Future in Business? Case Study Questions 11-13 How powerful is Watson? Describe its technology. Why does it require so much powerful hardware? The hardware required for Watson to work so quickly and accurately was staggeringly powerful. Watson consists of 10 racks of IBM POWER 750 servers running Linux, uses 15 terabytes of RAM and 2,880 processor cores (equivalent to 6,000 top-end home computers), and operates at 80 teraflops. Watson needed this amount of power to quickly scan its enormous database of information, including information from the Internet. The team downloaded over 10 million documents, including encyclopedias and Wikipedia, the Internet Movie Database (IMDB), and the entire archive of the New York Times. All of the data sat in Watson’s primary memory, as opposed to a much slower hard drive, so that Watson could find the data it needed within three seconds. The Watson project took 20 IBM engineers three years to build at an $18 million labor cost, and an estimated $1 million in equipment. The latest version of Watson is 24 times faster than the version used in the 2011 Jeopardy contest, using only 10 percent of the hardware used in the Jeopardy version. IBM is moving many of Watson’s capabilities to the Internet through cloud services that many different businesses and industries will use. Examples of the services include: 11-16 ..
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Developer Cloud: Tools and methodologies for developers to work with a Watson system, a content store supplying both free and fee-based data for new applications, and about five hundred subject mater experts from IBM and third parties. CareWell Concierge: A mobile Watson app for consumers who will be able to participate with Watson in conversations about their health. A personalized shopping assistant. An app to advise hospital managers about procurement of medical equipment and supplies.
Three new cloud-based products will be available that use Watson’s cognitive intelligence and capabilities: • Discovery Advisor: Aimed at pharmaceutical, publishing, and education industries. • Analytics: Will provide insights, including visual representations based on raw big data. • Explorer: Will provide a unified view of a user’s information, facilitating the revelation and sharing of data-driven insights. (Learning Objective 11-4: What types of systems are used for enterprise-wide knowledge management and knowledge work, and how do they provide value for businesses? AACSB: Information technology; Application of knowledge.) 11-14 How intelligent is Watson? What can it do? What can’t it do? Watson learns from its mistakes and successes, much as humans do, through machine learning. Algorithms programmed into its memory evaluate the language used, gathers information and generates hundreds of solutions. If a certain algorithm works to solve a problem, Watson remembers what type of question it was and the algorithm it used to get the right answer. It also uses patterns or similarities to assign varying degrees of confidence to the answers it gives to questions or problems. Watson currently is not good at developing answers to questions that rely on prior experience and good guesses. It’s also not good at predicting the future or to have intentions, objectives, or feelings. At least not yet! (Learning Objective 11-4: What types of systems are used for enterprise-wide knowledge management and knowledge work, and how do they provide value for businesses? AACSB: Analytical thinking.) 11-15 What kinds of problems is Watson able to solve? How useful a tool is it for knowledge management and decision making? Future applications for Watson are numerous and wide-ranging in medicine, financial services, or any industry where sifting through large amounts of data (including unstructured data) to answer questions is important.
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It’s unclear how effective Watson will be in the medical fields where information available in medical journals and other sources is highly disorganized, often contradictory, and littered with typos and inconsistent naming conventions. When human doctors apply their understanding of disease to our bodies, it is based on knowledge of the literature, but also based on prior experience and good guesses. IBM maintains that it doesn’t believe Watson will replace physicians but its advanced analytics technology should be able to help them improve medical diagnoses and avoid medical errors. Watson’s ability to process natural language allows it to perform many jobs requiring factual knowledge and expertise. Rote problem solving and repetitious tasks are easily accommodated by Watson. Jobs that involve answering questions or conducting transactions on the telephone are likely candidates for Watson or its clones. It can also be used in computer models that predict weather, likes and dislikes from online retailers like Amazon.com, and speech recognition to develop more accurate predictions, recommendations, and speech processing. (Learning Objective 11-4: What types of systems are used for enterprise-wide knowledge management and knowledge work, and how do they provide value for businesses? AACSB: Information technology; Application of knowledge.) 11-16 Do you think Watson will be as useful in other industries and disciplines as IBM hopes? Will it be beneficial to everyone? Explain your answer. IBM hopes to use Watson in medicine, financial services, or any industry where sifting through large amounts of data to answer questions is important. WellPoint Inc., a health insurer, uses Watson to help it choose among treatment options and medicines. However, diagnoses are based as much on prior experience and good guesses as they are on hard data. Artificial intelligence skeptics don’t believe Watson really understands language or the answers it’s giving. IBM researchers who designed the system don’t disagree. One of the drawbacks to employing Watson and its clones are the number of human employees who will likely lose their jobs and require retraining for other job fields. Watson hasn’t yet overcome the hurdle that derailed AI in the 1980s, which only was able to capture very small pieces of a limited knowledge domain for a single-purpose use. Watson is having more trouble solving real-life problems than Jeopardy questions. (Learning Objective 11-4: What types of systems are used for enterprisewide knowledge management and knowledge work, and how do they provide value for businesses? AACSB: Reflective thinking.) 11-17 How do each of the following types of systems acquire and represents knowledge: expert system, case-based reasoning, neural network? Visit MyMISLab for suggested answers. 11-18 ..
11-18 How do enterprise content management systems help organizations manage structured and semistructured knowledge? What are two examples of each type of knowledge handled by these systems? Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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, and what is the role of information systems in helping people working in a group make decisions more efficiently? Learning Catalytics is a “bring your own device” student engagement, assessment, and classroom intelligence system. It allows instructors to engage students in class with real-time 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. Balanced scorecard method, 475 Behavioral models, 459 Business performance management (BPM), 476 Choice, 457 Classical model of management, 459 Data visualization, 464 Decisional role, 459 Design, 457 Drill down, 476 Geographic information systems (GIS), 469 Group decision-support systems (GDSS), 476 Implementation, 457
Informational role, 459 Intelligence, 457 Interpersonal role, 459 Key performance indicators (KPIs), 476 Location analytics, 469 Managerial roles, 459 Operational intelligence, 466 Pivot table, 474 Predictive analytics, 465 Semistructured decisions, 456 Sensitivity analysis, 473 Structured decisions, 456 Unstructured decisions, 456
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Teaching Suggestions The opening case, “Can Big Data Analytics Help People Find Love,” illustrates how the effective use of data analytics can help employees and managers at all levels and in many different industries make better decisions. Even though the vignette describes a “scientific” approach to matching highly compatible singles, it points out how important turning raw data into useful information can help make a team or company successful. After users of eHarmony.com answer some 200 questions, the data is processed through a patented algorithm and then analyzed to provide information for the website. Big data analysis is also helpful for marketing and provides eHarmony information on the best time and way to contact users. The business is now using its successful process for its dating site to expand into the job searching business called Elevated Careers. Just as eHarmony works by finding out what predicts happy and unhappy marriages, Elevated Careers works by identifying people who are full-time employed, having them describe themselves and their companies, and then applying those models to people interested in working at those companies. The vignette also 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. 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 all 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 them 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: Technology: The Tension Between Technology and Human Decision Makers Case Study Questions 1. How did information technology change the game of baseball and America’s Cup sailboat racing? Explain. Given the huge disparities in Major League Baseball (MLB) team budgets, wealthier teams typically have the advantage in recruiting the best players. The movie Moneyball describes how Oakland Athletics manager Billy Beane was able to turn the underdog A’s into a winning team by using advanced analytics to guide decisions about which players to recruit and cultivate. Rigorous statistical analysis had demonstrated that on-base percentage and slugging percentage were better indicators of offensive success (and cheaper to obtain on the open market) than more historically valued qualities such as speed and contact. Beane rebuilt the A’s based on these findings, producing a consistently winning team for a number of years by using advanced analytics to gain insights into each player’s value and contribution to team success that wealthier teams had overlooked. Beane and his data-driven approach to baseball had a seismic impact on the game. After observing the A’s phenomenal success in 2002, the Boston Red Sox adopted Beane’s strategy, only with more money. Two years later, they won the World Series. To varying degrees, every
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Major League Baseball team today uses data and deep analytics to support decisions about many aspects of the game. Team USA used 250 sensors on the wing, hull, and rudder of their sailing boat to gather realtime data on pressure, angles, loads, and strains to monitor the effectiveness of each adjustment. The sensors tracked 4,000 variables, 10 times a second, producing 90 million data points an hour, which were transmitted on a wireless network to crew member wrist displays. The data were wirelessly transferred to a tender ship running Oracle 11g database management software for nearly real-time analysis using velocity prediction formulas geared to understanding what makes the boat go fast and also to Oracle’s Austin data center for more in-depth analysis. Each USA crew member wore a small mobile handheld computer on his wrist to display data on the key performance variables customized for that person’s responsibilities. The captain and tactician had data displayed on their sunglasses. In this way, each crew member instantly received the data he needed to perform his job. The crew was trained to sail like pilots looking at instruments rather than sailors looking at the boat and sea for clues. 2. How did information technology affect decision making at Team USA and the Oakland Athletics? What kinds of decisions changed as the result of using computers? Decision making at Team USA was severely altered based on the use of technology. While the sailors insisted they were using the wrong route to victory the engineers’ software program had instructed Team USA to sail as close as possible to wind on the upwind legs (about 45 degrees to the wind). But the sailors’ observations of the actual races suggested New Zealand was winning because it sailed five degrees off the wind at about 50 degrees, sailing a longer but faster upwind course. The difference was seconds per mile, which, all other things being equal, adds up to victory in a 12-mile race. While the Oakland Athletics became a winning team in 2002 using advanced data analysis, and the Boston Red Sox won the world series using the same idea, the San Francisco Giants have had a better long-term successful streak using a combination of data analytics and good oldfashioned instinct. 3. How much was technology responsible for Team USA’s America’s Cup victory? Despite all the advanced technology and detailed data to guide decision making, Team USA lost seven races in a row. The sailors and engineers disagreed about what to do. The engineers called for boat modifications, while the sailors called for more attention to be paid to sailing and less attention to monitoring their wrist computers. The sailors claimed the engineers’ software was just wrong. Team USA pursued both solutions: multiple small changes were made in the boat hull and underwater foils, and on the race course Captain James Spithill and his team stopped looking so much at their wrist computer screens and started to act like sailors. Team USA won every upwind leg of the last eight races. Competitive sailboat racing is still not ready to rely totally on computers.
4. How much does baseball rely on sabermetrics? Explain your answer. 12-4 ..
Many baseball experts continue to believe that traditional methods of player evaluation, along with gut instinct, money, and luck, are still key ingredients for winning teams. The San Francisco Giants have won more games and have more outstanding players in the Baseball Hall of Fame than any team in U.S. baseball history. The Giants use statistics but also base their player recruitment decisions on the opinions of scouts and coaches. They insist that numbers can’t tell the whole story about the quality of the player. So, the Giants integrate statistical data with scouting, coaching, and player experience, especially when dealing with opponents outside the National League the Giants do not see regularly. Being able to exploit an individual player’s strengths comes more from knowing the player and his ability as opposed to the statistics the coaches believe.
Interactive Session: Management: Data Drive Starbucks Location Decisions Case Study Questions 1. How important is location data to Starbucks’s business strategy? Explain your answer. Where merchants place their stores plays an outsized role in determining whether their chains fly or flop. Proximity to customers and large-enough numbers of customers are key. Retailers need to know where their potential customers are and where they will be over the10- to 25-year lifetime of the investment they make in a new physical space. Geographic information systems (GIS) play an important role at Starbucks for both site selection and product placement. For years, Starbucks has continued to grow throughout the United States and internationally, opening franchises at an extremely rapid rate—as many as 800 per year. The company had tripled the number of stores it operated worldwide, from 5,886 in 2002 to 15,011 in 2007. It was forced to close 600 stores during the 2008 economic downturn but began adding many new locations as business improved. 2. How do location analytics help Starbucks managers make better decisions? Give examples of two decisions that the Atlas system helps support. Starbucks uses GIS to analyze where its customers spend more money than average on coffee purchases to support decisions on where to install its high-end Clover Brewing System, which brews one cup of coffee at a time at a precise temperature and length of time to create exceptionally flavorful coffee. Starbucks staff members can access GIS information from desktops, the Internet, and mobile devices. The company’s focus now is on the profitability of individual stores, and it is pinpointing stores, including smaller stores and drive-throughs, in locations that are more convenient for customers.
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3. Compare Starbucks decisions about store location in 2007–2008 and 2012. What made the later decisions more successful? What management, organization, and technology factors were involved? Management: Management doesn’t want Starbucks growing for the sake of growing and looks much more carefully at the individual profitability prospects of each newly opened store. It no longer assumes that just because stores are Starbucks, they can succeed anywhere. Management does not want to repeat what happened in 2007 and 2008, when Starbucks had to close hundreds of stores, many of which should never have been opened in the first place. Organization: The majority of Starbucks stores shuttered in 2007 and 2008 were ones that had been opened in the previous 18 months. At that time Starbucks’s strategy focused on accelerating the growth of its U.S. business. It appeared to be opening stores just for the sake of opening them, even where there wasn’t a profitable opportunity. Technology: Starbucks has been using GIS since the late 1990s and relied upon it to support its 2007–2008 decision to open so many stores that were subsequently closed. Starbucks decision makers were inundated with data, especially the decision-makers working with real estate. At that time Starbucks staff had access to massive amounts of data but lacked sufficient expertise and tools to analyze the data properly. So many store closings helped convince Starbucks senior management of the need for a datadriven, disciplined approach to store-opening decisions. When Starbucks tried again to open a series of new stores in 2011 and 2012, the results were very different. The stores opened during that time produced some of the best unit economics in the history of the company, with a salesto-investment ratio of 2:1, very strong compound growth, and average per-store volumes at record levels. New U.S. stores were delivering first-year sales of $1,052,000 compared with a target of $900,000, and the stores cost on average $494,000 to build (the 2:1 sales-to-investment result). 4. What is the value to Starbucks of a good decision about where to open a Starbucks store? Explain your answer. Starbucks now uses a market planning and store development application called Atlas powered by software from ESRI, a leading vendor of GIS and location analytics systems. The software analyzes massive amounts of location-based data and demographic data to determine the best place to open Starbucks stores without hurting sales at other Starbucks locations. Atlas handles workflow, analysis, and store performance. An Atlas user can see on a map local trade areas, retail clusters, demographics, traffic and transportation nodes, and locations where new offices are being built that might be important sources of customers. After adding a new target area, Atlas provides a workflow window to help the user move the new Starbucks store site through approval, permitting, construction, and opening. Starbucks real estate staff start out with certain assumptions about where to locate a new store; Atlas helps them test different scenarios to ascertain whether the original assumptions are correct.
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Section 12-4, “How do different decision-making constituencies in an organization use business intelligence, and what is the role of information systems in helping people working in a group make decisions more efficiently?” 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’s usually not the case with decision-support systems for semistructured decisions. You definitely 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 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.
Review Questions
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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 decision. 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. • 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: • 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.) 12-8 ..
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 12.1: 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, Reflective thinking.) 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 12.1: What are the different types of decisions, and how does the decision-making process work? 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 12.2: How do business intelligence and business analytics support decision making? AACSB: Application of knowledge.) List and describe the elements of a business intelligence environment.
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•
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. • 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 12.2: 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 12.2: How do business intelligence and business analytics support decision making? AACSB: Application of knowledge.) Compare two different management strategies for developing BI and BA capabilities. • •
Single vendor: Provides all the hardware and software necessary to adopt BI and BA capabilities. The risk comes from the vendor having all the pricing power. The reward comes from the organization having fewer integration problems. Multiple best-of-breed vendors: Adopt the best hardware and software from multiple vendors. The risk comes from potential integration problems among all the 12-10 ..
components. The reward comes from greater flexibility and independence in choosing vendors. (Learning Objective 12.2: 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, and what is the role of information systems in helping people working in a group make decisions more efficiently? List each of the major decision-making constituencies in an organization and describe the types of decisions each makes. •
Operational management: Generally, makes structured decisions based on day-today 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 12.3: How do different decision-making constituencies in an organization use business intelligence? What is the role of information systems in helping people working in a group make decisions more efficiently? 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
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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 environmental changes. ESS expand executives’ span of control because information is readily available and easy to access. (Learning Objective 12.3: How do different decisionmaking constituencies in an organization use business intelligence? What is the role of information systems in helping people working in a group make decisions more efficiently? 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 12.3: How do different decision-making constituencies in an organization use business intelligence? What is the role of information systems in helping people working in a group make decisions more efficiently? AACSB: Application of knowledge.) Define a group decision-support system (GDSS) and explain how it differs from a DSS. A GDSS is an interactive computer-based system that facilitates the solution of unstructured problems by a set of decision makers working together as a group. GDSS have been 12-12 ..
developed in response to the growing concern over the quality and effectiveness of meetings. In general, DSS focus on individual decision making, whereas GDSS support decision making by a group. (Learning Objective 12.3: How do different decision-making constituencies in an organization use business intelligence? What is the role of information systems in helping people working in a group make decisions more efficiently? 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 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 12.3: How do different decision-making constituencies in an organization use business intelligence? What is
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the role of information systems in helping people working in a group make decisions more efficiently? 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 particular 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. 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 MyMISLab. Use Excel’s Pivot Table 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.
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What form of payment is the most common? The answer could be used to emphasize in advertising the most preferred means of payment.
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Are there any times of day when purchases are most common? Do people buy the products while at work (likely during the day) or at home (likely in the evening)?
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What’s the relationship between regions, type of product purchased, and average sales price? 12-14 ..
We provide instructions on how to use Excel PivotTables in our Learning Tracks. See the solution file MIS15ch12_solutionfile. (Learning Objective 12.2: 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 websites 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 16 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 benefit 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 benefit, use the Quick Calculator at the Social Security Administration website (www.ssa.gov/planners/calculators.htm). 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. 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 12.2: How do business intelligence and business analytics support decision making? AACSB: Analytical thinking, Application of knowledge.)
Collaboration and Teamwork Project
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12-12. In MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: GE Bets on the Internet of Things and Big Data Analytics 12-13 How is GE changing its business strategy and business model? What is the role of information technology in GE’s business? The company is transitioning to a much more technology-centric business strategy and business model. GE is selling off its division that makes refrigerators and microwave ovens along with most of GE Capital financial services to focus on electric power generators, jet engines, locomotives, and oil-refining gear and software to connect these devices to the cloud. GE is putting its money on the technology that controls and monitors industrial machines as well as software-powered, cloud-based services for analyzing and deriving value from the data. GE hopes this strategy will turn it into a major software company. (Learning Objective 12-3: How do business intelligence and business analytics support decision making? AACSB: Analytical thinking, Application of knowledge.) 12-14 On what business functions and level of decision making is GE focusing? GE is using sensor-generated data from industrial machines to help customers monitor equipment performance, prevent breakdowns, and assess the machines’ overall health. This new technology is opening new opportunities for GE customers while also helping to transform GE from a traditional manufacturer to a modern digital business. GE has committed $1 billion to installing sensors on gas turbines, jet engines, and other machines; connecting them to the cloud; and analyzing the resulting data to identify ways to improve machine productivity and reliability. In other words, GE is betting its future on software and the Internet of Things (IoT). (Learning Objective 12-3: How do business intelligence and business analytics support decision making? Learning Objective 12-4: How do different decision-making constituencies in an organization use business intelligence, and what is the role of information systems in helping people working in a group make decisions more efficiently? AACSB: Analytical thinking, Application of knowledge.) 12-15 Describe three kinds of decisions that can be supported using Predix. What is the value to the firm of each of those decisions? Explain. The foundation for all of GE’s Industrial Internet (IoT) applications is Predix, a software platform launched in 2015 to collect data from industrial sensors and analyze the information in the cloud. Predix can run on any cloud infrastructure. The platform has open standards and protocols that allow customers to more easily and quickly connect their machines to the Industrial Internet. The platform can accommodate the size and scale of industrial data for every customer at current levels of use, but it also has been designed to scale up as demand grows. Predix can offer apps developed by other companies as well as GE, is available for on-premises or cloud-based deployment, and can be extended by customers with their own data sources, 12-16 ..
algorithms, and code. Customers may develop their own custom applications for the Predix platform. GE is also building a developer community to create apps that can be hosted on Predix. Predix is not limited to industrial applications. It could be used for analyzing data in healthcare systems, for example. GE now has a Health Cloud running on Predix. Data security is embedded at all platform application layers, and this is essential for companies linking their operations to the Internet. GE currently uses Predix to monitor and maintain its own industrial products, such as wind turbines, jet engines, and hydroelectric turbine systems. Predix is able to provide GE corporate customers’ machine operators and maintenance engineers with real-time information to schedule maintenance checks, improve machine efficiency, and reduce downtime. Helping customers collect and use this operational data proactively would lower costs in GE service agreements. When GE agrees to provide service for a customer’s machine, it often comes with a performance guarantee. Proactive identification of potential issues that also takes the cost out of shop visits helps the customer and helps GE. In early 2013, GE began to use Predix to analyze data across its fleet of machines. By identifying what made one machine more efficient or downtime- prone than another, GE could more tightly manage its operations. For example, by using high performance analytics, GE learned that some of its jet aircraft engines were beginning to require more frequent unscheduled maintenance. A single engine’s operating data will only tell you there’s a problem with that engine. But by collecting massive amounts of data and analyzing the data across its entire fleet of machines, GE was able to cluster engine data by operating environment. The company found that the hot and harsh environments in the Middle East and China caused engines to clog, heat up, and lose efficiency, so they required more maintenance. GE found that engines had far fewer of these problems if they were washed more frequently. Fleet analytics helped GE increase engine lifetime and reduce engine maintenance. (Learning Objective 12-3: How do business intelligence and business analytics support decision making? Learning Objective 12-4: How do different decision-making constituencies in an organization use business intelligence, and what is the role of information systems in helping people working in a group make decisions more efficiently? AACSB: Analytical thinking, Application of knowledge.) 12-16 To what extent is GE becoming a software company? Explain your answer. GE wants to go beyond helping its customers manage the performance of their GE machines to managing the data on all of the machines in their entire operations. Many customers use GE equipment alongside of equipment from competitors. The customer cares about running the whole plant, not just GE turbines, for example, and 80 percent of the equipment in these facilities is not from GE. If, for example, if an oil and gas customer has a problem with a turbo compressor, a heat exchanger upstream from that compressor may be the source of the problem, so analyzing data from the turbo compressor will only tell part of the story. Customers therefore want GE to analyze non-GE equipment and help them keep their entire plant running. GE is in discussions with some customers about managing sensor data from all of the machine assets in their operation. (Learning Objective 12-4: How do different decision-making constituencies in an organization use business intelligence, and what is the role of information systems in helping people working in a group make decisions more efficiently? AACSB: Analytical thinking.) 12-17 ..
12-17 Do you think GE will become one of the top 10 U.S. software companies? Why or why not? GE CEO Jeffrey Immelt wants GE to become a top 10 software company by 2020. In order to do this, GE needs to sell vast amounts of applications and Predix-based analytics. Although few businesses have the capital or infrastructure to operate a platform for integrating and analyzing their IoT data, GE faces competition from many sources. Amazon, Google, IBM, and Microsoft are all getting into the Internet of Things platforms, and dozens of start-ups have similar ambitions. The biggest question is whether other large industrial companies will turn to GE or to another cloud platform to manage their information. And if you’re a manufacturer of some size and sophistication, will you allow GE to “own” the data on your business, or will you manage and analyze the data yourself? (Learning Objective 12-4: How do different decision-making constituencies in an organization use business intelligence, and what is the role of information systems in helping people working in a group make decisions more efficiently? AACSB: Analytical thinking.) 12-18. Identify and describe three factors that prevent managers from making good decisions. Visit MyMISLab for suggested answers. 12-19. Give three examples of data used in location analytics and explain how each can help businesses. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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 alternative methods for building information systems? 13-5 What are new approaches for system building in the digital firm era? 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. Acceptance testing, 498 Agile development, 513 Automation, 489 Business process management, 491 Business process redesign, 490 Component-based development, 514 Computer-aided software engineering (CASE), 504 Conversion, 499 Customization, 510 Data flow diagram (DFD), 500 DevOps, 513 Direct cutover strategy, 499 Documentation, 499 End-user development, 507 End-user interface, 507 Feasibility study, 495
Parallel strategy, 499 Phased approach strategy, 499 Pilot study strategy, 499 Postimplementation audit, 499 Process specifications, 502 Production, 499 Programming, 497 Prototype, 506 Prototyping, 506 Query languages, 507 Rapid application development (RAD), 513 Rationalization of procedures, 490 Request for proposal (RFP), 510 Responsive web design, 515 Six sigma, 490 13-1 ..
Information requirements, 496 Iterative, 506 Joint application design (JAD), 513 Maintenance, 499 Mobile web app, 515 Mobile website, 515 Native app, 515 Object, 502 Object-oriented development, 502 Offshore outsourcing, 511 Paradigm shift, 491
Structure chart, 502 Structured, 500 Systems analysis, 495 Systems design, 496 Systems development, 495 Systems life cycle, 505 System testing, 498 Test plan, 498 Testing, 497 Total quality management (TQM), 490 Unit testing, 498
Teaching Suggestions The opening case, “Angostura Builds a Mobile Sales System” highlights the importance of an organization continually assessing its business processes and striving to improve them. Angostura’s old system was mostly manual with only limited information system availability. Because the orders were handwritten, information could be read and entered incorrectly, which could result in the wrong goods being sent to a customer. Such inaccurate orders were often returned, creating more paperwork and higher costs. Angostura also used manual processes for reporting and tracking invoices and accounts receivable information, which could create additional delays and errors. The sales representatives were also working with data on product availability that might be out of date. If the sales reps were away from the office, they would not be able to tell whether an order could be fulfilled. They would have to call Angostura’s warehouse to find out if an order was possible. Angostura partnered with IDS Scheer and itCampus consultants to develop mobile sales solution running on Apple iPads. The solution includes an offline customer database, product catalog, customer-specific pricing, order entry, order preview, and integration with Bluetooth printers. It was quickly created using SAP NetWeaver Gateway technology to connect various devices and platforms to SAP software. With the Angostura Mobile Sales App, an order can be created in less than 30 seconds, depending on the size of the order, making the ordering process two times faster. There is a 20 percent time savings per salesperson because the sales reps now can send orders through as they place them rather than waiting until they return to the office. The amount of time customer service representatives would typically spend on data entry has been reduced by 75 percent, freeing up time for more useful tasks. Returned orders have been reduced by 30 percent. 13-2 ..
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 applications for admission to your school. While they probably won’t 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. “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: systems analysis, systems design, programming, testing, conversion, and production and maintenance. Specific information requirements must be established at the beginning of the systems 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 systems analysis and design are left up to the IT staff instead of involving users throughout the system development process. What’s 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. 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’s 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. Section 13-4, “What are 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 13-3 ..
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 systems 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. Interactive Session: Organizations: Fujitsu Selects a SaaS Solution to Simplify the Sales Process Case Study Questions 1. What were Fujitsu’s problems with its existing systems for the CPQ process? What was the business impact of these problems? Fujitsu has more than 450,000 network elements, including shelves and network cards that house connectivity hardware, signaling and routing setup, and management provisioning. The company’s numerous products contain thousands of parts and innumerable configuration scenarios. A single product, for example, might be priced differently for 600 separate customers because pricing is determined by a customer’s unique configurations concerning network sites, geographic locations, and distances between sites. Additionally, each of the various sites in a network involves a multitude of setup configurations concerning power supply, labeling, and rules for communication. Fujitsu sales teams had trouble handling all this complexity in the sales and ordering processes. They had to use individual spreadsheets to configure, price, and quote (CPQ) solutions for their customers. The company had no centralized repository for price quotes, records of offerings, or capability for integrating quotes with the ordering process. Even though Fujitsu had an ERP system to maintain its enterprise-wide master pricing and materials master data, the CPQ process still took days and resulted in quoting errors and countless hours of corrections and rework. 2. List and describe the most important information requirements you would expect to see in Fujitsu’s RFP.
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The most important evaluation criteria in a Request for Proposal (RFP) are the functions provided by the software, flexibility, user-friendliness, hardware requirements, database requirements, installation and maintenance efforts, documentation, vendor quality, and cost. Fujitsu's RFP looked for a solution that would produce quotes quickly and reduce quoting errors and rework. The most critical requirements were the ability to centralize and control all the quoting that was going on, ensure accurate pricing, and ensure that the parts being configured were all available. 3. Why was the FPX CPQ solution selected? Was it a good choice? Why or why not? Only the FPX solution had the ability to integrate with Fujitsu’s front-end Salesforce lead management and forecasting software and with data from the company’s back-end ERP system. An added benefit was that it ran on a cloud computing platform. FPX CPQ automatically configures all sales orders, even when they are based on extremely complex business rules. The software validates all selections of products and services to eliminate costly rework and helps preserve profit margins by requiring approval for discounts that exceed preapproved levels. The FPX CPQ was probably a good solution for the company. Every time a change is made, such as a new price, new product availability, or a change in a product description, all users can see that change as soon as they access the system and look at their quotes. If a quote is in the process of being generated, Fujitsu can also update that quote with such changes. End users can be out in the field with customers and show them real-time visual representations of solutions, make changes to configurations, and instantly obtain accurate-up-to-the-minute prices. The new CPQ system enables Fujitsu streamlines the sales process by placing a significant portion of the product data and configuration rules directly within the quoting application. The sales team can operate more independently and to focus on selling. 4. Why would software as a service be an appropriate solution for Fujitsu? Should Fujitsu have built its own CPQ system in-house? Fujitsu does not have to write its own software thus saving time and money by using prewritten, predesigned, pretested software programs. It also does not have to supply much of the ongoing maintenance and support for the system in-house included enhancements to keep the system in line with ongoing technical and business developments. The SaaS vendor does all that work for the company. Even though Fujitsu could have built its own system in-house, in this case selecting a SaaS vendor was the better choice.
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5. How much did FPX CPQ change the way Fujitsu ran its business? For Fujitsu, FPX CPQ automates all the company’s complex pricing rules and requirements and integrates them in nearly real time to the quoting system so that quotes and orders can immediately capture any change to product and materials master data. Pricing that used to take Fujitsu’s sales teams days to calculate now just takes seconds. And by centralizing this information, one does not have to pore through individual spreadsheets to see how pricing is being done. When a change is made, it no longer is buried in one or a handful of spreadsheets maintained by individual sales staff. FPX CPQ can also automatically recognize additional opportunities based on changing the placement of a product in a specific location. This feature eliminates the cumbersome manual process of crosschecking a configuration against a promotion list and eliminates the need to make post-sale concessions to customers who did not initially receive the lowest cost option. Within six months of implementing FPX CPQ, Fujitsu was already achieving business benefits. A single cloud-based platform for CPQ replaced multiple quoting systems for configuring multi-shelf and multi-slot networking platforms. Pricing errors were reduced 80 percent, which in turn significantly reduced rework and write-downs. The overall cycle time decreased as well. Moreover, automating the CPQ enterprise-wide made it possible to see more important information about sales, services, and what customers were requesting. 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. 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. 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 13-6 ..
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: Developing Mobile Apps: What’s Different? Case Study Questions 1. What management, organization, and technology issues need to be addressed when building a mobile application? Management: You can’t just port a website or desktop application to a smartphone or tablet. It’s a different systems development process. Managers need to understand and support the idea that each website or process requires a different set of processes. It may sound more expensive to develop apps and websites that way, but in the long run it will pay off with greater customer satisfaction. Organization: A mobile strategy involves more than selecting mobile devices, operating systems, and applications. It also involves changes to business processes, changing the way people work and the way a firm interacts with its customers. It also requires changing internal systems like inventory management and reservations. Technology: Developing mobile apps or a mobile website has some special challenges. The user experience on a mobile device is fundamentally different from that on a PC. There are special features on mobile devices such as location-based services that give firms the potential to interact with customers in meaningful new ways. Mobile technology can streamline processes, make them more portable, and enhance them with capabilities such as touch interfaces, location and mapping features, alerts, texting, cameras, and video functionality. The technology can also create less efficient processes or fail to deliver benefits if the mobile application is not properly designed. 2. How does user requirement definition for mobile applications differ from traditional systems analysis? Mobile apps should not be built for the sake of going mobile but for genuinely helping the company become more successful. The mobile app will need to be connected in a meaningful way to the systems that power the business. It’s important to understand how, why, and where customers use mobile devices and how these mobile experiences change business interactions and behavior. You can’t just port a website or desktop application to a smartphone or tablet. It’s a different systems development process. 3. Describe Alex and Ani’s sales process before and after the mobile application was deployed.
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Alex and Ani, founded in 2004, designs, produces, and sells high-quality, ecofriendly jewelry in the U.S. using artisanal techniques, and is dedicated to helping its customers find inner peace and positive energy. Having customers in Alex and Ani stores wait on long checkout lines ran counter to the company’s philosophy and brand image. Alex and Ani created a mobile point-of-sales and payment solution where sales people can swipe credit cards, scan bar codes, and print, allowing a customer to sign and receive a copy of the credit-card receipt at the time of purchase while they are in the store aisles. They do not have to wait in line for a cashier. The mobile app helps store sales staff to be more attentive to customers while reducing time to pay for purchases. This enhances the in-store customer experience, improves brand perception, and provides better customer service, thereby increasing sales revenues.
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. 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, work flows, and user interfaces. • Business process redesign: higher risk, higher reward. Organizations rethink and streamline business processes to improve speed, service, and quality. BPR reorganizes work flows, 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 13-1: 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 13-8 ..
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. • 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 13-1: 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 systems analysis. It’s 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 13-2: What are the core activities in the systems development process? AACSB: Analytical thinking.)
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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 13-2: 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: Refers to separately testing or checking the individual programs. • System testing: The entire system is tested to determine whether program modules are interacting as planned. • Acceptance testing: The system undergoes final certification by end users to ensure it meets established requirements and that it’s ready for installation. (Learning Objective 13-2: 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: Specifications that were prepared during the design stage are translated 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: Modifications to hardware, software, documentation, or procedures to a production system to correct errors, meet new requirements, and improve processing efficiency. (Learning Objective 13-2: 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? 13-10 ..
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. Systems analysis is separated from systems design. Objectoriented development (OOD) combines processes and data into an object that becomes the basic unit of systems 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 13-3: What are the principal methodologies for modeling and designing systems? AACSB: Analytical thinking.) 13-4 What are 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. 13-11 ..
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 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 13-4: What are 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 systems 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 is 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 13-12 ..
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 are identifying the users 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 users reaction. The third and fourth steps are repeated until users are satisfied with the prototype. (Learning Objective 13-4: What are 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. 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 13-4: What are alternative methods for building information systems? AACSB: Analytical thinking, Application of knowledge.) Define end-user development and describe its advantages and disadvantages. Name some policies and procedures for managing end-user development. 13-13 ..
End-user development refers to the development of information systems by end users with minimal or no assistance from professional systems analysts or programmers. This is accomplished through sophisticated user-friendly software tools and gives end users direct control over their own computing. Advantages include improved requirements determination, realizing large productivity gains when developing certain types of applications, enabling end users to take a more active role in the systems development process, many can be used for prototyping, and some have new functions such as graphics, modeling, and ad-hoc information retrieval. Disadvantages include not being suited for large transaction-oriented applications or applications with complex updating requirements, standards for testing and quality assurance may not be applied, and proliferation of uncontrolled data and private information systems. End-user development is suited to solving some of the backlog problem because the end users can develop applications themselves. It is suited to developing lowtransaction systems. End-user development is valuable for creating systems that access data for such purposes as analysis (including the use of graphics in that analysis) and reporting. It can also be used for developing simple data-entry applications. Policies and procedures to manage end-user development include the following: • The organization must establish sufficient support facilities for end-user computing: information centers or distributed end-user computing centers. • Training and support should be targeted to the specific needs of those being trained. • End-user application development should be incorporated into an organization’s strategic plan. Management should develop controls over end-user computing in the following areas: • Cost justification of end-user information system projects. • Hardware and software standards for user-developed applications. • Company-wide standards for microcomputers, word processing software, database management systems, graphics software, and query and reporting tools. • Quality assurance reviews that specify whether the end-user systems must be reviewed by information systems and internal audit specialists. • Control for end-user developed applications covering testing, documentation, accuracy, and completeness of input and update, backup, recovery, and supervision. • Critical applications that supply data to other important systems should be flagged and subjected to more rigorous standards. (Learning Objective 13-4: 13-14 ..
What are alternative methods for building information systems? AACSB: 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 don’t. • 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. • 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 13-4: What are alternative methods for building information systems? AACSB: Application of knowledge.) 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 period 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. 13-15 ..
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 13-5: What are new approaches for system building in the digital firm era? AACSB: Analytical thinking, Application of knowledge.) Explain how component-based development and web services help firms build and enhance their information systems. Component-based development expedites application development by grouping objects into suites of software components that can be combined to create large-scale business applications. Systems are built by assembling and integrating existing software components like shopping carts, user authentication, search engines and online catalogs. Web services enable firms to obtain software application components delivered over the Internet for building new systems or integrating existing systems. Web services provide a common set of standards that enable organizations to link their systems regardless of their technology platform through standard plug-and-play architecture. Web services offer significant cost savings and open up new opportunities for collaborating with other companies. (Learning Objective 13-5: What are new approaches for system building in the digital firm era? AACSB: Analytical thinking.) Explain the features of mobile application development and responsive web design. Because mobile devices have a much smaller screen size, it’s 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 13-5: What are new approaches for system building in the digital firm era? AACSB: Analytical thinking.)
Discussion Questions 13-16 ..
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 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 repairman arrives and diagnoses the problem. If the repair requires a new part, the repairman will replace it if he is carrying it on his truck. If he doesn’t have the part on hand, he 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 make 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. •
Diagram the existing process: Students should use Figure 13-2 as an example of how to diagram this process. It’s important to remember the “if-then” rules that apply when the technician diagnoses the problem. If he has the faulty part on his truck then he fixes it immediately. If he doesn’t then he 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 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 new improved 13-17 ..
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 13-1: How does building new systems produce organizational change? Learning Objective 13-3: 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. •
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’s also very costly to spend 17 business 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 13-18 ..
incorrectly. The employee overhead for this process is also extra costs the company can easily eliminate. Using “best guesses” to create prduction plans is never a good idea. •
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 work flow 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 13-1: How does building new systems produce organizational change? Learning Objective 13-3: What are the principal methodologies for modeling and designing systems? Learning Objective 13-4: 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. 13-19 ..
5. Management, organization, and technology issues to be addressed by the solution, including changes in business processes. On the basis of 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: MIS15ch13 solutionfile.mdb. (Learning Objective 13-1: How does building new systems produce organizational change? Learning Objective 13-3: What are the principal methodologies for modeling and designing systems? Learning Objective 13-5: 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 13-1: How does building new systems produce organizational change? Learning Objective 13-3: What are the principal methodologies for modeling and designing systems? AACSB: Written and oral communication, Analytical thinking, Application of knowledge.) 13-20 ..
Collaboration and Teamwork Project 13-13 In MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: ConAgra’s Recipe for a Better Human Resources System 13-14 Analyze ConAgra’s problems with its old system. What management, organization, and technology factors were responsible for these problems? What was the business impact of these problems? Management: Like many forward-looking companies, ConAgra recognizes the importance of human resources to overall corporate success and the ability of the firm to have the right people in place as it pursues its business strategy. Organizational: ConAgra's old systems worked well but only up to a point because they were not integrated. That meant that data from one system could not be combined easily with data from another for more insightful reporting and talent analysis or for obtaining a complete picture of employees. There was no central system to house and manage the data so HR staff often had to extract information from multiple systems and piece reports together manually. The company also had to pay for multiple information systems teams to support these systems. Technology: Technology is expected to play an even larger role going forward in helping the company recruit, retain, develop, and manage the workers it needs. ConAgra did not have the right technology in place to obtain maximum value from the talents and expertise of its salaried and hourly employees. It had a core system for basic human resources (HR) functions, but it also had disparate siloed systems for HR functions such as employee compensation, development, recruiting, succession planning, and talent review. These systems produced fragmented information and could not support companywide views of the employee or human resources processes. (Learning Objective 13-1: How does building new systems produce organizational change? AACSB: Analytical thinking.) 13-15 List and describe the information requirements of My Recipe. A major objective of My Recipe was to store and share all workforce data in a single central, integrated cloud-based system. Another was to reduce data redundancies, complexity, and operational efficiencies by centralizing the data so they appeared to be coming from one source. Another was to provide user-friendly tools and processes that made it easier for managers and employees to have meaningful conversations about performance and career growth. Another requirement was the ability to provide a snapshot of ConAgra’s current talent pool and show how it was developing to meet future business needs. Such a system was expected to better engage employees and managers, 13-21 ..
provide more useful data to HR staff, improve talent management, and increase productivity. (Learning Objective 13-2: What are the core activities in the systems development process? AACSB: Analytical thinking.) 13-16 What types of system building methods and tools did ConAgra use for building its system? ConAgra implemented My Recipe in three phases over a 15-month period. During the first phase, ConAgra upgraded the overall user interface and implemented the SuccessFactors Learning and Succession & Development modules. In phase two, the firm implemented SAP SuccessFactors Workforce Analytics, Workforce Planning, Recruiting Marketing, and Recruiting Management modules. In the final phase, ConAgra implemented a SuccessFactors Compensation module and an update to SuccessFactors Performance & Goals, including the functionality for performance rating calibration. The new SuccessFactors system replaced eight legacy human resource systems, substantially reduced the amount of HR data stored in manual files, and provided new tools for managers and employees to obtain information and reports directly from the system on their own. (Learning Objective 13-3: What are the principal methodologies for modeling and designing systems? AACSB: Analytical thinking.) 13-17 What steps did ConAgra take to make sure the My Recipe was successful? The My Recipe team selected implementation target dates that coincide with the time of year the specified processes were typically performed. For example, the rollout of the SuccessFactors Succession & Development was timed for when the company conducted its annual talent review. Rolling out the system in stages kept the project alive and relevant, and staff could easily understand how one module built upon the next. The project timelines also facilitated adoption of the system because users were exposed from early on to a one-stop shop for human resources and became increasingly interested in seeing the system completed. System log records show that the average HR user accesses some aspect of the SuccessFactors solution about 100 times per year. When ConAgra had fragmented HR systems, there was never that amount of manager and employee interactions with those systems. (Learning Objective 13-4: What are alternative methods for building information systems? AACSB: Analytical thinking.) 13-18 What were the benefits of the new system? How did it change operational activities and decision making at ConAgra? How successful was this system solution? SuccessFactors has helped take HR to the next level at the firm. The system has helped facilitate conversations between managers and employees and has armed managers with information they can articulate to higher management about how each employee contributes to the organization’s business goals and affects the bottom line. Everyone is now able to see if the right people are in place throughout the organization. (Learning Objective 13-1: How does building new systems produce organizational change? Learning Objective 13-3: What are the principal methodologies for modeling and 13-22 ..
designing systems? AACSB: Analytical thinking.) 13-19 Describe four system conversion strategies. Visit MyMISLab for suggested answers. 13-20 Describe the role of end users in developing systems using the traditional systems life cycle, prototyping, application software packages, and end-user development. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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Chapter 14 Managing Projects Student Learning Objectives 14-1 What are the objectives of project management, and why is it so essential in developing information systems? 14-2 What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? 14-3 How can firms assess the business value of information systems? 14-4 What are the principal risk factors in information systems projects, and how can they be managed? 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. Capital budgeting, 537 Change agent, 539 Change management, 539 Counterimplementation, 546 Ergonomics, 549 External integration tools, 544 Formal control tools, 544 Formal planning tools, 544 Gantt chart, 544 Implementation, 539 Information systems plan, 532 Intangible benefits, 536 Internal integration tools, 543
Organizational impact analysis, 549 PERT chart, 544 Portfolio analysis, 534 Project, 530 Project management, 530 Project portfolio management, 550 Scope, 531 Scoring model, 535 Sociotechnical design, 549 Tangible benefits, 536 User-designer communications gap, 542 User interface, 530
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Teaching Suggestions The opening case, “Intuit Counts on Project Management,” illustrates how important it is to involve users in designing, building, and implementing system changes. Intuit didn’t have problems gathering and storing data but it did face hurdles deriving useful insights from all of its data. In the past, Intuit had many data teams and multiple data silos maintained in isolation of each other. Despite many positive outcomes the arrangement produced within the enterprise or within the infrastructures for the individual products, Intuit was unable to utilize its data effectively for the entire organization or for all its customers. Management wanted a more holistic approach so the company could better use data to serve its customers and to provide data more easily to the customers so they could have better experiences from the data and better insight about themselves. The Intuit IAC project required cooperation across the entire company because it incorporated all of the company’s enterprise data, its product data, and third-party data into a single platform. IAC project leaders moved a number of functional teams from the data engineering group to production work for the project. The project team was very sensitive to deadlines and the project budget. One of the key steps was breaking down the project into easy-to-handle pieces. Organizing a large project into “bite-sized” pieces makes it possible to deliver demonstrable results as the project progresses. The IAC project was a multiyear endeavor, and a “big bang” approach wasn’t operationally or politically feasible. Creating a series of smaller deliverables rather than a single huge end product made the project more manageable for the project teams. 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?” Spend some time discussing why so many information system projects fail. It is because the system wasn’t 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 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’s 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.
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Section 14-2, “What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals?” Throughout the textbook, the Laudons have stressed that information systems are sociotechnical and part of the organization. This is an important point to reiterate to your students. A new information system changes the way the organization operates. Successful organizations choose to change their structure and operations over time. They choose information systems designed to mirror organizational changes. New systems can change organizational political arrangements and power relationships. The information systems plan is the first step to link the business plan to information systems. The information systems plan helps an organization answer the following questions: What do we need to do? Who needs the information? Who creates it? How can we create a system that will change our strategy or even the business we are in? You may want to use Figure 14-2 to show students how each management level of an organization has its own set of responsibilities for information system projects. Too many times senior managers, especially those outside the IT division/department, don’t understand how their actions or inactions affect the success of IT projects. Section 14-3, “How can firms assess the business value of information systems projects?” This section focuses heavily on mathematical models to evaluate the costs and benefits of information system projects. The Learning Tracks for this chapter may help you present the payback method, the accounting rate of return on investment, net present value, and internal rate of return models for evaluating projects. Be sure to caution students that financial models only evaluate costs versus benefits and tend to overlook the social and organizational dimensions of information systems. They don’t include the costs of organizational disruptions or the savings from better decision-making and enhanced employee performance. Section 14.4, “What are the principal risk factors in information systems projects and how can they be managed?” 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 didn’t 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. 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: Can the National Health Service Go Paperless 14-3 ..
Case Study Questions 1. Why is paperless NHS a risky project? Identify the key risk factors. Paperless solutions can lead to a reduction in treatment/medication errors, quicker time to diagnosis, shorter time to treatment, more collaborative diagnostics (allowing a wider range of specialists to be involved), and better overall patient care. However, many working in the NHS and private sectors—including those within the technology industry—believe that a paperless NHS is not achievable within a five-year time frame. This is an extremely ambitious target, and critics question how much this will really improve NHS services, if it’s worth the cost of implementing new IT systems, and if it’s even achievable. The UK doctors’ union, the British Medical Association (BMA), says there are several challenges to be overcome in order to make the NHS paperless and is skeptical about the extent of the benefits such a system can offer. According to the BMA, the biggest challenges to making the NHS paperless by 2018 are funding, resources, prioritization, and the choice of systems in secondary care. As well as ongoing hardware and software funding, sufficient resources will be required to support training of users and IT specialists to use the paperless system and to provide IT support and administrative support. Although there may potentially be some efficiencies, technology alone will not necessarily create huge cost savings. 2. What management, organization, and technology problems is the paperless NHS likely to encounter? Management: For any large organization, going paperless is a challenge, but when it is cash strapped and under intense public scrutiny and has a dismal history of IT failure (including unsuccessful earlier efforts to digitize patient records), the task looks like mission impossible. Organization: Answering patient phone calls, examining patients, and writing prescriptions will need to incorporate procedures for accessing and updating electronic medical records; paper-based records must be converted into electronic form, most likely with codes assigned for various treatment options and data structured to fit the record’s format. Technology: The English NHS is made up of several hundred organizations with greatly differing IT capabilities as well as thousands of independent GPs. All of them would have to acquire new software and hardware and convert their paper records to digital form. To make the new system effective, they would also have to change their procedures (business processes) to take advantage of the new technology.
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Training can take up to 20 hours of a doctor’s time, and doctors are extremely timepressed. To get the system up and running, physicians themselves may have to enter some of the data, taking away time they could be spending with their patients. 3. What steps should be taken to make the paperless NHS more successful? Proven project management practices should be used to achieve specific targets within specified budget and time constraints. Five major variables should be planned well: scope, time, cost, quality, and risk. The House of Commons Public Accounts Committee warned that making the NHS paperless requires significant additional investments in IT and business transformation. Yet the Department of Health had not even set aside a specific budget for this purpose. The department said it was investing £1 billion (approximately $1.5 billion) in the paperless project—half from the central government and the rest from local health and care budgets. A report by a Public Accounts Committee (PAC) recently said that changes made toward a digital NHS system “has not gone to plan,” and some are saying it has been an “expensive waste of time.”
Interactive Session: Organizations: Snohomish County Public Utility District Implements a New Human Resources System Case Study Questions 1. How important was the human resources project for Sonhomish PUD? Why? In 2013, the Everett, Washington-based company took a hard look at its 1,100-strong workforce, which had many highly experienced and capable employees. However, more than 35 percent were eligible to retire within five years. This impending staff turnover and concomitant need to recruit engineers, IT staff, and other technical positions spurred Snohomish PUD to scrutinize its Employee Resources department and recruitment systems. An aging human resources (HR) system had been used for employee data and benefits, with access restricted to HR employees. Managers in other departments could not make changes to employee data or obtain information for their employees. Outdated processes included paper-based performance appraisals and manually conveyed employee data that originated in HR into the payroll system. Bogged down with routine day-to-day tasks, PUD’s Employee Resources department could not concentrate on the career development and talent recruitment needed for future success. 2. Classify and describe the management, organization, and technology issues the project had to address in order to implement the new system successfully. How did the project team deal with these issues? 14-5 ..
Management: Despite the full support of management, including the utility’s board of commissioners, the project struggled with improper resource allocation. With all departments naturally having to maintain normal operations, transferring team members in and out sometimes resulted in understaffing either departmentally or on the project team. Organization: Change management was addressed upfront and consistently emphasized. From the start, the project was presented as a company transformation as opposed to simply an IT initiative to foster an atmosphere of shared commitment. The Deloitte partners recommended a “change champion” process. Groups of employees were inserted in various departments to make sure that their colleagues understood the system. They served as trainers, trouble shooters, helpers, and cheerleaders. Assisted by “super users,” they used SuccessFactors’ Learning module to make sure that all employees would be ready when Go Live day arrived. Technology: Because both crews in the field and in-house employees would be able to access data from the cloud on any device from any location, a major challenge was assuring them that their data would be safe. A key component of end-user training had to outline SuccessFactors’ built-in security measures for protecting employee personally identifiable information and meeting the privacy requirements
3. Describe the composition of the project team. How important was this? Why? Each and every employee in the Employee Resources department participated in testing so that they were well versed in every aspect of the new system and capable of helping their fellow employees. A dedicated internal corporate communications team reinforced and encouraged these efforts. Project objectives and targets were successfully met, in part because each core business process was assigned to a senior leader. These business process “owners” had developed backup procedures. This freed team members to make on-the-spot system implementation decisions without worrying about business process interruptions. It also meant that it was predominantly broader issues that were shuttled up the executive decision-making chain. 4. Why do you think the implementation of Snohomish PUD’s new human resource system was successful? Explain your answer. To implement SuccessFactors, the project team used a wave approach in which pieces of software were released to employees in stages so they could gradually get comfortable with the new system. All fundamental business processes were examined and a business process design settled upon. A detailed description of the business processes and system requirements was outlined to produce the project structure and documentation.
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The wave rollout created a climate of persistently building on success. This and the meticulously assembled project team propelled the project forward. Headed by a functional lead from the Employee Resources department and assisted by several strategic subject matter experts (SMEs) who rotated in and out to perform system and end-user acceptance testing, the team also included SAP specialists from Deloitte Consulting.
Review Questions 14-1 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 14-1: 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 14-1: What are the objectives of project management, and why is it so essential in developing information systems? AACSB: Application of knowledge.) 14-2 What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals?
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Name and describe the groups responsible for the management of information systems projects. Large corporations will have a management structure to ensure the most important systems projects receive priority. • •
• •
Corporate strategic planning group: Responsible for developing the firm’s strategic plan, which may require the development of new systems. Information systems steering committee: The senior management group with responsibility for systems development and operations. It’s composed of department heads from both end-user and information systems areas. The committee reviews and approves plans for systems in all divisions, seeks to coordinate and integrate systems, and occasionally selects specific information systems projects. Project management group: Composed of information systems managers and end-user managers, this group is responsible for overseeing specific information systems projects. Project team: Directly responsible for individual systems projects. It consists of systems analysts, specialists from the relevant end-user business areas, application programmers, and database specialists. (Learning Objective 14-2: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? AACSB: Application of knowledge.)
Describe the purpose of an information systems plan and list the major categories in the plan. An information systems plan helps executives, managers, and users identify information systems projects that will deliver the most business value. The information systems plan must support the overall business plan. It serves as a road map indicating the following principles: • • • • • • •
Purpose of the plan Strategic business plan rationale Current systems/situation New developments to consider Management strategy Implementation plan Budget requirements
The major categories of an information systems plan are further broken down in Table 14–1. (Learning Objective 14-2: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? AACSB: Application of knowledge.)
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Explain how key performance indicators, portfolio analysis, and scoring models can be used to select information systems projects. Key Performance indicators (KPIs) help an organization clearly understand both its long- and short-term information requirements. KPIs 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 its goals implied by KPIs. Portfolio analysis is used to help evaluate alternative system projects. Portfolio analysis inventories all of the firm’s information systems projects and assets, including infrastructure, outsourcing contracts, and licenses. Firms try to improve the return on their information system portfolios by balancing the risk and return from their systems investments. By using portfolio analysis, management can determine the optimal mix of investment risk and reward for their firms, balancing riskier, highreward projects with safer, lower-reward ones. Scoring models are useful when many criteria must be considered. It assigns weights to various system features and then calculates the weighted totals. The scoring model requires experts who understand the issues and the technology. Often the most important outcome of a scoring model is not the score but agreement on the criteria used to judge a system. It helps confirm, rationalize, and support decisions, rather than serve as the final arbiter of the system selection process. Table 14-2 can be used to explain how a simple scoring system works. (Learning Objective 14-2: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? AACSB: Analytical thinking.) 14-3 How can firms assess the business value of information systems projects? List and describe the major costs and benefits of information systems. Table 14-3 lists all of the major costs and benefits of information systems. It divides the costs among five system components: hardware, software, telecommunications, personnel, and services. Some of the tangible benefits include increased productivity, lower operational costs, and a reduced workforce. Among the intangible benefits are improved organizational planning, more timely information, improved decision making, and increased job satisfaction. (Learning Objective 14-3: How can firms assess the business value of information systems projects? AACSB: Application of knowledge.) Distinguish between tangible and intangible benefits. Students can use Table 14-3 to answer this question. Tangible benefits can be quantified and assigned a monetary value. They include: increased productivity, lower operational costs, reduced workforce, lower computer expenses, lower outside vendor costs, lower clerical and professional costs, reduced 14-9 ..
rate of growth in expenses, reduced facility costs, and increased sales. Intangible benefits cannot be immediately quantified but may lead to quantifiable gains in the long run. They include: improved asset utilization, improved resource control, improved organizational planning, increased 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, and better corporate image. (Learning Objective 14-3: How can firms assess the business value of information systems projects? AACSB: Analytical thinking.)
14-4 What are the principal risk factors in information systems projects, and how can they be managed? 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. 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 14-4: What are the principal risk factors in information systems projects, and how can they be managed? 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 14-10 ..
changes people, and the project must also address this aspect if it is to succeed. (Learning Objective 14-4: What are the principal risk factors in information systems projects, and how can they be managed? AACSB: Analytical thinking.) 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 14-4: What are the principal risk factors in information systems projects, and how can they be managed? AACSB: Analytical thinking.) Explain why there is such a high failure rate for implementations involving enterprise applications, business process reengineering, and mergers and acquisitions. These projects are very challenging, partly because they usually require extensive organizational change. They also often replace deeply entrenched old technologies and legacy systems. Many are undermined by poor implementation and change management practices. The project must address employee concerns about the change, their fears and anxieties, resistance by key managers, changes in job functions, career paths, and recruitment practices. A major reason for merger and acquisition failures is the difficulty in integrating the information systems of the different companies. Combining the different systems usually requires considerable organizational change and complex system projects to manage the change. Unless the integration of the systems is successful, the expected benefits of the merger or acquisition will not be achieved. (Learning Objective 14-4: What are the principal risk factors in information systems projects, and how can they be managed? AACSB: Analytical thinking.) 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. 14-11 ..
•
• • •
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 14-4: What are the principal risk factors in information systems projects, and how can they 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 14-4: What are the principal risk factors in information systems projects, and how can they 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 • 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 14-4: What are the principal risk factors in information systems projects, and how can they be managed? AACSB: Analytical thinking.)
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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 14-2: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? Learning Objective 14-4: What are the principal risk factors in information systems projects, and how can they be managed? AACSB: Analytical thinking, Application of knowledge.) 14-9 Caterpillar: The company wants to end its support for its Dealer Business System 14-13 ..
(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. Approximately 150 dealers worldwide use some version of the system. 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 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 14-2: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? Learning Objective 14-4: What are the principal risk factors in information systems projects, and how can they 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, MyMISlab, 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 14-3: How can firms assess the business value of information systems projects? 14-14 ..
AACSB: Written and oral communication, Analytical thinking, Application of knowledge.) A solution can be found in the Microsoft Excel file named: laudon_mis14_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 $170,000 and $300,000, and be financed 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 Yahoo! Homes 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 (use search engines to find sites other than Yahoo). • 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 14-2: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? Learning Objective 14-4: What are the principal risk factors in information systems projects, and how can they be managed? AACSB: Analytical thinking, Application of knowledge.)
Collaboration and Teamwork Project 14-12 In MyMISLab, 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, 14-15 ..
Google Sites, Google +, or other open source collaboration tools to complete the assignment.
Case Study: The Philly311 Project: The City of Brotherly Love Turns Problems into Opportunities Case Study Questions 14-13 Assess the importance of the Philly311 project for the city of Philadelphia and its citizens. Philly311 has been extremely popular with citizens, earning a customer satisfaction rate of 98 percent. Moreover, Philly311 is much, much more than a traditional government call center. Residents can connect with Philly311 by telephone, e-mail, mail, a walk-in center, or the Philly Mobile App. Philly311 has also extended its service through social media. The Philly311 Facebook and Twitter accounts are managed by an experienced agent who responds to questions and enters service requests based on user interaction. Since the beginning of 2012, Philly311 has seen a 360 percent increase in its social media followers. Mayor Michael A. Nutter called for a more transparent and efficient government, increasing integrity, more open data practices, and improving government accountability. The Nutter administration wanted to empower Philadelphians and work with them on government- related issues that citizens care most about. According to Rosetta Lue, Philadelphia’s Chief Customer Service Officer, the customer may always be right, but that only goes so far if the customer can’t be heard. Philadelphia’s citizens are its customers, and city government should use the best tools possible to make sure every citizen is connected and can be heard loud and clear. In the past, when Philadelphians called 311 with a service request, such as a pothole they wanted fixed, they would have no idea when the city would get around to addressing it, which led to frustration for residents and repeated calls to the city. (Learning Objective 14-1: 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 the Philly311 project so successful? What management, organization, and technology factors contributed to its success? Management: The project timeline for upgrading Philly311 was ambitious, aiming for making the new center operational by the end of 2008. Mayor Nutter and City Managing Director and Executive Sponsor Camille Barnett approved the implementation strategy. The Philly311 project had full executive support from Mayor Nutter and Barnett. Organization: The implementation team worked collectively to develop civil service testing requirements for contact center agents. Thirty representatives from various city
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departments helped populate the Philly311 knowledge base with more than 2,000 articles about city services and municipal information. Local citizens were involved in the new Philly311 design from the beginning. Bringing users in early in the process also saved time during system implementation and rollout. About 100 people from different city departments were brought together to say what they liked and what they didn’t like about the technology and new business processes. They had a chance to see how data were coming in, how they would be used, and how Philadelphia could be more efficient and effective. Philly311’s new budget constraints also put a brake on hiring and head count. Instead of hiring experienced contact center agents, Philly311 hired internal transfers and employees who would have been laid off due to budget cutbacks. Delays in the implementation timetable gave Lue and her team more time to study the problem and develop a sound solution. Technology: The 2008 economic crisis created an opportunity to improvise creatively by developing a fairly low-cost solution using established city services and technologies. Instead of implementing new software for a customer relationship management (CRM) system, the Philly311 project team worked with the city’s Department of Technology to implement a less expensive web-based solution with CRM functions. This web-based system was integrated with other systems so, for example, agents could look up municipal information and directly enter service requests into the integrated work systems of servicing departments. (Learning Objective 14-4: What are the principal risk factors in information systems projects, and how can they be managed? AACSB: Analytical thinking, Application of knowledge.) 14-15 What risk mitigation strategies did Philadelphia use for its Philly311 project? How did they help? City leaders realized they needed to work on establishing trust within individual communities to educate and provide access to Philly311. The city hired a community engagement coordinator to address community concerns and to oversee the Neighborhood Liaison Program (NLP), which trains volunteers to record items discussed during community meetings and encourages standout community leaders to bring their neighbors’ public service concerns straight to Philly311. In the program’s first year, 600 neighborhood liaisons were trained, and two years after the program’s launch, the number of neighborhood liaisons had doubled. An independent gap analysis found that the existing system did not have the capacity to continue supporting Philadelphia’s growing service requirements. The system was not built to handle very large volumes of data, nor could it easily archive data about citizen calls, complaints, and follow-ups. These technology limitations prevented the city from crunching data or from changing business processes to improve workforce efficiency. The time had come to invest in new technology to keep pace with current demands and to position the city for future technology and business developments. A project planning 14-17 ..
process took special care to define a detailed set of business and technical requirements for the new system. The solution selected contained several modules, allowing city management to pick and choose which features were most critical. (Learning Objective 14-2: What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? Learning Objective 14-4: What are the principal risk factors in information systems projects, and how can they be managed? AACSB: Analytical thinking, Application of knowledge.)
14-16 Identify and describe three methods for helping managers select information systems projects. Visit MyMISLab for suggested answers. 14-17 Compare the two major types of planning and control tools. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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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? 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. Business driver, 564 Cooptation, 576 Core systems, 573 Domestic exporter, 569 Franchisers, 569 Global culture, 565 International information systems architecture, 564
Legitimacy, 575 Multinational, 569 Particularism, 567 Software localization, 582 Transborder data flow, 567 Transnational, 570
Teaching Suggestions The opening case, “Dunlop Aircraft Tyres Takes Off Worldwide with Customer Relationship Management,” demonstrates that a global company has the same information system requirements as a domestic company, just on a larger, more complex, scale. Over the past decade the company’s global presence has increased rapidly. It has opened an aircraft retread and distribution business in China and in the United States. At present, 15-1 ..
Dunlop exports more than 80 percent of the products it makes in Birmingham, but it would like to expand operations globally so that it can pursue a strategy of localizing aircraft tire production and retreading. Dunlop’s business as a supplier to the aircraft industry requires a high degree of personalization and attention in communications with customers and prospects. In order to do this, Dunlop had to replace some of its legacy systems with a more robust scalable system and sales platform that could enhance visibility, rigor, and consistency across global sales and customer-related functions and provide access to timely and accurate information on prospects and customers. Processes, strategies, and communication tools needed to be aligned across each location. Dunlop had been trying to make do with a combination of ERP, separate databases, and spreadsheets, and these systems were not sufficiently integrated to do the job. Infor CRM offers a complete view of every customer touch point across sales, marketing, customer service, and support teams. Companies using Infor CRM are able to maximize the impact of every interaction across the entire customer life cycle, whether in the office or out in the field. The CRM system features industry-specific capabilities, deep integration, functionality for mobile devices, and options for running systems in the cloud, on premises, or both. Infor CRM has given the company a set of best practices for its sales and CRM activities, utilizing an accurate and consistent set of data in a timely and user-friendly manner to make better decisions. Managers are able to streamline operations and manage in multiple time zones with automated processes that synchronize data across the business worldwide. 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’s 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 aren’t 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. Section 15-2, “What are the alternative strategies for developing global businesses?” It’s 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 15-2 ..
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’s an interesting exercise for students to classify companies they’re 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?” Many 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 of these 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: Organizations: Indian E-commerce: Obstacles to Opportunity Case Study Questions 1. Describe the technical and organizational obstacles to e-commerce growth in India. A government initiative to lay fiber optic cable and connect hundreds of thousands of villages to the national Internet backbone formulated in 2011 has stalled due to the inaccessibility of remote areas, unwillingness of the large telecoms to invest (even with government financing) in non-lucrative sparsely populated areas, and red tape
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engendered by overlapping authority between governmental bodies in India’s seven union territories, 29 states, and numerous districts and smaller administrative divisions. Because standard infrastructure in India is primitive—including poor and even nonexistent roads and bridges—less than 5 percent of the planned million miles of cable had been complete by the end of 2015. What’s more, India’s electrical grid is woefully inadequate, many villages lack sufficient power lines, and electrical service is spotty at best. Bureaucratic right-of-way conflicts stalled work in 15 percent of villages scheduled to be connected, while a duct shortage and glitches with government-developed technology to connect the cables to their endpoints caused additional delays. Less than 2 percent of Indian consumers own credit cards, so most e-commerce sites must offer a cash-on-delivery (COD) payment option. In 2015, 60 to 70 percent of Indian e-commerce purchases were cash-on-delivery. About 45 percent of customers reject these COD orders at the point of delivery, making this a very expensive and probably unsustainable business model. Making matters worse, many e-tailers offer free shipping to acquire and retain customers. The national Indian poverty rate runs between 22 and 25 percent depending on how the rate is measured. All retailers face steep costs for warehouses and logistics systems to overcome poor transportation infrastructure, bad roads, and traffic congestion. 2. How do these factors hamper companies from doing business in India or setting up Indian e-commerce sites? 94 percent of Internet usage was conducted by 276 million mobile phone users. Uber rival Ola, restaurant search site Zomato, and the What’s App messaging service are rapidly gaining followers, but only 25 percent of urban dwellers and 5 percent of rural Indians have made an online purchase. Pending completion of the broadband superhighway, growth will still be driven by falling smartphone and mobile data plan prices, with two-thirds of the projected 11 million new 2016 users accessing the Internet via portable device. E-commerce travel sites are especially popular. MakeMytrip.com, Yatra.com, and Indian Railways’ IRCTC website along with several smaller players account for 75 to 80 percent of all e-commerce purchases. Another top sector is digital downloads, including e-books, music, and content subscriptions, also traditionally a breakthrough sector. The remaining 20 percent of the business-to-consumer (B2C) e-commerce market is composed of durable goods, financial instruments such as online bill payment services and insurance products, and online classified ads, including job, dating, and matrimonial services driven by a growing middle class with rising disposable incomes. 3. Will non-Indian companies like Amazon.com and eBay flourish in India? Explain. Both Amazon.com and eBay are likely to flourish in India because they have the capital backing to sustain themselves through the growth period. 15-4 ..
Amazon is following an unconventional path in India with Junglee.com, a transaction facilitator site that connects buyers and sellers while providing product and price comparison services, making it unambiguously a direct competitor to eBay India. eBay India was a pioneer, setting up shop in 2005. Credit card adoption is still in its infancy, and eBay had to pave the way in gaining consumer trust. The Indian iteration of PayPal, Paisa Pay, remits payment to the seller only after the buyer has received the item and refunds payment if the item is not shipped within three days. Coupons, a guarantee of full refund or replacement within 30 days if the buyer is not satisfied, and a Power Ship service have aided eBay’s efforts. About 30,000 domestic and 15,000 worldwide sellers, mostly small, many artisans, and some from the poorest areas of the country, sell 16 products every minute to 128 million buyers in more than 30 countries. The key to this success was appreciating the unique nature of Indian consumers and tailoring the shopping experience and transaction flow to satisfy their needs. Interactive Session: Management: Steelcase Designs Goes for Global Talent Management Case Study Questions 1. Why are human resources and talent management so important at Steelcase? Steelcase is noted for its close attention to people issues. If you go to the Steelcase website, you’ll see articles about employee engagement, productivity, technologyempowered learning, and how Steelcase products help people work more comfortably, unlock creative potential, and support social, economic, and environmental sustainability. Steelcase tries to similarly nurture its own employees, realizing that the company’s continuing innovation and success depend on their skills and insights. Employees are its greatest asset. Until a few years ago, management felt this asset was underutilized, especially on the global level. Like other organizations expanding globally, Steelcase needed to manage its global workforce and talent pool as well as its relationships with customers and suppliers worldwide. Management needed to understand the needs of the company’s skilled global workforce and align business processes with local customs and practices. In addition to maintaining accurate job information on a worker, Steelcase wanted to keep track of future career opportunities and ensure proper planning from a worker engagement and budgetary perspective. 2. Identify the problem described in this case. What management, organization and technology factors contributed to this problem? What role did globalization play? Management: Management questioned whether the company’s information systems were supporting company goals of promoting innovation, global integration, and attracting and retaining world-class employees in all the company’s locations around the globe. 15-5 ..
Organization: When the company evaluated its systems in 2014, it found that it needed more capabilities for talent management. Talent management involves planning to align the firm’s human resources with its business strategy so that the firm has the quantity and quality of employees with the skills it needs to improve business performance and reach its goals. Human resources talent management includes capabilities for recruiting, developing, retaining, and rewarding employees as well as strategic workforce planning. Technology: Steelcase had been using SAP’s ERP HCM (Human Capital Management) software, but it was too out of date and required workarounds for the talent management functionality that it needed. The old system was not able to define jobs in enough detail to address the level of workforce planning and development management desired. Globalization challenges: Steelcase faced a challenge in trying to standardize planning and development and how it is used globally as well as understanding the definitions of common ways to identify the workforce. For example, terms like salary and hourly, which are used for classifying and determining pay for employees in the United States, don’t exist on a global scale. Other countries define their workforce differently. For reporting or analytics, Steelcase needed to define, collect, and use data in a way that is uniform across the globe. To take advantage of new talent management capabilities to support global operations, Steelcase needed much more standardization than in the past. Simply searching for a name or term is very different depending on the country or the region in terms of how the name is entered in the system.
3. Describe the capabilities of the SAP ERP HCM and SuccessFactors systems that were helpful to Steelcase. How did these systems improve global operations and decision making? SAP’s HCM version 6.0 featured new talent management functionality that would meet Steelcase’s needs, such as being able to define jobs by job family, task functionality, and the functional area of the business to create a variety of ways to combine work. The new system’s ability to organize data by career level, type, and talent group helps the Steelcase HR team create better services, such as career planning for employees. Employees can match their current skill sets against any job in the company and know what competencies will be required and how their current performance evaluations compare with what will be required in future roles they are interested in. For talent management to be effective, Steelcase needs to be able to match the employee with the right skills to a complete set of job requirements. With the new SAP ERP HCM and SuccessFactors systems, the company can now do that. Competition for talent is great. The more Steelcase can automate its business processes and the more it understands its workforce market, the more it can make sound and timely decisions.
Review Questions 15-6 ..
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 15-1: 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 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 15-7 ..
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 15-1: 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 15-1: What major factors are driving the internationalization of business? AACSB: Application of knowledge.) Explain why some firms have not planned for the development of international systems. For some companies, the competition has not been powerful enough yet 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 15-1: 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.
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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 of the value-added activities are managed from a global perspective without reference to national borders. (Learning Objective 15-2: 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. • 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 15-2: 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 15-3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Application of knowledge.) 15-9 ..
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 absolutely critical to the organization. Other systems should be partially coordinated because they share key elements, but they don’t 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 15-3: 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 absolutely critical for the firm. 2. Identify centers of excellence for these processes. Some areas of a company, for some lines of business, have a division or unit that stands out in the performance of one or several business functions. 3. Rank-order 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 absolutely 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 15-3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Application of knowledge.) 15-10 ..
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 15-3: 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 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 15-4: 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 15-4: What are the issues and technical alternatives to be considered when developing international information systems? AACSB: Application of knowledge.) 15-11 ..
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, CampusShip, 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? 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 don’t 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 15-3: What are the challenges posed by global information systems and management solutions for these challenges? Learning Objective 15-4: What are the issues and technical alternatives to be considered when developing international information systems? AACSB: Analytical thinking, Application of knowledge.)
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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 would 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’s updated biweekly (Dec 2008). These are some 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, those criteria may determine which country has the best target group. The number of Internet users is helpful but shouldn’t be the most important criteria in the decision. Country
Age Structure 0–14 years /15– 64 years
Brazil China Germany Italy Japan
27/66 20/71 13/66 13/66 13/64
Literacy Rates Over 15 yrs can read & write 88% 90% 99% 98% 99%
Education Levels # of years in school
GDP per capita
14 11 16 16 15
$9,500 $5,400 $34,100 $30,900 $33,500
Household incomes by % share highest 10% 44% 34% 22% 26% 21%
Internet users
50 mil 253 mil 42 mil 32 mil 88 mil
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 15-1: What major factors are driving the internationalization of business? Learning Objective 15-2: What are the alternative strategies for developing global businesses? Learning Objective 15-4: 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 15-13 ..
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 large-size 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. 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.
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(Learning Objective 15-3: What are the challenges posed by global information systems and management solutions for these challenges? Learning Objective 15-4: 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 office furniture that has decided to enter the international market. You have been given the name of Sorin SRL, a major Italian office furniture retailer, but your source had no other information. You want to test the market by contacting this firm to offer it a specific desk chair that you have to sell at about $125. Using the web, locate the information needed to contact this firm and to find out how many European euros you would need to get for the chair in the current market. One source for locating European companies is the Europages Business Directory (www.europages.com). In addition, consider using the Universal Currency Converter website (www.xe.net/ucc/), which determines the value of one currency expressed in other currencies. Obtain both the information needed to contact the firm and the price of your chair in their local currency. Then locate and obtain customs and legal restrictions on the products you will export from the United States and import into Italy. 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. As of this writing, the home page for Sorin SRL is www.sorin-italia.it/. The students should find www.xe.net/ucc/ very simple to use as a currency converter. Answers will vary depending on the day the assignment is completed. The two other 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. 15-15 ..
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 15-3: What are the challenges posed by global information systems and management solutions for these challenges? Learning Objective 15-4: 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 MyMISLab, 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, Google +, or other open source collaboration tools to complete the assignment.
Case Study: Crocs Clambers to Global Efficiency 15-12 What management problems typical of global systems was Crocs experiencing? What management, organization, and technology factors were responsible for those problems? Management: Rapid expansion from 2005 through 2007 was amplified by the acquisitions of footwear companies Ocean Minded and Bite Footwear, Dutch messenger bag company Tagger, South African third-party distributor Tidal Trade, and Jibbitz, a manufacturer of charms that snap into the holes of the classic clogs. Organization: To keep pace with short-term growth, Crocs purchased best-of-breed systems in a variety of categories for order management, warehouse management, retail merchandising and reporting, and Electronic Data Interchange (EDI) functions. The problem with this approach is that while dedicated systems often perform better within their specialized niche, without an integrated system, enterprise-wide connectivity is compromised and maintenance needs exacerbated. Basic business functions such as closing the books required manually collating and reconciling spreadsheets from multiple countries and regions, punctuated by multiple phone calls and e-mails in pursuit of missing or incorrectly formatted data. Cross-currency and multilanguage orders were unmanageable, and local or country-specific business regulations had to be managed manually. Technology: The numerous acquisitions resulted in many disparate IT systems. Highly customized systems evolved in order to integrate functions. This in turn meant that integration across regions became increasingly difficult if not impossible. Order entry began in numerous locales but had to proceed through three different systems before the order was placed. What’s more, points of failure were unwieldy to locate. (Learning Objective 15-3: What are the challenges posed by global information systems and 15-16 ..
management solutions for these challenges? AACSB: Analytical thinking, Application of knowledge.) 15-13 How did Crocs’ new systems and use of SAP Apparel and Footwear support its business strategy? How effective was the solution chosen by the company? SAP Apparel and Footwear is one of a number of SAP Consumer Products solutions that tailor the SAP Enterprise Resource Planning (ERP) platform for specific industries. With its main goal of avoiding customizations uppermost, Crocs was further persuaded by the three-way size grid function and many other features custom-made for footwear sellers. Materials master data now store all size, color, and style information, reducing the number of SKUs (stock-keeping units) by an astonishing 40 percent. The grid function in SAP Apparel and Footwear was instrumental in excising the surfeit of SKUs that had been driving the numerous system customizations at the regional level, shackling global integration. With shoe size being the key demand variable in the footwear industry and driving the grid, data requirements plummeted, business processes were streamlined, and at least 24 legacy systems were shed. Crocs now administers the automation of purchasing, delivery tracking, inventory segmentation, chargebacks, and nearly every other aspect of the design, manufacture, and distribution of its footwear in SAP Apparel and Footwear. With business processes streamlined, sales are now outstanding for fewer days, and the fill, or demand satisfaction rate—percent of orders satisfied from inventory on hand—has significantly improved. Freight costs, nonproduction selling expenses, and SG&A (selling, general, and administrative) expenditures, which combine salaries, commissions, and travel expenses for executives and salespeople, advertising costs, and payroll expenses, have all been substantially reduced. (Learning Objective 15-3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Analytical thinking, Application of knowledge.) 15-14 How did Crocs’ new systems improve operations and management decisionmaking? Whereas data were formerly regarded with a dubious eye, managers now have confidence in the numbers and can immediately proceed to data analysis. Order location, order status, and inventory availability are readily discernable, making order fulfillment both easier and faster. Analytics solutions working with SAP Apparel and Footwear are providing greater visibility into the business at the enterprise level. Operational efficiencies have provided improved control over Crocs’s global supply chain from raw materials purchase to product delivery around the world. Its numerous design and style variations, seasonal offerings, and customer value–added services such as Jibbitz personalization generate huge quantities of data that can now be efficiently managed.
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The company was able to reduce its SKU count to simplify product development, forecasting, and inventory management. Crocs had identified reducing its direct-ship model as crucial. It had always permitted very low minimum order quantities and direct order placement with factories, but this was becoming unwieldy, creating needless complexity in the factory order management process. With its new systems, the company could now easily increase the minimum order quantity to industry standards enterprisewide. (Learning Objective 15-3: What are the challenges posed by global information systems and management solutions for these challenges? AACSB: Analytical thinking, Application of knowledge.) 15-15 What influence does the global business environment have on Crocs and how does that affect its choice of systems? Order location, order status, and inventory availability are all now easily obtainable, making global supply chain management easier. Crocs developed its management team, adding leaders from several key areas to ensure that its IT investment was used to its fullest potential. Global business drivers can be divided into two groups: general cultural factors and specific business factors. Easily recognized general cultural factors have driven internationalization since World War II. Information, communication, and transportation technologies have created a global village in which communication (by telephone, television, radio, or computer network) around the globe is no more difficult and not much more expensive than communication down the block. The cost of moving goods and services to and from geographically dispersed locations has fallen dramatically. The development of global communications has created a global village in a second sense: A global culture created by television, the Internet, and other globally shared media such as movies now permits different cultures and peoples to develop common expectations about right and wrong, desirable and undesirable, heroic and cowardly. The growth of powerful communications technologies and the emergence of world cultures lay the groundwork for global markets. The new global markets and pressure toward global production and operation have called forth whole new capabilities for global coordination. Production, accounting, marketing and sales, human resources, and systems development (all the major business functions) can be coordinated on a global scale. The configuration, management, and development of systems tend to follow the global strategy chosen. • Centralized systems are those in which systems development and operation occur totally at the domestic home base. • Duplicated systems are those in which development occurs at the home base but operations are handed over to autonomous units in foreign locations. • Decentralized systems are those in which each foreign unit designs its own unique solutions and systems. 15-18 ..
•
Networked systems are those in which systems development and operations occur in an integrated and coordinated fashion across all units. (Learning Objective 151: What major factors are driving the internationalization of business? Learning Objective 15-2: What are the alternative strategies for developing global businesses? AACSB: Analytical thinking, Application of knowledge.)
15-16 Identify and describe solutions to the five management challenges of developing global systems. Visit MyMISLab for suggested answers.
15-17 Identify and describe five problems of international networks that prevent companies from developing effective global systems. Visit MyMISLab for suggested answers.
For an example illustrating the concepts found in this chapter, view the videos in mymislab.com.
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Management Information Systems, 15E
Laudon & Laudon Lecture Files by Barbara J. Ellestad
Chapter 1 Information Systems in Global Business Today Computers are changing every aspect of our lives from entertainment to shopping, from the work we do and where we do it, to how we communicate with friends and relatives. Networking technologies are pervading almost everything we do professionally, socially, and recreationally. As you can see from the opening case in the text, many companies are remodeling their businesses and information systems with the Internet in mind. It has become more important than ever for you to understand not just how technology works but also how current and future advances affect your work life.
1.1 How are information systems transforming business, and why are they so essential for running and managing a business today? Ask managers to describe their most important resources and they’ll list money, equipment, materials, and people—not necessarily in that order. It’s very unusual for managers to consider information an important resource, and yet it is. As electronic business and electronic commerce grow in popularity and more firms digitize their operations, having useful information is becoming even more important to the global business community. This chapter gives you an overview of many of the subjects we’ll touch on in this course. It will help you understand how all firms today, large and small, local and global, use information systems to achieve important business objectives, such as operational efficiency, customer and supplier intimacy, better decision making, and new products and services. How Information Systems Are Transforming Business You can’t help but know about all the job cuts occurring in our country. It seems like every week we hear about thousands and thousands of people losing their jobs. Back in the 1980s most of the job losses were in the blue-collar sector. Now it seems many of the cuts are being made in white-collar, management jobs. Why? Think about it. Technology, to a large extent, has driven organizations to change the way they operate and that includes the way they manage. We’re going to take an in-depth look at how organizations work and how they’ve been transformed by technology on the world stage.
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Information systems are the foundation for conducting business today. In many industries, survival and even existence is difficult without extensive use of information technology. No longer can we imagine going to work and conducting business without them. As a society we have come to rely extensively on the use of information appliances such as cell phones, BlackBerrys, handhelds, and other hardware. Communicating and conducting business is increasingly being carried out through the use of e-mail, online conferencing, and international teleconferencing. Internet technologies have become essential business tools. What’s New in Management Information Systems? It seems that changes in technology are never-ending. The use of technology now extends far beyond the simple desktop computer, especially in the business world. As the text points out, three interrelated changes are affecting companies worldwide: • • •
The ever-expanding mobile digital platform Growth of businesses use “big data,” including data collected from the Internet of Things (IoT) Growth of “cloud computing”
Table 1-1 in the text divides the changes in management information systems into three categories and assesses the impact each change is having on businesses. It may be a fun exercise to peruse the list and see how many of the changes you’ve had experience with. Interactive Session: The Mobile Pocket Office (see page 9 of the text) describes the proliferation of mobile digital devices in businesses. Whether it’s an iPad, iPhone, Android phone, tablet, or other mobile handheld device, organizations of all kinds must adapt the way they work, communicate, and coordinate with employees, customers, and suppliers.
Globalization Challenges and Opportunities: A Flattened World Next time you purchase a product, any product, look at the fine print and see where it’s made. It could be China, or the Philippines, or a South American country, or even the United States. You can disagree with the fact that many manufacturing jobs have moved from the United States to foreign countries. But look at the vast number of jobs that are being created in this country. Maybe they aren’t the traditional factory jobs we’re used to. In fact, many of our new jobs are in the information industry. Many of them service whole new markets that didn’t exist just a few years ago. There was no position called “webmaster” in 1991. That’s because the web didn’t exist. But now, that particular job category is one of the fastest growing in the United States and overseas. The global economy Laudon & Laudon talk about is being made possible by technology, and that’s why it’s so important that you understand how to use information systems technology
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instead of just computer technology. There’s a big difference between the two, and we’ll talk about it more. The Emerging Digital Firm 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 key corporate assets are managed through digital means. When a firm goes digital, it’s not about just adding a computer system to the mix. Throwing a computer system at outdated business processes is exactly the wrong thing to do. A truly digital firm has several characteristics that distinguish it from most of the firms claiming to be digitized: • • • •
Significant business relationships with customers, suppliers, and employees are digitally enabled and mediated. Core business processes are accomplished through digital networks and span the entire organization or link multiple organizations. Key corporate assets—intellectual property, core competencies, and financial and human assets—are managed through digital means. Internal and external environments are quickly recognized and dealt with.
And the number one reason digital firms experience greater opportunities for success and profits is because they view information technology as the core of the business and a primary management tool. Strategic Business Objectives of Information Systems Although many managers are familiar with the reasons why managing their typical resources such as equipment and people are important, it is worthwhile to take a moment to examine the growing interdependence between a firm’s ability to use information technology and its ability to implement corporate strategies and achieve corporate goals. Specifically, business firms invest heavily in information to achieve six strategic business objectives: • • • • • •
Operational excellence New products, services, and business models Customer and supplier intimacy Improved decision making Competitive advantage Survival
Operational Excellence
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Businesses continuously seek to improve the efficiency of their operations in order to achieve higher profitability. Information systems and technologies are some of the most important tools available to managers for achieving higher levels of efficiency and productivity in business operations, especially when coupled with changes in business practices and management behavior. New Products, Services, and Business Models Information systems and technologies are a major enabling tool for firms to create new products and services, as well as entirely new business models. A business model describes how a company produces, delivers, and sells a product or service to create wealth. As successful as Apple Inc., BestBuy, and Walmart were in their traditional brick-and-mortar existence, they have all introduced new products, services, and business models that have made them even more competitive and profitable. Customer and Supplier Intimacy When a business really knows its customers, and serves them well, the way they want to be served, customers generally respond by returning and purchasing more. The result is increased revenues and profits. Likewise with suppliers: the more a business engages its suppliers, the better the suppliers can provide vital inputs. The result is a lower cost of doing business. JCPenney is an excellent example of how information systems and technologies are extensively used to better serve suppliers and retail customers. Its information system digitally links the supplier to each of its stores worldwide. Suppliers are able to ensure the continuous flow of products to the stores in order to satisfy customer demands. Improved Decision Making Information systems and technologies have made it possible for managers to use realtime data from the marketplace when making decisions. Previously, managers did not have access to accurate and current data and as such relied on forecasts, best guesses, and luck. The inability to make informed decisions resulted in increased costs and lost customers. Competitive Advantage Doing things better than your competitors, charging less for superior products, and responding to customers and suppliers in real time all add up to higher sales and higher profits that your competitors cannot match. Toyota and Walmart are prime examples of how companies use information systems and technologies to separate themselves from their competition. Toyota worked its way to top of its industry with the help of its legendary information system. Walmart is the most efficient retail store in the industry based in large part on how well it uses its information resources.
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Survival Firms also invest in information systems and technologies because they are necessities for doing business. Information systems are not a luxury. In most businesses, information systems and technology are the core to survival. In the text, the Laudons discuss how Citibank was the first banking firm to introduce ATMs. In doing so, they had a major competitive advantage over their competitors. In order to remain and survive in the retail banking industry, other banks had no choice but to provide ATM services to banking customers. New federal and state statutes and regulations have resulted in giving firms no choice but to turn to information systems and technologies in order to comply with the new requirements and regulations. Bottom Line: Information systems do matter because of the increased need for capital management, the increased productivity that arises from their use, the strategic opportunities and advantages they offer, and because they are becoming the foundation of doing business around the world.
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? Information technology (IT) consists of all the hardware and software that a firm needs to use in order to achieve its business objectives. What Is an Information System? Too often you hear someone say, “Oh yeah, I know how to use a computer. I can surf the web with the best of them and I can play online games with people all over the world for hours. I’m really good with computers.” Okay. So that person can pound a keyboard, use a mouse at lightning speed, and has a list of favorite websites a mile long. But the real question becomes: “Is that person information literate?” Just because you can pound the keyboard doesn’t necessarily mean you can leverage the technology to your advantage or to the advantage of your organization. An organization can gather and keep all the data on its customers that a hard drive can hold. You can get all the output reports that one desk can physically hold. You can have the fastest Internet connection created to date. But if the organization doesn’t take advantage of customer data to create new opportunities, then all it has is useless information. If the output report doesn’t tell management that it has a serious problem on the factory floor, then all that’s been accomplished is to kill a few more trees. 1-5 ..
If you don’t know how to analyze the information from a website to take advantage of new sales leads, then what have you really done for yourself today? Most of us think only of hardware and software when we think of an information system. There is another component of the triangle that should be considered, and that’s the people side or “persware.” Think of it this way:
In this section of the text, Laudon & Laudon discuss the components of an information system. They talk about the input, processing, output, and feedback processes. Most important is the feedback process; unfortunately, it’s the one most often overlooked. The hardware (input and output) and the software (processing) receive the most attention. With those two alone, you have computer literacy. But if you don’t use the “persware” side of the triangle to complete the feedback loop, you don’t accomplish much. Add the “persware” angle with good feedback and you have the beginnings of information literacy.
Fig 1.4 Functions of an Information System
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Figure 1.4 shows how using feedback completes the information processing loop. To be a good information systems manager, however, you must bring into that loop far more than just computer data. For instance, your information system reports that you produced 100,000 widgets last week with a “throwback” rate of 10 percent. The feedback loop tells you that the throwback rate has fallen 2 percent in the last month. Wow, you say, that’s a pretty good improvement. So far, so good! But if you put that information into the broader context of the organization, you’re still costing the organization a huge sum of money because each percentage point on the throwback rate averages $100,000. And when you bring in available external environmental information, your company is 5 percent above the industry norm. Now that’s information you can use—to your advantage or disadvantage! Dimensions of Information Systems There is a distinct difference between possessing information systems literacy and simple computer literacy. If you can combine information from internal sources and external environments, if you can use data to help you make better decisions, if you can use information to help you improve your organization, you can consider yourself “information literate.” The field of management information systems (MIS) deals with behavioral issues as well as technical issues surrounding the development, use, and impact of information systems used by managers and employees in the firm. As such, MIS is defined as the study of information systems focusing on their use in business and management.
Fig 1.5 Information Systems Are More than Computers 1-7 ..
Organizations Organizations are funny things. Each one tends to have its own individual personality and yet share many things in common with other organizations. Look at some of the organizations you may be associated with—a softball team, fraternity/sorority, health club, or a child’s soccer team. See, organizations exist everywhere, and each has its own structure, just as workplace organizations have structures and personalities to fit their needs, or in some cases, their old habits. The key elements of an organization are its: • People • Structure • Business processes • Politics • Culture In every organization you’ll find senior management making long-range decisions, middle management carrying out the plans and goals set by senior managers, and operational management handling the day-to-day operations of the company. As we’ll see, information systems output must be geared to each of these levels of management. Just as every baseball team needs good players at different positions, a business organization requires different employees to help it succeed. Knowledge workers help create new knowledge for the organization and data workers help process the paperwork necessary to keep an organization functioning. Without production or service workers, how would the company get its products and services to the customer? A baseball team needs talented, well-trained players at different positions. Sometimes, the success of the team depends on a good, well-informed coach or manager—so, too, with the workplace organization. Business organizations have their major business functions, which need many kinds of players with various talents, who are well-trained and well-informed, in order to succeed. The larger the organization, the more formal the management structure, including the need for standardized business processes. Most of these business processes have been developed over time and help managers and employees properly complete their tasks in a more efficient manner. Many companies now integrate these business processes into their information systems to ensure uniformity, consistency, and compliance. As we’ll see in upcoming chapters, many companies are even incorporating informal work processes into their information systems in an effort to capture as much corporate knowledge as possible. An organization’s culture is often an integral part of its information system. UPS’s culture focuses on customer service while Walmart’s culture is centered on being a low1-8 ..
cost retailer. Each company builds its information system differently to incorporate those organizational ideals. Management Every good organization needs good managers—pretty simple, pretty reasonable. Take professional baseball managers. They don’t actually play the game; they don’t hit the home run, catch the fly ball for the last out, or hang every decoration for the celebration party. They stay on the sidelines during the game. Their real role is to develop the game plan by analyzing their team’s strengths and weaknesses. But that’s not all; they also determine the competition’s strengths and weaknesses. Every good manager has a game plan before the team even comes out of the locker room. That plan may change as the game progresses, but managers pretty much know what they’re going to do if they are losing or if they are winning. Information Technology Do you own an Internet-enabled refrigerator? (Yes, they really do exist.) Probably not, since they’ve only been on the market for a short time. How old is your car or truck? Manufacturers are constantly offering us new vehicles, yet we tend to upgrade only every few years. Your personal computer may be a year old or three years old. Do you have all the latest gadgets? Chances are you don’t. Face it, you just can’t keep up with all the new computer hardware. No one can. Think about how hard, not to mention expensive, it is for an individual to acquire each new computer software program introduced to the marketplace. Think how difficult it sometimes is to learn how to use every feature of all those new products. No matter how big your storage technology device seems to be, you’re constantly running out of room to store all the new software programs and all the data you create. In order to keep track of all of the information you have stored, you will need data management software that is designed to organize the information so that you can readily retrieve what you are looking for. As the products and services on networks expand every day, your need for new networking and telecommunications technology links just seems to grow and grow. The fastest and biggest change in modern computing is the Internet. To say that the Internet is transforming the way we live, work, and play is probably the greatest understatement in years. Businesses can create new opportunities, but they can also lose opportunities just as quickly. Now an organization has to design new systems, or transform old ones, with not just the company in mind, but 100 million other users of the Internet, extranets, and intranets. They have to decide how much or how little information to provide, in what way, with what level of access, and how best to present it. It’s a huge job!
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The World Wide Web allows big companies to act “small,” and small companies to act “big.” It has leveled the playing field so entrepreneurs can break into new markets previously closed to them. A website, consisting of a few pages or hundreds of pages, enables businesses to get close and stay close to their customers in new ways. It is truly a revolution in our global economy. Now put these thoughts into a much larger context of an organization’s information technology (IT) infrastructure. Yes, it would be nice if your company could purchase new computers every three months so you could have the fastest, best technology on the market. But it can’t. Not only is it expensive to buy the hardware and the software, but the costs of installing, maintaining, updating, integrating, and training must all be taken into account. We’ll look at the hardware and software sides of the information systems triangle in upcoming chapters, but it’s important that you understand now how difficult it is for an organization, large or small, to take advantage of all the newest technology.
Interactive Session: Technology: UPS Competes Globally with Information Technology (see page 23 of the textbook) describes how this giant company has transformed itself over the years by using technology to increase its competitive advantage. It Isn’t Just Technology: A Business Perspective on Information Systems From a business perspective, an information system provides a solution to a problem or challenge facing a firm and provides real economic value to the business. The decision to build or maintain an information system assumes that the returns on this investment will be superior to other investments in buildings, machines, or other assets. These superior returns will be expressed as: • Increased productivity • Increased revenues • Superior long-term strategic positioning There are three ways an information system can add value to a business: • Help managers make better decisions • Help make business processes more efficient • Increase profitability Figure 1-7 diagrams the business information value chain. We’ll examine the elements of this figure in more detail throughout this text.
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Figure 1-7 The Business Information Value Chain Complementary Assets: Organizational Capital and the Right Business Model Once technology was considered “too technical” for the rest of us to understand. Computers were relegated to the back room with a few technicians running around in white coats. No one else understood what these people did or how they did it. It was a whole different world and actually seemed disconnected from the mainstream operations of the company. Technology and its associated information systems are now integrated throughout the organization. Everyone is concerned about its role and impact on their work activities. End users take on greater responsibility for the success of the information systems and are actually doing a lot of the work that belonged to the techies. Even the executive levels of an organization can no longer ignore the technology as they realize the importance of managing their organizational and management capital. As a firm becomes more digital, its information system continues to extend beyond the traditional role of serving the employees. Developing the complementary assets associated with the information systems such as developing new business models and processes, changing management behavior and organizational culture, emphasizing employee training in technology, and creating new partnerships with suppliers, customers, and even competitors, is proving to be a daunting task. But the plain fact is that organizations, especially larger ones, just can’t change as fast as the technology. Companies make huge investments not just in hardware, but also in software and persware. Training people, building new operating procedures around technology, and changing work processes take far longer than the technological pace will allow.
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Bottom Line: Information literacy is more than just clicking a mouse, pounding the computer keyboard, or surfing the web. It’s about integrating the various elements of an organization, technical and nontechnical, into a successful enterprise. As a successful manager you must concentrate on all three parts of the information systems triangle (hardware, software, and persware) and integrate them into a single, cohesive system that serves the needs of the organization, the wants of the customer, and the desires of the employees; the more complex the system, the harder to manage, but the greater the payoff. Complementary assets are comprised from organization, managerial, and social assets of a firm.
1.3 What academic disciplines are used to study information systems, and how does each contribute to an understanding of information systems?
The study of information systems deals with issues and insights contributed from technical and behavioral disciplines. The disciplines that contribute to the technical approach are computer science, management science, and operations research. The disciplines contributing to the behavioral approach are psychology, sociology, and economics. Technical Approach Think of this analogy: A “techie” looks at most things associated with computing as a series of zeroes or ones. After all, everything in a computer is ultimately reduced to a zero or a one. So using the technical approach, you could say that 2 + 2 = 4. Behavioral Approach The behavioral approach, on the other hand, takes into account the very nature of human beings. Nothing is totally black and white. Therefore the behavioral approach to the same equation would be “2 + 2 = maybe 4 or perhaps 3.5 to 5.5, but we’ll have to put it before the committee and see what the last quarter’s figures say.” Neither approach is better than the other, depending on the situation. Neither approach is more right than the other, depending on the situation. Approach of This Text: Sociotechnical Systems An organization can’t afford to view its information resources as belonging to either the techies (technical approach) or the nontechies (behavioral approach). Responsibility for information belongs to everyone in the organization. This is the sociotechnical approach
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—a combination of the two approaches. Everyone has to work together to ensure that information systems serve the entire organization. To help you understand the importance of viewing management information systems using the sociotechnical approach, consider this: David Haskin, writing in the April 1999 issue of Windows Magazine, quotes Steve Roberts, vice president of information technology for Mind Spring Enterprises, an Atlanta-based Internet service provider: “The gap in understanding between technical and nontechnical people is the biggest challenge I’ve seen.” Haskin goes on to say, “Because technology is the bedrock on which successful businesses are built, the stakes in making this relationship work are high. Failing to use the correct technology can put you at a competitive disadvantage, and glitches in existing technologies can bring a business to a grinding halt.” Even though Roberts made his statement almost 20 years ago, his insight into the challenges of managing information systems hasn’t changed much. Bottom Line: Information systems and the use of technology belong to everyone in an organization. This concept is best carried out through a sociotechnical approach to viewing information systems, which allows both the technical and behavioral approaches to be combined for the good of the organization.
Discussion Questions: 1. Why is it important to understand the difference between computer literacy and information literacy? 2. Discuss the three elements of an information system (hardware, software and persware) that managers must consider. Which of the three do you consider the most important? 3. Discuss how complementary social, managerial, and organizational assets help optimize returns from information technology investments. 4. Discuss the changes in the business environment brought about by technology in the last five years. Use Table 1-1 and your own personal experiences to formulate your answer. 5. Describe why it’s becoming increasingly important to view information systems and technology from a sociotechnical aspect.
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Answers to Discussion Questions: 1. Information literacy is more concerned with creating information useful to an organization and its employees, whereas computer literacy focuses mainly on how computer hardware and software work. As technology uses spread beyond traditional computers, information literacy enables employees and organizations to gain an edge over their competition. 2. Hardware is centered on the input and output components of an information system. Software is centered on the processing component. Persware is centered on the feedback component and on how employees can effectively use an information system. Opinions vary on which element is most important; this text stresses the importance of the persware element. 3. Table 1-3 (page 28), lists the organizational, managerial, and social assets required to optimize returns from information technology investments. Investing in information technology like new hardware or software is not enough to ensure an organization’s success. Supportive values, structures, and behavior patterns must accompany the technological changes or improvements in order for a company to realize the maximum value from its investments in organizational and management capital. 4. See Table 1-1. Answers should include references to the growing dependence on Internet technologies in the workplace, increased use of mobile hand-held computing devices, increased globalization of businesses, 24/7 availability of many business processes to the customer, and the rise of the information economy. 5. The technical approach to information systems emphasizes the “hard” side of technology. The behavioral approach to information systems emphasizes the “soft” side of technology. As technology plays an increasing role in a business’s success or failure, it’s important to mesh both sides. Adopting a sociotechnical systems perspective helps avoid a purely technological approach to information systems. Organizations can achieve more efficient and effective organizational performance by jointly optimizing both the social and technical systems.
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Management Information Systems, 15E
Laudon & Laudon Lecture Files by Barbara J. Ellestad
Chapter 2 Global E-business and Collaboration What would happen if you walked into work one day and the management told the employees they could do anything, anything at all, that they wanted to do that day. If Jimmy from production decided he wanted to work in sales and marketing, he could. If Sally, who normally works in accounting, wanted to spend the day in shipping she could do that too. No one would have to follow any rules or any set procedures. They could accomplish the work any way they choose. Sally decides that she doesn’t want to use FedEx to ship out the products that day even though the company has a contract, which saves them lots of money. She decides to use an alternate shipping service that will cost the company more and slow down the shipment significantly. She doesn’t see a need to tell accounting about the change. Jimmy decides not to use the same old packing materials when he’s preparing glass bowls for movement across the country. He determines that it is faster if he just plops the bowls into a box, closes the lid, and sends it down the line. Unfortunately, his co-worker Tim (who doesn’t know anything about Jimmy’s decision) is responsible for answering customer complaints. Bill in accounting decides that he needs a pay raise to help pay for his upcoming vacation. Normally, he would be required to get his supervisor’s approval to change any pay record but because there aren’t any established procedures he can just go ahead and enter the new salary data in the system. While he’s at it, he gives ten of his friends pay raises also. Although Bill’s friends may like the idea, the rest of the employees in the company are pretty upset.
2.1 What are business processes? How are they related to information systems? As we discussed in Chapter 1, the “digital firm” means more than just plunking down computers that have all the latest bells and whistles on every desk. The digital firm must connect each functional area and each management level to one another. Data input to the system in manufacturing must be made available to sales, accounting, and shipping. Managers in the human resources department must have access to appropriate information regardless of its origin. Information integration is the key to the digital firm.
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As we go through this chapter, we’ll look at the types of information systems organizations use to bring it all together. To help distinguish between the type of function each one is designed to accomplish and to fit them all together, we’re going to look at them in the context of manufacturing candy bars. Yep, candy bars. Everyone likes them and everyone has eaten one, so they will be easy to relate to. We’ll call the company WorldWide Candy and we’ll give the candy bar the timely name of “Cybernuts.” Business Processes You can imagine from the opening scenario how quickly chaos would reign in the organization without established business processes that integrate functions throughout an organization. Processes that deliver the best product for the lowest cost in the most efficient manner are imperative to success. The way a business organizes its workflows, the method it uses to accomplish tasks, and the way it coordinates its activities among employees, customers, and suppliers determines its business processes. Organizations, from the smallest one- or two-person group to the largest you can imagine, must have orderly processes that all divisions can understand. No part of the organization can work in isolation from any other part. Table 2.1 describes some typical business processes for each of the functional areas of business. We will see later in the chapter how these businesses processes are supported by enterprise systems.
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How Information Technology Improves Business Processes Some processes that may have contributed to an organization’s success have now outgrown their usefulness. Information systems can help an organization recognize processes that may need to be changed. An information system could be used to automate some of those processes or help managers determine that they are no longer needed. And a successful organization will use an information system to determine which processes are working well. The key to using information systems to analyze, change, automate, or delete processes is that the organization must determine the appropriateness of the recommendations and must determine the right questions. Throwing a new-fangled computer system at the supposed problem is not the answer. And answering the wrong question with a good answer can be far more devastating to the bottom line than not doing anything at all. In other words, if the system says a process should be changed but it truly doesn’t make sense to change it, then don’t. The system should supply recommendations; humans still have the ultimate decision-making responsibility. Information systems enhance business processes in two ways: • Increasing the efficiency of existing processes by automating them • Enabling entirely new processes that are capable of transforming the business by changing the flow of information Bottom Line: Business processes help an organization organize, coordinate, and focus its workflow to produce products or services. The success or failure of a business may depend on how well its business processes are designed and coordinated. Information systems can automate many steps in business processes and even change the flow of information.
2.2 How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? There is no one single information system that will satisfy all of the needs of an organization. At first glance it can be difficult to comprehend all the different systems in a business, and even more difficult to understand how they relate to one another. Systems for Different Management Groups You’ll see at the end of this discussion the integral role each type of system plays—from determining which kind of candy bar to make (strategic level systems); to how many people the company will need to make the candy bar (management level systems); to tracking customer orders (operational level systems). Within these three levels we’ll 2-3 ..
discuss the four major types of systems typically used to make an organization successful. Transaction Processing Systems The operational level of an organization includes various units such as the order processing, material movement control, payroll, accounts payable, and employee record keeping. This level is responsible for daily operations. The information systems used in this level of the organization are transaction processing systems (TPS), so called because they record the routine transactions that take place in everyday operations. TPS combine data in various ways to fulfill the hundreds of information needs a company requires to be successful. The data are very detailed at this level. For instance, a TPS will record how many pounds of sugar are used in making our Cybernuts candy bar. It also records the time it takes from beginning to end to make the candy bar. And it can record the number of people working on the assembly line when our candy bar is made and what functions they perform. People using transaction processing systems usually need information to help them answer routine questions such as: “How many Cybernuts candy bars did we produce yesterday?” or “How much sugar do we have on hand for today’s production run?” Although there’s more to making the Cybernuts bar than just running the assembly line, a TPS will record the sales and marketing transactions as well. The system will record not just the number of dollars used in the marketing program, but also how many stores are actually stocking the candy bar and where the product is located inside the stores. You have to remember that a lot of work is required to get the product from the manufacturing plant to the store shelves. How much did the company pay to package the product, store the product, and ship the candy bar to the stores? All that data can be recorded in a TPS, right down to how many truck drivers are required to deliver products to local convenience stores. As you can visualize, the operational level of an organization also includes functions not directly associated with the actual production of the Cybernuts bar, but vital in keeping the company running smoothly. The people in accounting may not be pouring the chocolate over the nuts on the assembly line, but those workers that do appreciate the fact that they get a paycheck every two weeks. Production workers also like to know that the human resource division is keeping track of training programs that may help them advance within the company. Each of these divisions requires an information system that helps it keep track of the many details that make the production worker happy and productive. The best transaction processing system will be integrated throughout the organization to supply useful information to those who need it when they need it.
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Bottom Line: The transaction processing system records the data from everyday operations throughout every division or department in the organization. Each division/department is tied together through the TPS to provide useful information to management levels throughout the company. Systems for Business Intelligence Think about the functions of managers that you may have learned about in other classes: directing, controlling, communicating, planning, and decision making. Each manager takes on these roles countless times in a day. Managers review endless amounts of data that make their jobs easier and more efficient. Businesses and organizations collect billions and billions of pieces of data on everything from customers to suppliers to business partners. Collecting the data is the easy part— almost too easy. Once the data are collected it’s much more difficult for managers and executives to actually use them to make smart decisions. That conundrum has given rise to business intelligence software applications that help users make sense of all that data. Decision makers can discern hidden patterns and trends in the data and use the information to the organization’s benefit. Management information systems (MIS) are designed to produce information on a periodic basis instead of on a daily recurring basis such as those using a transaction processing system. Managers also require information on an exception basis. That is, they need to know if production is higher or lower than the targeted rate or if they are over or under their budgets. They also need to know about trends instead of straight numbers. The questions they may ask of the system would be: “How far behind in production are we for this quarter?” or “How many more workers would we need if we increased production by 10,000 candy bars per quarter?” or “If we do adopt the new Cybernuts recipe, what positions are open for the 25 excess workers and what skills do they possess that the company can use elsewhere?” Before integrated systems, managers received periodic printed reports that gave them lots of data, but often didn’t supply information that they could utilize to make timely decisions. Planning was sometimes a wasted effort because the information the managers needed just wasn’t there when they needed it. If there was a problem getting a shipment out to the convenience store in Paducah, Kentucky, the shipping manager may not have known about it until a customer cancelled her account six months later. The human resources department manager would likely not be able to find out about new job opportunities in a different part of the company until after the workers had been laid off and had found other employment. Worse yet, production might have to stop the assembly lines because accounting hadn’t purchased enough supplies to cover the increase in the number of candy bars rolling off the line.
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With the integration of information systems up and down the management levels, and throughout the corporation, managers can often get needed information in a real-time mode. The data are kept online, the system can gather the precise information managers need to make a decision, and the information can be cross integrated into all departments of the company. All divisions in the company can see what’s going on throughout the corporation. Information can be passed from department to department so that they are all working “on the same page.” Bottom Line: A management information system is used by managers throughout the organization to help them in directing, planning, coordinating, communicating, and decision making. The MIS will help answer structured questions on a periodic basis. Decision-support systems (DSS) also serve the management level of an organization, but in a somewhat different way from an MIS. An MIS uses internal data to supply useful information. A DSS uses internal data but also combines it with external data to help analyze various decisions management must make. Analyzing complex, interactive decisions is the primary reason for a company to use a DSS. The sales and marketing management of WorldWide Candy would use a DSS to answer a semistructured question such as: “What price should we charge for the Cybernuts candy bar so that we can maximize our profits, minimize our costs, and still remain competitive?” Using a DSS, the manager in charge of the manufacturing division could determine the best answer to this semistructured question: “How does the change in the size and packaging of the Cybernuts candy bar affect the other products we produce, not just in shipping, but also on the display shelf at the convenience store?” You’ll notice we describe decisions at this level as semistructured. Not all decisions required for an organization to function smoothly are cut-and-dried. There are a lot of gray areas in successfully managing an organization and the larger the company, the more diverse the decision-making process becomes. As a company is affected not only by what goes on solely within the company, but also by external forces not under its control, decision-support systems can help upper-level management. What happens to the pricing structure and availability of the raw materials for the Cybernuts bar if civil war breaks out in the sugar producing countries of Central America? The price of electricity can greatly affect the profit and loss of the Cybernuts bar. Fluctuating gasoline prices affect the profit margins by increasing or decreasing the distribution costs of the product. All these external events can be put into context in a decision-support system so that WorldWide’s management can make effective decisions. Bottom line: Decision-support systems are used for complex “what-if” questions that require internal and external data. Decisions at this management level are mostly semistructured so the information system must respond to the unique requirements of the executives. 2-6 ..
Executive support systems (ESS) are used at the very upper echelons of management. At the strategic level, the typical decision is very unstructured. Often there is no specific question, but rather a series of undefined situations executives may face. There are no easy, definable answers. These executives require summarized, historical information gleaned from all other levels of the organization, coupled with large amounts of external data gathered from many sources. Let’s assume that the Cybernuts bar is the most successful, most popular candy bar ever made. (You could say its success is due to the effective use of the previous three information systems!) The Universal Food Products Corporation just can’t create a product that comes close to the success of Cybernuts (their information systems aren’t as good) and is very envious of WorldWide Candy. So Universal Food Products offers to buy the Cybernuts product from WorldWide for what seems to be an astronomical amount of money. WorldWide executives can use their executive support system to determine if this offer is in the best interest of all. They can analyze the information gathered from all of the internal information systems and couple that with external data to help them make the decision. With an ESS, company executives can make their decision based on information, not on emotion. Senior executives often access information through the use of a portal. Basically, a portal is a web interface designed to present integrated personalized business content from a variety of sources. Interactive Session: Organizations: New Systems Help Plan International Manage Its Human Resources (page 52 of the textbook) discusses how the organization implemented a new human resources system that could handle its growing global workforce, support common processes across all regions, and deliver information on a secure mobile platform in regions where technology infrastructure was not well developed. As executives haven’t been using computers that long or don’t have time to fiddle around learning how to type, executive support systems use digital dashboards to make the system easy to use and provide information in a real-time mode. The ESS must be able to incorporate external information with internal data to offer concise, complete information for the imprecise and incomplete scenarios executives face. Bottom Line: An executive support system helps managers make strategic decisions affecting the entire company. The decisions use internal and external data to give executives the information they need to determine the proper course of action in unstructured situations. Systems for Linking the Enterprise
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It’s not unusual to find an organization with three or more different information systems that act as islands. The systems don’t exchange information very well, if at all. Accounting and finance may have a system that serves their needs very well, but they can’t collect information from the system used by manufacturing and production. Sales and marketing is doing its own thing with its system and losing valuable information from the other systems, which could help it do a better job. Enterprise Applications No business can afford disjointed information systems that don’t work together to produce a coherent picture of the entire organization. All the functions of a business must be integrated across traditional lines of demarcation. Islands of information can be devastating to a company if data cannot be shared throughout the company. Even worse, the islands of information can create problems if each faction of an enterprise has differing information that conflicts with other islands of information. These kinds of problems are what gave rise to enterprise applications that share the same data anywhere it’s needed in an organization. As networks of all kinds take hold, from the Internet to intranets to extranets, web-based enterprise applications are increasingly widespread. The following sections are an overview of four major enterprise applications: enterprise, supply chain management, customer relationship management, and knowledge management systems. We’ll also study each of these systems in depth in future chapters. Enterprise systems (also known as enterprise resource planning (ERP) systems) are used to bridge the communication gap among all departments and all users of information within a company. If the WorldWide Candy Company production department enters information about its processes, the data are available to accounting, sales, and human resources. If sales and marketing is planning a new advertising campaign for the Cybernuts candy bar, anyone anywhere within the organization will have access to that information. Enterprise systems truly allow a company to use information as a vital resource and enhance the bottom line. The greatest enticement of enterprise systems is the chance to cut costs firm-wide and enhance the ability to pass information throughout the organization. The biggest drawbacks to building enterprise information systems are time, money, and people. Because the installation of the system is so invasive, it takes a tremendous amount of time to install the hardware and software, train people to use it, and rework business processes that will then inevitably change. Many companies find it more trouble than they care to handle.
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Figure 2.6: Enterprise Application Architecture
Even if you properly manage your processes, wring out excess costs from every corner of the organization, and above all, have the best products at the lowest cost, if you can’t get your products to the right customers at the right time what good is all the rest? Managing your supply chain and getting products or services to customers efficiently and effectively is the real key to success. Supply chain management systems offer new opportunities for companies to integrate data and information with their suppliers and customers and ultimately, lower costs for everyone. When WorldWide Candy installed their supply chain management system, a form of interorganizational systems, they created a cohesive network for buying raw materials, creating the candy bars, and getting the packaged goods to retail outlets. Do you wait for the customer to complain about your poor service before you take a critical look at your business processes? Do you spend more time and money acquiring new customers than you do in keeping your existing ones? Does each functional area of your organization have a completely different and separate viewpoint of your customers? Does your sales and marketing department make promises to your customers that manufacturing and production can’t possibly keep? If you answered yes to one or more of these questions you’re in serious need of a good customer relationship management (CRM) system. CRM technology isn’t just a nice looking website for customers to click through or more reports dumped on managers’ desks that they don’t have time to review. CRM systems involve business processes in all the functional areas and every management level of a 2-9 ..
firm. The ideal CRM system provides end-to-end customer care from receipt of order through product delivery. Because of technological limitations in the past, many companies created islands of information in the various functional areas. Sales and marketing at Cybernuts may tell a customer that the product order would ship by the fifteenth. Meanwhile manufacturing and production was experiencing a delay in producing the Cybernuts candy bar because the finance department didn’t purchase enough raw goods. The islands of information prevented each functional area from knowing the situations in other areas. CRM systems help solve some of these disjointed snafus. CRM also helps a firm cut the costs of keeping good customers by supplying the entire organization with a consolidated view of the customers’ needs. Unprofitable customers are more easily identified with a CRM system and the time and energy spent can be retargeted to more profitable customers. You may not think of a knowledge management system as an integral part of the overall information system of an organization. Most of the other systems have been recognized for many years, but this one may be thought of as relatively new. Knowledge management systems (KMS) enable organizations to better manage processes for capturing and applying knowledge and expertise. Knowledge workers are those who promote the creation of new knowledge and integrate it into the organization. Research scientists may discover new methods of mixing sugar and cocoa beans and dairy products to make a better chocolate. Maybe a team of engineers will develop a new method of packaging the Cybernuts bar to make it easier to open. The legal knowledge workers may spend their time determining the copyright protections that could be afforded to the Cybernuts product name. Intranets and Extranets Enterprise applications are often costly to implement. Companies that don’t have the resources to invest in enterprise applications can still achieve some measure of information integration by using intranets and extranets. Intranets and extranets use Internet technology and standards to assemble information from various systems and present it to the user in a web page format. Extranets make portions of private corporate intranets available to outsiders. Both of these tools make it easy for companies to disseminate information through a standard platform that requires very little work to maintain. It’s a low-cost way to connect internal employees with one another or external users to company information.
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E-Business, E-Commerce, and E-Government The Internet, extranets, and intranets offer new opportunities to do business in cyberspace. The amount of electronic commerce and electronic business conducted online continues to grow exponentially year after year without any signs of slowing down. The two terms, e-commerce and e-business, are often confused with each other. E-commerce is limited to the buying and selling of goods and services on networks. E-business encompasses not only e-commerce but also a broader range of tasks like coordinating training seminars for customers. Even with the rising popularity of these new ways of doing business, you should take caution. It’s easy to put up a snazzy, colorful website that looks very pretty and may even be easy to use. It may be a site on the Internet, an intranet, or an extranet. You must consider though, how you’re going to incorporate that part of your business with your other, more established methods of doing business. What internal processes must you change or adapt? What new processes must you establish? What training must you do with the people who will run the e-business, both technical and nontechnical? You can’t keep doing your job the same old way. Lots of businesses have tried and lots of businesses have lost big bucks. The electronic delivery of government services via the Internet has been fairly successful. Citizens have easy access to forms necessary in many e-government programs such as tax payments. Rather than waste time standing in line for vehicle registration and licenses, people can complete these kinds of tasks on the Internet. Perhaps most importantly, e-government has opened the lines of communications between citizens and elected officials and made information access easier and timelier. Bottom Line: Integrating functions and business processes cuts costs and allows systems development that involves the whole firm or industry. Customer resource management and supply chain management give a company the added advantages of end-to-end customer care. Enterprise systems have many challenges but the benefits, when executed properly, are enormous. Knowledge management systems allow an organization to fully integrate their newly acquired knowledge into the current systems.
2.3 Why are systems for collaboration and social business so important, and what technologies do they use? Globalization now allows companies to work around the clock, around the world. It’s not unusual for major corporations to shift work from one time zone to another, one country to another. Somehow, the people in all the geographically separated locations have to be
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able to easily communicate and share information with one another. Working in teams is now becoming the de facto practice in the business world. What Is Collaboration? Let’s first determine exactly what the term collaboration means to businesses and to you: • • • • • •
Working with others to achieve shared and explicit goals Focuses on a particular task or mission Takes place in a business and/or between businesses Can be short or long term Can be one-to-one or many-to-many Can be informal or structured, formal teams
Collaboration and teamwork has grown in popularity over the last few years because new technology has made it much easier for people to communicate and share information, files, and documents. Imagine how difficult it would be to collaborate with a colleague across the country if you had to pass documents back and forth using snail-mail. Collaboration and teamwork are central to the success of many businesses. Here are six reasons why businesses promote collaboration and teamwork: • • • • • •
Changing nature of work—traditionally work was organized into silos. Now, most new jobs require interaction among employees, suppliers, and customers. Growth of professional work—most professional jobs require close coordination and sharing information and opinions with other professionals. Changing organization of the firm—traditionally organizations used a managerial hierarchy. Now, many firms have been “flattened” and expertise and decision-making powers are pushed down to groups and teams. Changing scope of the firm—globalization has created organizations that are disbursed to many geographically separated locations that require close coordination. Emphasis on innovation—innovation comes more from teams and groups than from a single individual. Collaborative practices and technologies increase the likely success of innovation. Changing culture of work and business—diverse teams tend to produce better outputs and do it faster than individuals.
What Is Social Business? Collaboration among employees, suppliers, and customers is becoming an important tool in increasing a company’s competitive advantage. Social networking platforms such as Facebook, Twitter, and Pinterest help improve a company’s social business to establish
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and improve interactions with groups inside and outside the organization. Information sharing, innovation, and decision making are enhanced through these technologies. Communications among managers, executives, and employees can be improved and streamlined through the use of social business. Table 2.2 provides a list of social business applications and their descriptions.
Business Benefits of Collaboration and Social Business Many major corporations are embracing collaboration and teamwork not just within their own company, but also with people outside the organizations. “IBM is prowling the world to set up what it calls ‘collaboratories’ which match up its researchers with experts from governments, universities, and companies. IBM is trying to convince countries and companies that it can help them improve their ability to innovate at an important moment for the global economy. In recent years, companies such as Hewlett-Packard and Intel have begun tapping talent from outside for essential bits of science and technology—a concept called open innovation. Now IBM is moving a giant step further by making collaboration with outsiders an essential piece of its research strategy. The depth of that collaboration, the number of partners, the staff involved, and its global reach set IBM apart. ‘To move in this direction you have to be willing to not just take risks but be open to accepting ideas from around the world,’ says Soumitra Dutta, professor of business and technology at Europe’s INSEAD.” (BusinessWeek, Big Blue’s Global Lab, Steve Hamm, Sep 7, 2009.) Table 2.3 emphasizes the benefits of collaboration and social business: increased productivity, increased quality of work, more and better innovation, improved customer service, and increased profitability, sales, and sales growth. Figure 2.7 highlights the necessity of having the appropriate organizations structure and culture, along with the right technology. 2-13 ..
Figure 2.7 Requirements for Collaboration Building a Collaborative Culture and Business Processes Trying to mesh a typical hierarchical management structure with a true collaborative environment simply won’t hack it for one major reason. In a hierarchical organization structure, communications are passed up the management ladder from employees, across to another management ladder and back down to employees. That’s extremely slow, 2-14 ..
cumbersome, and has an awful lot of “filters” as messages are passed from one person to another. Collaboration and teamwork require much faster communications and information sharing. In essence it requires managers to set specific goals and then “get out of the way.” Teams develop products, design new ideas or processes, and create new systems and technologies. Individuals are rewarded based on the success of the team rather than their own individual merits. Managers build the teams, coordinate the work, and monitor performance. But in order for all this to work well, an organization must have the right tools and technologies in place. Tools and Technologies for Collaboration and Social Business Many new systems for interacting with other employees, managers, vendors, and customers have been developed. You probably use some of them without realizing how essential they’ve become in creating an environment that supports a collaborative culture. • • •
E-mail and instant messaging: Billions of messages flow everyday among employees, managers, suppliers, and customers. Wikis: These are gaining in popularity as a way to share knowledge and ideas among collaborators. They are much easier to use and manage than more sophisticated knowledge management systems. Virtual worlds: Able to house online meetings, training sessions, and lounges, this type of tool is gaining popularity as a way to meet, interact, and exchange ideas.
Collaboration and Social Business Platforms: Let’s assume you are part of a team working on a new candy product for WorldWide Candy Corporation. You work in Atlanta, Georgia, while your teammates work in New York City, Seattle, and Dallas. Sure, you could all fly to a central meeting place once a month to collaborate on the new candy bar. But imagine how cumbersome and slow that would be. Not to mention expensive and time-consuming. Virtual Meeting Systems: With a virtual meeting system, you can hold strategy sessions once or twice a week instead. You would feel like all of your teammates are physically located in the same place if you use telepresence technology. You can share ideas and documents in real-time. Best of all, you don’t have all the travel hassles and you can sleep in your own bed. Interactive Session: Technology: Cisco IX5000: What State-of-the-Art Telepresence Can Do for Collaboration (see page 63 of the text) describes the progress companies have made in building new technologies that enhance videoconferencing and make it less expensive to use.
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Cloud Collaboration Services: While your WorldWide Candy team is collaborating on the new candy bar, you’ll find it necessary to share word documents, spreadsheets, calendars, and perhaps audio and video files. Rather than create the online structure for all this, not to mention spending big dollars, your team can use Google Tools that include Google Drive, Google Docs, Google Apps, Google Sites and Google + to easily set up the necessary technology infrastructure you need. You’ll have the benefit of e-mail, instant messaging, and threaded discussion, so all of you can communicate in real-time. You’re also able to save and archive all your communications for future reference. You can’t necessarily do that in a face-to-face meeting. Microsoft SharePoint and IBM Notes: WorldWide Candy already uses Microsoft servers and networking products, along with the Microsoft Office suite of Word, Excel, Outlook, and PowerPoint. Your team can use all of these as a base for collaboration by developing a website that organizes and stores information in one location. The host website provides the following benefits: • Coordinate work activities • Collaborate on and publish documents • Maintain task lists • Implement workflows • Share information via wikis and blogs Another Internet-based collaboration environment your team could use is IBM Notes. It provides all the basic collaboration tools as Google Apps/Google Sites and SharePoint do but with a few added features. It has social networking enhancements and the ability for your team to develop its own custom applications. The most beneficial feature of IBM Notes for very large corporations is the higher levels of security and reliability along with the ability to keep control over sensitive information. Enterprise Social Networking Tools: These tools, such as Jive and Yammer, help connect an organization’s members through profiles, updates, and notifications but are restricted to internal corporate uses. Some include user profiles, communities, e-mail, instant messaging, web meetings, calendars, personal dashboards, and file sharing.
Checklist for Managers: Evaluating and Selecting Collaboration and Social Software Tools Sometimes the decision about which of these tools to use may be up to you. How do you decide which one is best? Figure 2.8 gives you a matrix that will help you sort through all the hype and make a decision based on your needs. The matrix uses two dimensions, time and space, to compare the tasks you want to accomplish with the best way to do so. For instance, will your team use synchronous (same time) or asynchronous (different time) to meet? Mostly, you need to analyze the collaboration tools from a cost-benefit point of view.
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Figure 2.8 The Time/Space Collaboration and Social Tool Matrix You can also use these six steps to help you select the best product for the task at hand: • • • • • •
What are my challenges in terms of time and space? What solutions are available for each of the challenges? What are the costs and benefits of each solution? What security risks and vulnerabilities are associated with each solution? What are the implementation and training issues associated with each solution? Choose the collaboration tools and seek presentations from the vendors
Bottom Line: Collaboration and teamwork is the name of the game in today’s corporate world. There are many different tools and technologies that help enable collaboration. The firm must have a collaborative culture that encourages employees to work together as a team to ensure success.
2.4 What is the role of the information systems function in a business? Many people focus on the job losses caused by technological advances and changes. On the other hand, many new jobs have been created because of technology. Information systems departments, previously a tiny group of people usually assigned to the financial group, have moved into the mainstream of most companies.
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The Information Systems Department Programmers have taken on more important positions within organizations. They must understand not only the technical side of computing, but they must also know business processes so they can adapt the technology to the needs of their company. Systems analysts serve as the bridge between the techies and the nontechies. Heading this group of people are the information systems managers. Their importance to businesses has grown as the emphasis on technology’s role within organizations has grown. Just as most organizations have a chief financial officer, the position of chief information officer (CIO) has been created to handle the myriad of problems and opportunities businesses face in today’s technologically driven environment. Very large corporations appoint a chief security officer (CSO) who’s responsible for enforcing the firm’s information security policy and training users and information systems technologists about security. The CSO keeps other executives and managers aware of security threats and maintains security tools and policies. The chief privacy officer (CPO) protects an organization’s data from misuse and abuse and makes sure the company complies with data privacy laws. Another new position, that of chief knowledge officer (CKO), has been created in larger corporations to deal with effectively using knowledge management systems. Some major corporations are establishing a position for a chief data officer (CDO) who is responsible for enterprise-wide governance and utilization of information that is gleaned from all the data an organization collects and stores. Making sure the company is collecting appropriate data, analyzing the data properly, and using the results to support good business decisions is the CDO’s main responsibility. Perhaps the most important role of all, though, is the end user. The responsibility for successful integration of information systems has extended past the “techies” and become part of everyone’s job. As we’ve seen so far, no functional area or level of organizational hierarchy is exempt from understanding information systems and how they can help businesses meet their objectives. Organizing the Information Systems Function Deciding how to organize the information systems function within a business is not as easy as deciding how to organize other functional areas. After all, sales and marketing has a much different mission than production and manufacturing. An information system on the other hand has similar tasks regardless of the functional area it is supporting. Sales and marketing needs access to data the same as production and manufacturing. Larger companies and organizations develop an IT governance that helps decide the best way to organize the IT department for the benefit of all. Some of the issues to be decided upon are: 2-18 ..
• • • •
Strategy and policies for using IT Accountability toward the organization’s strategies and objectives How much centralization will take place within the IT function Does the organization receive a positive return on its IT investments?
Bottom Line: The IS department is an integral part of any successful business. Programmers, analysts, IS managers, and the CIO are major players in the IS function. Large corporations use a chief security officer, chief privacy officer, and a chief knowledge officer to ensure investments in information technology pay big dividends to the firm. The most important role in effectively using technology belongs to the users.
Discussion Questions: 1. How can a transaction processing system help an organization’s management information system and decision-support system? 2. Which of the four major types of information systems do you think is the most valuable to an organization? 3. Discuss the benefits and challenges of enterprise systems and explain why a firm would want to build one. 4. Discuss why a typical hierarchical management structure is not conducive to a collaborative business culture. 5. Discuss the tools and technologies for collaboration and social business that are available and how they provide value to an organization.
Answers to Discussion Questions: 1. A transaction processing system gathers data about the day-to-day operations of the organization from all functional areas. The data can be fed into the other systems to help the business meet its objectives. It can also help prevent islands of information in the organization. 2. Opinions will vary about which type of information system is the most valuable. Answers should include information about why the student thinks the one they have chosen is most valuable. For instance, some students may claim that a TPS is the most important because it collects data that become the foundation for all other systems. Other students may determine that DSS are more important than the others
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because these systems increase the viability of decisions that may affect large parts of the organization. 3. Benefits of an enterprise system include a consolidated view of the organization, unified platforms, more efficient operations, and customer-driven business processes. Challenges include daunting implementation, high up-front costs, unpredictable future benefits, inflexibility, and difficulty in realizing strategic values in the company. Organizations are enticed to build enterprise systems because they offer enormous cost savings in the long run, increased efficiencies in business processes, and give the firm an advantage over its competitors. 4. Business firms, especially large firms, 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’s plans. The job of middle management supposedly was to pass messages back and forth, up and down the hierarchy. A collaborative business culture is very different. Senior managers are responsible for achieving results, but rely on teams of employees to achieve and implement the results. 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 for their performance, and individuals are rewarded for their performance in a team. The function of middle managers is to build the teams, coordinate their work, and monitor their performance. 5. The tools and technologies for collaboration and social business include e-mail, social networking, wikis, and virtual worlds. Social networking sites give corporations another way for users to share ideas and collaborate with each other. Businesses can use them as a way to communicate with and reach out to customers. If done correctly, they can be great tools to sell products, service customers, and communicate with the masses. Wikis are specially created websites that provide a way for users to contribute and edit text content and graphics about a wide-ranging assortment of topics. They are generally less costly than formal knowledge management systems and may be more dynamic and current. Businesses can use virtual worlds to house online meetings, training sessions, and lounges for employees to communicate with one another.
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Management Information Systems, 15E Laudon & Laudon Lecture Files by Barbara J. Ellestad
Chapter 3 Information Systems, Organizations, and Strategy Chapter 3 describes how organizations and information systems work together, or sometimes against each other. The idea, of course, is to keep them in sync, but that’s not always possible. We’ll look at the nature of organizations and how they relate to information systems.
3.1 Which features of organizations do managers need to know about to build and use information systems successfully? You could say that this chapter relies on the chicken-and-egg theory to develop a relationship between organizations and information systems. You need to design information systems that serve the existing organization. At the same time you must be ready and willing to restructure the organization to take advantage of the improvements an information system can offer. So which one takes precedent—the organization or the information system? Actually neither one. The goal is to adapt one to the other. What Is an Organization? An organization is very similar to the information system described in Chapter 1. Remember Figure 1.4 from Chapter 1? Compare it to Figure 3.2 in this chapter.
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Figure 3.2 The Technical Microeconomic Definition of the Organization These two figures have many things in common. Both information systems and organizations require inputs and some sort of processing, both have outputs, and both depend on feedback for successful completion of the loop. Information systems use data as their main ingredient and organizations rely on people. However, the similarities are remarkable. Both are a structured method of turning raw products (data/people) into useful entities (information/producers). Think of some of the organizations you’ve been involved in. Didn’t each of them have a structure, even if it wasn’t readily apparent? Perhaps the organization seemed chaotic or didn’t seem to have any real purpose. Maybe that was due to poor input, broken-down processing, or unclear output. It could very well be that feedback was ignored or missing altogether. Many times organizations are turned upside down when new information systems are brought in. It’s not because the system is all wrong for the business. Usually it’s because the system throws the delicate balance of rights, privileges, obligations, responsibilities, and feelings out of kilter. For instance, the marketing department manager used to see all the monthly reports about new customers before any of her employees did. She had a chance to digest the information and formulate responses to questions before disseminating the data to anyone else. After a new information system was integrated throughout the company, all the data regarding new and old customers is available immediately to everyone in the organization. Now, the marketing department manager gets bombarded with questions and comments before she’s even seen the numbers. Features of Organizations The class you’re enrolled in is an organization of sorts, isn’t it? Think about it—how many of the following characteristics fit your class? How many fit any organization you’re in? • • • •
Clear division of labor Hierarchy of authority Abstract rules and procedures Impartial judgments 3-2 ..
• •
Technical qualifications for positions Maximum organizational efficiency
These characteristics describe organizations that are called bureaucracies, which most of us think of as slow, cumbersome, and unprogressive. That isn’t necessarily so. Many organizations have bureaucratic characteristics and operate very well. Routines and Business Processes Successful organizations develop efficient routines for producing goods and services. Successful organizations are able to reduce costs and win a competitive advantage over others because these routines are built into business processes. However, some standard operating procedures (SOPs), politics, and culture are so ingrained in organizations that they actually hinder the success of the group because they don’t allow people to change their routines and processes as they should. Organizational Politics Each person in an organization ultimately has his or her own goals. Those goals may be aligned very well with organizational goals but perhaps they aren’t. The bottom line is each person comes into an organization with different concerns and perspectives. When those viewpoints clash with others the end result is organizational politics. And, politics can essentially kill organizational changes necessary for incorporating new information systems. Organizational Culture Just as every society reflects cultural values such as language, dress, and food, so too does every organization have its own culture. Some companies such as Google are very “laid-back.” The company allows employees to bring their dogs to work and ride skateboards in the hallways. Other companies such as IBM require employees to adhere to a strict dress code and leave the skateboards at home. Yet both companies are very successful in their own right. However, when each company embarks on organizational change, the culture is very much a player in what they can and can’t do. Organizational Environments Organizations differ because their ultimate goals differ. Some organizations are small by nature or small by design. Using the same thought process as you did for recognizing the different structures in organizations around you, think about the unique differences in those organizations. Why are they different: size, goals, environmental factors that restrict their growth? For instance, contrast a real estate company with an insurance company. The real estate company is constantly looking for new customers (buyers and sellers) and new products 3-3 ..
(houses or commercial properties) to sell. It may choose to stay small or to go with a nationwide conglomerate. The environmental factors that are likely to influence it are the state of the national economy or the nature of the local economy. Many external factors are out of its control. The employees of the company must respond quickly to potential sales or they simply won’t make any money. This type of organization must be creative in the way it generates business and in the type of systems it uses. On the other hand, the insurance company has relatively stable customers. People sign up with the insurer and pay their premiums on a regular basis. Although customers may come and go, the turnover is fairly small. Because most state governments require people to carry insurance, the agent has a stable stream of income from premiums. Although the parent company may suffer large losses from a sudden influx of customer claims, the small agency is not as heavily influenced by environmental factors. This organization doesn’t have to devise ways of ingeniously using or generating data and its systems needs are mundane. Both of these businesses are small and entrepreneurial. But they must respond to their employees, customers, and potential customers in very different ways. Each of them has different business processes that must be used to meet goals of staying in business. Disruptive Technologies: Riding the Wave: Remember typewriters? If you’re younger than the age of 30, you may have never seen one. They were ubiquitous in the business world 40 years ago. How many have you seen lately? Did they fade away because they weren’t a good idea when they were first invented? They weren’t a good product? They didn’t serve a need? As we all know, the answer to all those questions is a resounding no. They were a great invention, a great product, and served a real need. But they were supplanted by a disruptive technology called computers. There are many examples of how new technologies disrupt old ones in Table 3.1 in the text. How many of the winners and losers do you remember? Companies must continually adapt and change or go out of business. It’s almost that simple. Organizational Structure The point is that every group of people is an organization. The interesting question you could ask yourself would be: “How would the world look and function without some kind of organization?” Table 3.2 shows some common organizational structures. Think about your own experiences, in your workplace or your daily life, and try to list some organizations that fit into each category. They’re all around you and affect you in so many ways. Remember, just as organizations affect you in many different ways, so too do you affect the organizations.
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Other Organizational Features Would you consider the same organizational structure for a softball team as you would for a theatre production group? Although there would be some similarities, the two groups would probably have some major differences. An automobile dealership would have some similarities to a department store (both sell products) and yet they would have major structural differences. Organizations that enter into collaborative partnerships tend to seek out companies with similar structures. It is much easier for the employees to work together if they aren’t required to learn a whole different work structure on top of learning new tasks. Bottom Line: Organizations and information systems influence each other. Each organization shares common characteristics that an information system can enhance. On the other hand, each organization has unique characteristics that should be taken into account when incorporating technology. The organization should determine how the technology is incorporated and not let the information system totally dictate the organizational structure.
3.2 What is the impact of information systems on organizations? Change is the only constant in the relationship between information systems and organizations. As technology evolves and changes, its introduction into organizations requires changes in the firm’s infrastructure and the services it can provide to its employees, customers, and suppliers.
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Years ago information systems consisted of a huge mainframe computer with a few terminals connected to it. You had to schedule a specific time to use the computer if your company had one at all. All data were kept on one machine, and in some respects the data were available to whoever could access them. When personal computers were introduced in the early 1980s, it became the norm for most people to have individual computing islands on their desks. The computers weren’t connected to one another and if you wanted to exchange data or information, you had to somehow get the data from your desk to the other person’s desk. It wasn’t easy. Now it seems we’ve come full circle in some ways: We’ve combined the storage and data processing on a central machine with personal computing available on stripped-down desktops. The data are available to anyone who can use them or has authorized access through a network with links literally all over the world. The text discusses two major types of theories about how information systems affect organizations: economic theories and behavioral theories. Economic Impacts It’s sometimes cheaper to hire a computer than to hire a person. We may not like the idea that machines can replace human beings, but when you think about it, they have been doing this for thousands of years. To better illustrate this concept, let’s take a look at how a company can find it cheaper to use an information system to develop and disseminate a human resources policy for employee dress codes. The HR assistant may write the first draft of the policy and give it to the HR director on paper. The director will review it and make changes. The assistant then must incorporate the changes and reprint the document. Wait! If there is an information system, the assistant can submit the draft to the director electronically and the director can make changes to the electronic version of the file and return it to the assistant. Already we’ve saved part of a tree! Of course, others in the organization must review the new dress code policy. The proposed policy can be printed in 15 copies, a person can manually send the copies out, track who they went to and when, and then track all the changes made to the proposal. Or, the proposed policy can be sent electronically to reviewers who will electronically collaborate on necessary changes. Each of the reviewers can see in “real time” what the others think and the changes they would like to make. We’ve saved another part of the tree in reduced paper use, but we’ve also saved a lot of time and human effort. Once the policy is set, it has to be sent to each employee. We could do that through the old method of printing hundreds of copies. Or we could send the policy to each person electronically (e-mail). Everyone would have a personal copy stored on computer. There is no need to print it out on paper because it will be stored electronically and can be 3-6 ..
referenced whenever it is convenient. As employees acknowledge receipt of the policy via e-mail, the HR department knows they received it. So what about the people who don’t have their own personal computer? You could post the new policy to the company intranet, which would be available to all employees whenever they find it convenient. Again, time and resources are cut drastically through the use of an information system. If the policy needs to be revised, the same process can be used to make and send out changes. The revised policy can be posted on the intranet for all to see. This is just one example of how technology is helping organizations reduce their costs of doing business. The transaction cost theory supports the idea that through technology businesses can reduce their costs of processing transactions with the same emphasis and zeal that they try to reduce their production costs. We mentioned earlier that many of the job cuts taking place in businesses are now affecting white-collar, managerial positions. That follows the agency theory of economic impacts brought on by information systems. Now one manager can oversee ten employees (agents) rather than four employees because information is cheaper and easier to disseminate. Organizational and Behavioral Impacts IT Flattens Organizations Rather than five layers of management in an organization, information technology allows companies to flatten the layers to three, maybe even two. Here’s how: • • •
IT pushes decision-making rights lower in the organization because lower-level employees receive the information they need to make decisions without supervision. Managers now receive so much more accurate information on time that they become much faster at making decisions, and so fewer managers are required. Management costs decline as a percentage of revenues and the hierarchy becomes much more efficient.
Postindustrial Organizations Postindustrial theories also support the notion that IT should flatten hierarchies. Here’s why: •
Professional workers tend to be self-managing, and decision making should become more decentralized as knowledge and information become more widespread throughout the firm.
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•
IT may encourage task force-networked organizations in which groups of professionals come together—face-to-face or electronically—for short periods of time to accomplish a specific task; once the task is accomplished, the individuals join other task forces.
Technology makes virtual organizations more feasible, cheaper, and easier to set up and tear down than before. If you had a small group of people from each functional area of the company collaborating on a new production method, you could bring them together, decide on the new methodology, and then return them to their regularly assigned units. Let’s say your company decides to develop a new method of shipping hammers. You would need to draw people from the production department, the shipping department, the packaging department, and the accounting department to help develop the new procedures. Without an information system you would need to have a clerical worker available to record and send out all the information to everyone before and after the meetings. You would have to set up a time and place for team members to meet. Scheduling everyone’s time is often a nightmare! Because of the political nature of organizations and people, which we’ve previously discussed, most of those assigned to this team would probably have to be middle managers. If your company had the proper information system, much of the hassle and expense of this scenario could be eliminated. By using technology, most of the collaboration and communication throughout the organization, top-to-bottom, side-to-side, could be accomplished quicker and cheaper. One of the biggest benefits to this method would be the fact that the decision-making process of this committee can be pushed to lower levels and management can check progress electronically. Perhaps the managers wouldn’t be as concerned about delegating responsibility because they can keep an eye on the committee throughout the process and monitor its progress more easily. Everyone in the entire organization could have access to the work of the committee. What about those people not physically located in the same place? No problem: electronically they have the same access to the process as everyone else. Interactive Session: Management: Can Technology Replace Managers? (see page 92 in the textbook) discusses the pros and cons of trying to replace humans with technology. Some companies have been successful while others have not.
Understanding Organizational Resistance to Change 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.
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The complex relationship between information systems, organizational performance, and decision making must be carefully managed. Technology doesn’t automatically transform organizations. There is no magic wand companies can wave that will solve all their problems just because they installed the latest information system. People using technology efficiently and effectively, however, can transform organizations. Technology can enhance communications up and down the organization and from one department to another on the same managerial level. As our dress code policy example shows, communications are much faster and better using technology. The lines of communication are shorter, clearer, and more concise. The behavioral theory of the integration of information systems in an organization says that the political structure of an organization changes through access to information. The common status symbol in an organization used to be the corner office. Now the political status symbol is how much information a person has access to. The Internet and Organizations The example used earlier of posting personnel policies to the company intranet is just one small example of how businesses are using network technologies to reduce costs and enhance their business processes. Business-to-business commerce is growing at a tremendous pace because of the cost savings the Internet allows. The Internet provides an open platform technology that allows transaction processing among businesses at much cheaper costs and provides an easy-to-use interface. The innovative ways organizations are using the Internet, intranets, and extranets to improve their business processes and lower costs are simply fascinating. Even government bureaucracies are getting into the act. The U.S. Post Office is facing a severe threat to its core business. More and more businesses and individuals are turning to e-mail and the web to correspond with one another. As e-mail continues to grow as a substitute for “snail mail,” the Post Office must find innovative ways of using the Internet to gain new business. It’s doing so by selling postage on the Internet, and it now offers electronic bill-paying services. Companies can send bills to their customers electronically and individuals and businesses can pay all their bills over the new Internet-based service. Implications for the Design and Understanding of Information Systems The integration of an information system into an organization naturally causes change for the organization. Sounds simple enough. What isn’t so simple to manage is the very fact that many people do not readily accept change. No matter how much technology you employ, it is still the organization’s people who will make or break it. Remember the triangle introduced in Chapter 1, when we discussed hardware, software, and persware? It’s back! 3-9 ..
Change can be so traumatic to some organizations that they find it easier to keep doing business the same old way for as long as they can get away with it. That’s why some organizations seem to be stuck doing business the way they did in 1969. Here are the organizational factors to consider when you’re planning a new system: • Environment • Structure • Culture • Type and style of leadership • Principal interest groups affected and attitudes of workers • Tasks, decisions, and processes that will be affected Bottom Line: For some jobs, it’s better to employ technology than to employ a person. Technology can reduce costs and increase the amount of information people have access to. The changes brought about by the introduction of new technology and new methods must be managed carefully. No successful manager can lose sight of the effect change will have on the people of the organization. Companies need to tailor their information systems to the needs of the organization instead of letting the wonders of technology drive the organization.
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? Google, Amazon, eBay—the giants of the Internet. They are successful and make loads of money. They could easily rest on their laurels, kick back, and relax. If they are so successful, why do they keep working so hard to continually introduce new products and services and improve the old ones? Because someone, somewhere, is trying to take their place and become the new giant. These companies must constantly work to keep their competitive advantage and they are using information systems to do so. Porter’s Competitive Forces Model Porter’s competitive forces model contends that much of the success or failure of a business depends on its ability to respond to its external environment. Figure 3.8 shows five external forces that every business must contend with at one time or another.
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Figure 3.8: Porter’s Competitive Forces Model It’s important to understand from this model that a firm’s success is not predicated on how well it does internally. It must also pay attention to: • • • • •
Traditional competitors: Always nipping at your heals with new products and services trying to steal your customers. New market entrants: Not constrained by traditional ways of producing goods and services, they can easily jump into your markets and lure customers away with cheaper or better products and services. Substitute products and services: Customers may be willing to try substitute products and services if they decide your price is too high or the quality of your products and services is too low. Customers: Fickle to say the least, they are now armed with new information resources that make it easier for them to jump to your competitors, new market entrants, or substitute products. Suppliers: The number of suppliers used may determine how easy or difficult your business will have in controlling your supply chain. Too few suppliers and you lose a lot of control.
Information System Strategies for Dealing with Competitive Forces Many companies have found that effective and efficient information systems allow them to deal with external forces in one of four ways: low-cost leadership, product differentiation, focus on market niche, and strengthen customer and supplier intimacy. Low-Cost Leadership By using information systems to lower your operational costs you can lower your prices. That will make it difficult for traditional competitors and new market entrants to match your prices. This strategy works best with commodities such as computers or with household products retailers such as Walmart.
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Efficient customer response systems provide a company and its suppliers with an integrated view of customers. These systems provide instantaneous information to the company and its suppliers. Every staff member can have access to the information in the system to help reduce costs and prices well below that of the competition. Processes such as supply replenishment are automated between companies and suppliers. When products reach a certain re-order point, the system automatically sends a message to the supplier who can quickly send out new stock. These systems help companies achieve low-cost leadership in their industry. Product Differentiation A very effective use of strategic information systems is to create products or services that are so different that they create barriers for the competition. Product differentiation is at the heart of Apple Computer’s success. Sure, it makes computers. But the company gets away with charging a premium price because it differentiates its products from all others. Competitors, such as Hewlett-Packard and IBM, have tried to duplicate Apple’s strategic business model but have not been quite as successful. Apple uses product differentiation to help market its iPod and online music system to a broad swath of the population and create barriers that its competitors are having difficulty overcoming. People like to feel that they are unique individuals with their own needs and desires. One of the best strategies for dealing with competitors is to offer customers exactly what they want, when they want it, and how they want it. The Internet provides a new outlet for mass customization by allowing customers to order one-of-a-kind products. For instance, by visiting the Ping Golf Club website, an individual can step through a series of pages that will help design golf clubs to fit her. The customer answers questions on the site about her height, arm length, hand size, and level of play. The site then advises her on the exact type of club that best fits her needs and provides all of the information necessary to order the clubs. Once ordered, Ping can produce the product in a matter of hours and use a shipping partner to deliver the clubs in less than five days. The individual feels special and Ping has gained a new customer. Focus on Market Niche If an organization is in a fiercely competitive market, it can choose to focus on a very narrow segment of the market rather than a broad general audience. A firm can gather very specific information about its customers using data mining techniques. Then it creates a focused differentiation business strategy to market directly to those consumers. Being able to address the needs and wants of a very small market segment is why companies are so intent on gathering consumer information from a variety of sources.
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Apple Computer uses focused differentiation to help sell its computers to a narrow target market of graphic designers and educators rather than the general population of computer users. Strengthen Customer and Supplier Intimacy Supply chain management (SCM) systems increase supplier intimacy whereas customer relationship management systems increase customer intimacy. SCM systems create immense switching costs between a company and its suppliers because of the investment of hardware and software necessary to make the system successful. Customer relationship management systems allow companies to learn details about customers that give them the competitive advantage over traditional competitors and new market entrants. Implementing these competitive strategies requires precise coordination of people, technology, and the organization. A company can pursue one or more of these strategies but cannot isolate any of the three dimensions of an information system. They must all work in concert together to have any hope of success. The Internet’s Impact on Competitive Advantage Try to think of one industry that has not been touched by the Internet. Its impact on Porter’s competitive forces model is apparent from entertainment to retail to travel to financial services. The Internet allows traditional competitors to introduce new products and services and lure customers away. It provides a low-cost avenue for new market entrants. Consumers can easily and quickly find substitute products and services through the Internet. Customers can use information provided on the Internet to create new competition among companies while suppliers can increase their market power. Table 3.5 summarizes the impact the Internet is having on many industries.
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Not all of the news is bad though. The Internet provides new opportunities for companies to increase their customers and markets while reducing their costs. The companies we first mentioned in this section, Google, Amazon, and eBay are continually creating new products and services through the Internet. They are successful because they use their strategic competitive forces information systems to continually improve their competitive advantage. Of course the Internet has turned many traditional management practices to dust. Customers have access to much more information and data than they ever did before. They can compare product prices across hundreds of companies with a few clicks. Before the Internet, customers may have had access to a limited number of retailers. Through the Internet, they now have access to hundreds of retailers open 24 hours a day. Once, retailers had only local competition. Now they have to compete with other retailers located halfway around the world. Because of the tremendous growth of the Internet and its influence on all five elements of Porter’s model, businesses must continually monitor the organizational environment, especially the external environment for potential challenges and opportunities. Those businesses that adapt their business model stand a chance of success. Those businesses that ignore the environmental changes and remain stagnant risk everything they have. Smart Products and the Internet of Things Think about that gadget you might wear on your wrist the next time you take a walk or run. A lot of data is collected about you and stored on computers owned by the maker of the wearable product. You can keep a history of your exercise and refer to it over time. But if you switch products and purchase a new gadget from a different company, all that data is lost. And that’s exactly why companies are now focusing on ways to keep you from leaving them through high switching costs and product differentiation. Interactive Session: Technology: Smart Products, Smart Companies (see page 102 of the text) explains how the biggest sports footwear and apparel company in the world is focusing on information technology to help it lock in customers and increase its product differentiation.
The Business Value Chain Model Be better than the competition. That’s the mantra of most companies that are serious about winning the game. Areas of the organization most affected by leveraging technology are producing the product, getting it to the stores, and making the customer happy. Remember the WorldWide Candy Corporation from Chapter 2? Think of all the activities that go into getting the Cybernuts candy bar made, from procuring raw materials to actual production. Then consider how the candy bar gets from the factory to the store shelves. And what about all those commercials you see? 3-14 ..
These are primary activities: • Inbound logistics • Operations • Outbound logistics • Sales and marketing • Service Just as important are support activities: • Administration and management • Human resources • Technology • Procurement The value chain model shown in Figure 3.9 will help an organization focus on these activities and determine where to focus their efforts the most.
Figure 3.9 The Value Chain Model By effectively using an information system in a strategic role at any, or preferably all, levels of the organization, a digital firm can provide more value in its products than the competition. If it can’t provide more value, then the strategic information system should help it provide the same value but at a lower price. 3-15 ..
Benchmarking provides a way for businesses to determine how they stand up against their competitors within the same industry. For instance, if the industry standard in producing golf clubs is ten days, Ping can benchmark their production schedule of five days and determine that they are more successful than their competitors. They can also research the best practices of other golf club manufacturers and decide if they should fine-tune their business processes to wring even more resources from the production process. Information to formulate benchmarks and best practices can come from internal sources, other companies within the same industry, external industries, university research units, or the government. Extending the Value Chain: The Value Web More and more companies are incorporating the Internet in their business strategies through the use of value webs. Ford Motor Company is forming many partnerships and alliances via the web to offer services and products that otherwise would be too difficult, costly, or time-consuming. “Suppliers are an integral part of our business, and our success is interdependent with theirs. We rely on more than 2,000 production suppliers to provide many of the parts that are assembled into Ford vehicles. Another 9,000 suppliers provide a wide range of nonproduction goods and services, from production equipment to computers to advertising.” (Ford.com website) Ford is using value webs to connect with suppliers and business partners and share best practices so that each participant can improve its business processes. That in turn lowers supply costs for Ford and ensures a certain level of standardization through the manufacturing process. Suppliers can collaborate with one another via the value web to enhance their core competencies and improve the entire supply chain. Sharing information through the value web helps not just Ford but the entire vehicle manufacturing industry.
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Figure 3.10: The Value Web Synergies, Core Competencies, and Network-Based Strategies Very seldom will you find a business that provides all of its own services, supplies, and processes throughout the entire chain. It isn’t practical or efficient to do so. Almost every business relies on partnerships with other companies to produce goods and services. The most successful companies will determine the best synergies, core competencies, and network-based strategies to reduce costs, improve products and services, and increase profits. Synergies The following news article demonstrates how effective synergy can be. It would be impossible for the television service provider to create content for its customers. It would be impossible for the content creator to build a delivery system to millions of homes. By developing a synergistic relationship between two entities, everyone wins at a much lower cost with better products and services. New Delhi, Sep 18 (IANS) BIG CBS Networks has announced a tie-up with direct-to-home (DTH) service provider Reliance BIG TV for distribution of their three new English entertainment channels. BIG CBS Networks is a joint venture between the Reliance Broadcast Network and US-based CBS Studios International. The new channels, being launched 3-17 ..
by the Anil Dhirubhai Ambani Group (ADAG), are BIG CBS Prime, BIG CBS Spark, and BIG CBS Love. “With a reach of around 30 lakh (3 million) digital television homes across India and cashing-in on group synergy, BIG TV was one of the most desirous and natural choices for BIG CBS. Our endeavour is to reach the exclusive and best-in-line content of BIG CBS to maximum relevant audiences across the country and this partnership marks the beginning,” Ashutosh, chief operating officer of BIG Broadcasting, said in a press release Friday. The three channels will provide a variety of programmes. The target audience of BIG CBS Spark is youths, while BIG CBS Love will aim at women, and BIG CBS Prime will be a complete entertainment channel. “Our partnership with BIG CBS brings great value to our viewers. It is backed with world-class entertainment content expertise generating top rated programmes consistently. The three BIG CBS channels will offer an envious programme line-up, with some of the flagship shows being telecast in India almost concurrent to that of the US,” said Sanjay Behl, chief executive officer of Reliance DTH and IPTV. (www.thaindian.com/newsportal, September 18, 2010)
Enhancing Core Competencies Why did Ford Motor Company form an alliance with UPS instead of continuing its longtime practice of delivering vehicles to dealers itself? Because Ford wanted to concentrate on its core competency of manufacturing vehicles and let UPS concentrate on its core competency of delivering products. UPSLogistics’ website says “By shaving four days off the delivery cycle and reengineering the network, Ford is realizing a $1 billion dollar reduction in vehicle inventory and more than $125 million in inventory carrying-cost reductions on an annualized basis. ‘The savings will continue to grow as our precision, web-enabled system reaches maturity and we surface and eliminate more non-value-added activities,’ said Taylor. Ford and UPS Logistics Group launched the alliance a year ago to reengineer Ford’s vehicle delivery system amid rising consumer demand for on-time vehicle delivery. UPS Logistics Group created UPS Autogistics as a business unit to manage the project. ‘With a single network manager in place to analyze any potential problems before they occur, we’ve managed to avoid bottlenecks, reduce the amount of assets in the supply chain, and cut inventory carrying costs,’ said Tom Kolakowski, manager of Ford North American Vehicle Logistics.” 3-18 ..
Network-Based Strategies It’s long been known in the economics field that the economics of manufacturing produces a diminishing return on investment at some point in time. But in network economics the opposite is true. For example, you have a small company with 15 employees operating on a client/server network. You’ve already paid for the server that supports 25 employees. When you hire the 16th employee, you won’t have to spend much money, if any, to support the new employee on the network. You’re actually increasing the server’s output without an associated increase in cost. Technology makes virtual companies more feasible, cheaper, and easier to set up and tear down than before. Let’s say you own a small company in northern Arizona that offers white-water rafting trips through the Grand Canyon. You have a fleet of rafts and 35 full-time employees. Rather than you trying to manage the payroll and benefits program for your employees you could use a company that specializes in payroll, employee benefit programs, and even retirement plans. Intuit, who manufactures Quicken and QuickBooks, provides an online service for businesses that does all of these things. You access Intuit’s website, enter the necessary data, and it takes care of the rest of the processes, even down to filing the government tax forms. You concentrate on your rafting business instead. The Boeing Company, manufacturer of airplanes, uses virtual organizations throughout its design and manufacturing processes. It contracts with other businesses for certain types of work such as the development of new seat configurations. When the process is completed, the outside vendor is released from the job. As more companies outsource work to other vendors, virtual organizations are becoming the norm. Network technologies based on Internet standards provide the infrastructure necessary to make them successful. Companies are no longer tied to suppliers and business partners located in specific geographical areas but can find the best service provider or business partner around the world. Porter’s competitive forces model is predicated on traditional structures in separated industries. That is, one company built a product including content. When IBM built its first mainframe computer, not only did it handle all the hardware design and manufacture it also supplied all the software programs to go with it. Apple did basically the same with its first personal computers. But all that is changing rapidly based on business ecosystems.
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Figure 3.11 An Ecosystem Strategic Model Think smartphones and apps. In this business ecosystem, one company builds a smartphone—Motorola and its RAZR phone. Another company, Verizon Wireless, helps market and sell the phone to promote its cell phone services. Other companies supply more than 200,000 apps that consumers can purchase to extend the functionality of both the phone and the wireless service. Internet service providers also belong to this business ecosystem in order to extend their data services to customers. None of these businesses could possibly supply all four elements of the ecosystem. Rather these businesses combine their expertise into one value web and create a platform on which other companies build their products and services. Microsoft and Facebook are the two most familiar platforms used by thousands of companies and individuals. An ecosystem most familiar to us all is the mobile Internet platform that consists of four industries: device makers, wireless telecommunication firms, independent software applications providers, and Internet service providers. Bottom Line: Using information systems can help a company beat the competition through differentiation and through providing services that are valuable to both customers and suppliers. Companies can also use information systems to reduce costs. Information technology is also challenging the traditional concepts of competition and partnerships that have existed for years.
3.4 What are the challenges posed by strategic information systems, and how should they be addressed? Strategic information systems often change the organization as well as its products, services, and operating procedures, driving the organization into new behavioral patterns. 3-20 ..
Successfully using information systems to achieve a competitive advantage is challenging and requires precise coordination of technology, organizations, and management. Sustaining Competitive Advantage Using information systems to beat the competition and increase the value of a product is not easy. Because competitors can quickly copy strategic systems, competitive advantage is not always sustainable. Sustaining a competitive advantage constantly requires changing processes and methods of conducting business. Managers simply cannot rest on their laurels with today’s fast-paced, fast-changing technological advances. Technology changes much faster than organizations can adapt. As soon as employees and managers become comfortable with a particular system, it’s almost time to make some more changes. Aligning IT with Business Objectives It’s such a basic idea—an organization should align its information technology with its business objectives. Yet, too many times it seems that a firm’s IT is actually working against the rest of the business. It’s an easy thing to have happen when the techies and the nontechies fail to work together to plan, implement, and maintain information systems that support their company’s business objectives and competitive strategy. Employees and managers in all the functional areas must be active players in the IT game. They can’t sit on the sidelines and let someone else decide what kind of information system the company will have. They can’t claim ignorance and say they don’t know that much about computers. They cannot shed their responsibility and then lay the blame for a flawed or failed system at someone else’s doorstep. Management Checklist: Performing a Strategic Systems Analysis Completing a strategic systems analysis is one of the first steps managers should take to help determine how they can use information systems to gain a competitive advantage. Ask yourself these questions about your own firm: 1. What is the structure of the industry in which your firm is located? 2. What are the business, firm, and industry value chains for your firm? 3. Have you aligned IT with your business strategy and goals? Managing Strategic Transitions A vital attribute of any manager’s success is the ability to adapt to change. The pace of technological change is at its highest level ever. With each advance, the organization must use strategic transitions, a movement among levels of sociotechnical systems, to its advantage. Making changes in the information systems should trigger a review of associated processes to make sure they are in sync. Teaming up with competitors may 3-21 ..
seem at odds with wanting to beat the competition, but in fact may be the smartest thing to do. Technological changes allow you to do both without sacrificing too much. As we continue through the book, you should keep in mind how organizations are structured, how information needs vary from one organization to another, and how information systems can enhance or detract the characteristics of an organization. The most important thing you should remember is that at the core of every organization are people. Bottom Line: A well-developed strategic information system that is integrated throughout the company can be used to lower overall costs and provide greater value to the company, the supplier, and the customer. CHAPTER 3 Discussion Questions 1. Discuss the impact new information systems may have on organizational culture and organizational politics. 2. Describe the difference between the economic theory and the behavioral theory of how information systems affect organizations. 3. Discuss how business ecosystems can extend a company’s products and services and increase its competitive advantage. Give an example of a business ecosystem for a product or service that you are using. 4. How can managers’ roles be enhanced with a well-integrated information system? How can their roles be diminished with a poorly integrated information system? 5. Describe the following aspects of your own firm: a. The structure of the industry in which your firm is located b. The business, firm, and industry value chains for your firm c. How your firm has aligned its IT with its business strategy and goals
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Answers to Discussion Questions 1. Political resistance is one of the great difficulties of bringing about organizational change—especially the development of new information systems. Employees have different viewpoints about how resources, rewards, and punishments should be distributed and information systems can bring about significant changes in strategy, business objectives, business processes, and procedures. Organizational culture encompasses a basic set of assumptions about what products to produce, how to produce them, where, and for whom. Because technological changes can disrupt these basic assumptions, organizational culture is severely threatened. Therefore, employees will resist the changes. 2. The answer should discuss the economic theory benefits of information systems and how they allow companies to replace humans with machines, reduce transaction costs, and reduce internal management costs. Behavioral theory references should include the ability to push decision making to lower levels because of increased access to information and to have a larger number of employees per manager. The effect on organizational politics because of wider access to information resources is an important part of the answer. 3. Business ecosystems allow companies to concentrate on their core competencies while teaming with other businesses to extend products and services that they wouldn’t be able to do on their own. The best example of a business ecosystem is the smartphone and cellular services industries. 4. Answers should include information about the increased number of people the manager can easily and effectively communicate with. By giving the manager timely and complete access to information from all parts of the organization, a company can enhance the decision-making process for its managers because the decisions are based on as much information and data as possible. Cumbersome, poorly integrated information systems can deny the manager valuable information and lead to bad decisions based on bad information. 5. Answers will vary depending on the student’s particular situation but should include information from throughout the chapter and rely on the subquestions in Section 3.4 of the text.
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Management Information Systems, 15E Laudon & Laudon Lecture Files by Barbara J. Ellestad
Chapter 4 Ethical and Social Issues in Information Systems It probably goes without saying that the security and ethical issues raised by the Information Age, and specifically the Internet, are the most explosive to face our society in decades. It will be many years and many court battles before socially acceptable policies and practices are in place. You say to yourself, “Hey I don’t really care about my online privacy. Nobody will ever care about what I do or where I go on the Internet.” Well, you might want to think twice about that. A real estate broker sought to bury a negative review that a client posted online after a home buying experience. A banking executive looked to deemphasize content from Google search results about a convict who shared his name. A woman new to the dating scene wanted to remove some painful references to her online divorce records. The stakes can be high for job seekers—especially those who may be concerned about what potential employers would see on their online profile. A recent Microsoft Corp. study reported that 78 percent of recruiters and human resources professionals used online search engines to screen applicants, while 63 percent looked at social networking sites when researching job candidates. Last week, for example, the Cohasset School Committee asked a teacher to resign after she posted comments on Facebook that called residents of the South Shore town snobby and arrogant. (“For a fee, digital dirt can be buried,” Boston Globe, Diaz, Johnny, Aug 26, 2010) Ethical, social, and privacy issues are important to everyone.
4.1 What ethical, social, and political issues are raised by information systems? You may love the idea that a gardening website or a mail order catalog gives you information about what grows best in your backyard (literally your backyard). You might even love the idea that you can sign on to Amazon.com, have the website greet you by name, and supply you with information about a book or CD by your favorite author or 4-1 ..
artist. If you’re not especially interested in Stephen King or Frank Sinatra, don’t worry; Amazon.com knows that and won’t bother you with products from those artists. You are 22 years old, drive a Mazda, like hip-hop music, shop at Macy’s at least once a month around the 15th, wear a size 10 dress, live in a small two-bedroom apartment, have friends or relatives who live in Texas, like eating at Red Lobster, go on a skiing trip to Colorado every Spring Break, missed one semester of school last year due to medical problems, and spend lots of time on your Facebook page. Would it surprise you to know that this information and more can all be gleaned from various computer records? A lot of personal information about us has always been available, just not as easily and as readily as today. Massive databases maintained by commercial companies and governments at all levels now allow profiling like that above to be accomplished faster and more easily than ever before. The information that companies gather is anonymous, in the sense that Internet users are identified by a number assigned to their computer, not by a specific person’s name. Lotame (Lotame Solutions, Inc., a New York company that specialize in data capture), for instance, says it doesn’t know the name of users—only their behavior and attributes, identified by code number. (“The Web’s New Gold Mine: Your Secrets,” Wall Street Journal, Angwin, Julia, July 30, 2010) Even though the Internet is about 40 years old and the World Wide Web is close to 20 years old, our society is just beginning to address the ethical issues and dilemmas raised by these technological advances. It’s difficult to measure one person’s ethics against another person’s desire to make money or wreak havoc that’s made much easier by the Internet. Even though the U.S. government has passed some laws to control criminal behavior and ethical issues associated with the Internet, it’s difficult to stay one step ahead of the ever-changing technology. A Model for Thinking About Ethical, Social, and Political Issues Many of these issues not only touch our society as a whole, but also raise lots of questions for organizations, companies, and the workplace in general. We hear arguments for free speech, personal responsibility, and corporate responsibility. There are discussions about the government’s role in all this. At the beginning of Chapter 4, Laudon says: “Suddenly individual actors are confronted with new situations often not covered by the old rules. Social institutions cannot respond overnight to these ripples.... Political institutions also require time before developing new laws and often require the demonstration of real harm before they act. In the meantime, you may have to act. You may be forced to act in a legal ‘gray area.’” How you act, individually and as groups, in this gray area may well define the future of our society. Though that may sound a bit dramatic, you must understand that you are part
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of the development of “acceptable usage” of this new medium and will help define the direction in which it goes.
Figure 4.1: The Relationship between Ethical, Social, and Political Issues in an Information Society Figure 4.1 shows the relationship between ethical, social, and political issues in an information society. You could change this diagram somewhat to avoid the impression that the five dimensions are separate. You’d show significant overlap of each area, and most of the diagram would be in shades of gray. Five Moral Dimensions of the Information Age The five dimensions we’ll discuss are: information rights and obligations, property rights and obligations, accountability and control, system quality, and the quality of life. They all apply in today’s business environment. Although these dimensions have existed in some form or another for years, they are made more important with the technological advances we’ve seen in the last ten years. Key Technology Trends that Raise Ethical Issues Information technologies pose problems and threats to established societal rules, and technological advances pose new situations and possible threats to privacy and ethics.
In addition to the technologies described in Table 4.2, you need to understand the most recent technological threats to your privacy in cyberspace: 4-3 ..
1. The federal government is asking the U.S. Supreme Court to decide if law enforcement officials should be allowed to search cell phones of criminal suspects without first obtaining search warrants. The Department of Justice maintains that first having to apply and receive a search warrant could slow down their ability to prosecute criminals. The First Circuit Court of Appeals previously ruled that police are required to obtain search warrants before searching cell phones. The U.S. Constitution, Fourth Amendment forbids warrantless searches of U.S. citizens. 2. Google’s “Street View” is a controversial mapping tool that has allowed Google to capture Wi-Fi signals in addition to street level imagery in thirty countries over a three-year period. Google obtained Wi-Fi data, including e-mail passwords and content, from receivers that were concealed in the Street View vehicles. Many countries and several U.S. states are currently investigating Google Street View. In May, EPIC urged the Federal Communications Commission to open an investigation into Street View, as Google’s practices appear to violate U.S. federal wiretap laws as well as the U.S. Communications Act. (www.epic.org) 3. In Foltz v. Virginia, the Virginia Court of Appeals held that law enforcement may place a GPS tracking device on a vehicle without violating the Fourth Amendment. The Court found that the defendant did not have an expectation of privacy, and therefore attaching the tracking device to the bumper did not require a warrant. (www.epic.org) 4. New handheld web appliances will allow businesses to track your physical whereabouts and offer you discounts and special offers depending on your geographic location. As you walk down a city street, you’ll be notified that the restaurant two blocks away has an open table waiting just for you.
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5. Chairman Leahy Announces New Subcommittee on Privacy and Technology: Sen. Patrick Leahy (D-VT), Chairman of the Senate Judiciary Committee, has established a new Subcommittee on Privacy, Technology and the Law as part of his commitment to protecting “Americans’ privacy in the digital age.” Sen. Al Franken (D-MN) will chair the subcommittee, which will cover privacy laws and policies, new business practices, social networking sites, privacy standards, and the privacy implications of emerging technologies. For related information, see EPIC: Social Networking Privacy, EPIC: Cloud Computing. (Feb. 16, 2011) 6. Federal Trade Commission Announces Settlement in EPIC Facebook Privacy Complaint: The Federal Trade Commission has announced an agreement with Facebook that follows from complaints filed by EPIC and other consumer and privacy organizations in 2009 and 2010. In 2009, the EPIC first asked the FTC to investigate Facebook’s decision to change its users’ privacy settings in a way that made users’ personal information, such as Friend lists and application usage data, more widely available to the public and to Facebook’s business partners. The violations are also detailed in the FTC’s eight-count complaint against the company. The proposed settlement agreement bars Facebook from making future changes in privacy settings without the affirmative consent of users and requires the company to implement a comprehensive privacy protection program and submit to independent privacy audits for 20 years. The settlement does not adopt EPIC’s recommendation that Facebook restore users’ privacy settings to pre-2009 levels. Facebook CEO Mark Zuckerberg reacted to the settlement in a post on Facebook’s blog, saying that he was “first to admit that we’ve made a bunch of mistakes.” For more information, see EPIC: In re Facebook, and EPIC: Federal Trade Commission. (Nov. 29, 2011)
A few of the news items in the list above came from a website maintained by the Electronic Privacy Information Center (EPIC) (www.epic.org), an organization devoted to privacy issues associated with the use of new technologies tied to networks in general, and the Internet specifically. It is one of the premier organizations dedicated to preserving the privacy of the American citizen. If you haven’t visited the website you should. The scenario at the beginning of this section about profiling is possible through the technique called datamining. Add to that the capabilities of nonobvious relationship awareness (NORA) data analysis technology, as shown in Figure 4.2, and complete strangers might know just as much about you as you do. It can and has been done. So you should be concerned and you should care.
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Figure 4.2: Nonobvious Relationship Awareness (NORA) The investment arms of the CIA and Google are both backing a company that monitors the web in real time—and says it uses that information to predict the future. The company is called Recorded Future, and it scours tens of thousands of websites, blogs and Twitter accounts to find the relationships between people, organizations, actions and incidents—both present and still-tocome. In a white paper, the company says its temporal analytics engine “goes beyond search” by “looking at the ‘invisible links’ between documents that talk about the same, or related, entities and events.” The idea is to figure out for each incident who was involved, where it happened and when it might go down. Recorded Future then plots that chatter, showing online “momentum” for any given event. “The cool thing is, you can actually predict the curve, in many cases,” says company CEO Christopher Ahlberg, a former Swedish Army Ranger with a PhD in computer science. “We’re right there as it happens,” Ahlberg told Danger Room as he clicked through a demonstration. “We can assemble actual real-time dossiers on people.” (“Google, CIA Invest in ‘Future’ of Web Monitoring,” Wired.com, Shachtman, Noah, July 28, 2010)
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The data-gathering activities of the U.S. government, Internet Service Providers and other technology companies were splashed across front page headlines in June 2013 when Edward Snowden revealed details about the National Security Agency (NSA) PRISM program. Regardless of whether Snowden ultimately is declared a traitor or a hero, one thing is for sure: your data are gathered wherever you go and whatever you do online and on the telephone. Since the Guardian and The Washington Post revealed the existence of the NSA’s PRISM program last week, there’s been a confusing debate about what exactly the program is and how it works. While the Obama administration has tacitly acknowledged the program’s existence, tech companies have angrily denied that they had given the NSA “direct” or “unfettered” access to their servers. We know that PRISM is a system the NSA uses to gain access to the private communications of users of nine popular Internet services. We know that access is governed by Section 702 of the Foreign Intelligence Surveillance Act, which was enacted in 2008. Director of National Intelligence James Clapper tacitly admitted PRISM’s existence in a blog post last Thursday. A classified PowerPoint presentation leaked by Edward Snowden states that PRISM enables “collection directly from the servers” of Microsoft, Yahoo, Google, Facebook and other online companies. What do the Internet companies who allegedly participate in this program have to say about it? In a Friday post titled “What the …?” Google CEO Larry Page stated “any suggestion that Google is disclosing information about our users’ Internet activity on such a scale is completely false.” In a weekend follow-up, Google chief architect Yonatan Zunger wrote that “the only way in which Google reveals information about users are when we receive lawful, specific orders about individuals.” He said “it would have been challenging—not impossible, but definitely a major surprise—if something like this could have been done without my ever hearing of it.” He said that even if he couldn’t talk about such a program publicly, he would have quit Google rather than participate. “We didn’t fight the Cold War just so we could rebuild the Stasi ourselves,” he concluded. “The notion that Yahoo! gives any federal agency vast or unfettered access to our users’ records is categorically false,” wrote Yahoo’s Ron Bell on Saturday. “Of the hundreds of millions of users we serve, an infinitesimal percentage will ever be the subject of a government data collection directive.”
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The Times says that major tech companies have systems that “involve access to data under individual FISA requests. And in some cases, the data is transmitted to the government electronically, using a company’s servers.” (Washington Post.com, “Here’s everything we know about PRISM to date,” Timothy B. Lee, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/12/hereseverything-we-know-about-prism-to-date/, June 12, 2013.) Bottom Line: Technological trends are posing new situations and questions we haven’t had to deal with before. As it’s your world and your future, you should be concerned and become involved in their resolution.
4.2 What specific principles for conduct can be used to guide ethical decisions? Did you ever hear the old warning: “Just because you can, doesn’t mean you should?” Well, a lot of things are possible on the Internet nowadays, but that doesn’t mean you should do them. Ethics is easily managed in small groups because the group itself tends to control the individual’s behavior. It’s referred to as “self-policing.” The larger the group, the harder it is to manage the actions of individuals. Now stretch that to a huge number of people with many frames of reference and experiences. Responsibility to the group becomes harder to police and accountability for an individual’s actions is harder to enforce. Basic Concepts: Responsibility, Accountability, and Liability Every action causes a reaction. When you’re using the Internet, computers on campus, or your employer’s computer, you should be aware of the following: • Responsibility: Accepting potential costs, duties, and obligations for your decisions. • Accountability: Determining who should take responsibility for decisions and actions. • Liability: Legally placing responsibility with a person or group. • Due Process: ensuring the laws are applied fairly and correctly. Responsibility, accountability, and liability are all yours when it comes to your actions in cyberspace. Every Internet Service Provider has a “usage policy,” even the so-called anonymous e-mailers that hide your real identity. Hotmail is a popular Internet e-mail service that allows you to mask your real identity. You could send out all the, shall we say unethical, threatening, nasty, aberrant, e-mail you like. You think: “Hey, no one will really know who I am. This is cool.”
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And then here comes the message from Hotmail to cease and desist. Your free e-mail account is cancelled because you violated Hotmail’s usage policy. Then your local Internet Service Provider contacts you and tells you you’re terminated, baby! You violated its usage policy by your actions. By now you’re really mad, not to mention embarrassed (at least we hope so). It’s true. It happens. Just because you think you can, doesn’t mean you should. Would you stand in the middle of campus and shout insults? Laudon and Laudon point out, “Using information technology in a socially responsible manner means that you can and will be held accountable for the consequences of your actions.” Just as you are subject to rules, whether you like them or not, on Main Street, USA, in public, you are subject to societal rules in cyberspace. Anonymity isn’t a license for socially unacceptable behavior. Nor is anonymity a license for intentionally or unintentionally hurting someone else, physically or emotionally. Some people seem to absolve themselves of responsibility by putting the onus on the computer—“Hey, the computer screwed up,” or “Because it was an anonymous username I didn’t think I’d get caught.” It just doesn’t work that way in society—face-to-face or on the Internet. No one can hide behind the technology. Humans control the computers, not the other way around. And if you have received threatening, aberrant e-mails or flames in chatroom or discussion groups, and haven’t reported them according to the usage policies, you may be as much a part of the problem as the perpetrator! Ethical Analysis It’s safe to say you’ll find yourself in situations where your ethics are continually challenged online and offline. What should you do? Try the following: • Separate fact from fiction. • Remember, no matter how thin you slice it, there are always two sides. • Determine who’s really involved. • Compromise; it doesn’t always have to be an “either-or” outcome. • Anticipate the outcome; it will help you devise better solutions. You should study the ethical principles outlined in the text, as we’ll be incorporating them into the discussions throughout the remainder of this chapter. Candidate Ethical Principles In the early days of the Internet, just about anything was acceptable. The phrase “Wild Wild Web” was an appropriate cliché. But as the technology becomes more mainstream, the less wild it becomes.
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The principles listed in the text are deeply rooted in cultures around the world. We seriously doubt the authors of these guidelines had the Internet in mind when they developed them. But, when you think about it, they work nicely, even in cyberspace! 1. 2. 3. 4. 5. 6.
Do unto others as you would have them do unto you. If an action is not right for everyone, perhaps it’s not right for anyone. If an action cannot be taken repeatedly, it is not right to take at all. Take the action that achieves the higher or greater value. Take the action that produces the least harm or the least potential cost. Assume that virtually all tangible and intangible objects are owned by someone else unless there is a specific declaration otherwise.
Professional Codes of Conduct Most professional organizations have a code of conduct by which they expect their members to abide. The Association of Computing Machinery (www.acm.org) has an excellent set of standards that apply to all of us, whether we belong to ACM or not. Some Real-World Ethical Dilemmas Individuals, companies, and corporations are being forced to deal with these new ethical and social issues in ways never before imagined. Employ the ethical analysis we just discussed to the real-world situations presented here and in the text. No issue has been harder for organizations to deal with than that of e-mail. Should companies be allowed to read employees’ e-mails, especially if they are personal? Should employees be allowed to send personal e-mails to begin with? Should e-mails be used against a person or company in a court of law? If so, how? An example of this issue is the Microsoft vs Department of Justice antitrust trial that occurred in the mid-2000s. Many e-mails written by Microsoft’s executives were used against them during the trial. Emails are not as anonymous as people think—“Sending an e-mail message is more like sending a postcard than sending a sealed envelope.”(CNN Headline News, April 28, 1996) So in your opinion, what is right? Is it okay for an employee to download the latest picture from Playgirl’s website and use it as a screensaver? Is it okay to run a personal commercial website from your workplace computer using the company’s computer resources? Is it okay to e-mail discriminatory jokes over the company’s network that wouldn’t be allowed over the water cooler? Is it okay to send e-mail telling everyone that the boss is a jerk, then get mad when the company fires you? Is it okay for the company to use technology to monitor your computer usage every minute you’re on the job? Is it okay for the company to use technology to monitor your keystrokes so they can determine how much work you’re doing?
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What if Susie is using her computer to surf gardening websites three hours a day while you have to do her work? What if Joe and Sam play the newest Internet game during their coffee break every morning and afternoon, which bogs down the entire company’s network? What is the best way for companies and employees to handle these situations? What is the right thing to do? Bottom Line: Ethics in an information society holds each person responsible for his or her actions. Each person is accountable for everything he or she does, no matter how anonymous the action may seem. Each person is liable for the consequences his or her actions may inflict on other people and society as a whole.
4.3 Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? This section examines the five moral dimensions (information rights; property rights; accountability, liability, and control; system quality; and the quality of life) by asking you to examine them from a personal standpoint. Information Rights: Privacy and Freedom in the Internet Age Many of us take our privacy and freedom for granted. You should be aware of how technology is changing and challenging our basic assumptions about these issues. Video rental records are more protected from misuse and prying than are some of your financial records. We all assume that the Constitution guarantees our personal privacy and freedom from surveillance. If someone set up a video camera inside your dorm room or on your front porch to monitor your every movement, what would you do? In some cases, that’s similar to what happens when you access some websites. So how do we protect our privacy and freedom from surveillance in a high-tech world? The text provides some information regarding privacy rights protected by law and established practices. But before you jump up and say, “Hey, the Privacy Act of 1974 says you can’t spy on me,” remember that law applies only to the federal government’s actions. If Macy’s or Playboy or Buy.com wants to collect information about your surfing habits and sell it to other companies, there is nothing to stop them. Absolutely nothing! This whole issue doesn’t bother some people at all. In fact, they don’t even think about it. The issue doesn’t bother others until the intrusions are used against them. Think about this: If information is supposedly collected for one purpose, is it ethical for that information to be used for a totally different purpose without you knowing it? Is it fair to require you to provide medical information that is primarily intended to be used to pay your insurance bills and then have that same information used against you when the insurance company deems you too expensive and cancels your policy? Is it fair to have 4-11 ..
that same information used against you in denying you employment because you’re too expensive to hire? Information about people’s moment-to-moment thoughts and actions, as revealed by their online activity, can change hands quickly. Within seconds of visiting eBay.com or Expedia.com, information detailing a web surfer’s activity there is likely to be auctioned on the data exchange run by BlueKai, the Seattle startup. Each day, BlueKai sells 50 million pieces of information like this about specific individuals’ browsing habits, for as little as a tenth of a cent apiece. The auctions can happen instantly, as a website is visited. Targeted ads can get personal. Last year, Julia Preston, a 32-year-old education-software designer in Austin, Texas, researched uterine disorders online. Soon after, she started noticing fertility ads on sites she visited. She now knows she doesn’t have a disorder, but still gets the ads. It’s “unnerving,” she says. Consumer tracking is the foundation of an online advertising economy that racked up $23 billion in ad spending last year. Tracking activity is exploding. Researchers at AT&T Labs and Worcester Polytechnic Institute last fall found tracking technology on 80% of 1,000 popular sites, up from 40% of those sites in 2005. The Journal found tracking files that collect sensitive health and financial data. On Encyclopedia Britannica Inc.’s dictionary website MerriamWebster.com, one tracking file from Healthline Networks Inc., an ad network, scans the page a user is viewing and targets ads related to what it sees there. So, for example, a person looking up depression-related words could see Healthline ads for depression treatments on that page—and on subsequent pages viewed on other sites. (“The Web’s New Gold Mine: Your Secrets,” Wall Street Journal, Angwin, Julia, July 30, 2010) The federal government is taking steps to help protect individual privacy in the United States by passing laws based on Fair Information Practices (FIP) as you can see in Table 4.3. However, the wheels of government turn slowly and the first line of defense should be yours.
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The Federal Trade Commission has stepped up their efforts to protect consumers’ personal information on the Internet. An excerpt from their website explains their mission. Privacy is a central element of the FTC’s consumer protection mission. In recent years, advances in computer technology have made it possible for detailed information about people to be compiled and shared more easily and cheaply than ever. That has produced many benefits for society as a whole and for individual consumers. For example, it is easier for law enforcement to track down criminals, for banks to prevent fraud, and for consumers to learn about new products and services, allowing them to make better-informed purchasing decisions. At the same time, as personal information becomes more accessible, each of us—companies, associations, government agencies, and consumers— must take precautions to protect against the misuse of our information. (Copied from www.ftc.gov/privacy) The FTC added three practices to its framework for privacy that firms should follow: • Adopt “privacy by design” • Increase transparency of their data practices • Require consumer consent and provide opt-out options from data collection schemes The FTC also extended its FIP doctrine to behavioral targeting practices used by advertisers and marketers. Privacy advocates want all data gathering to be at the discretion of users with opt-in policies. Not surprisingly advertisers oppose that idea and only want opt-out requirements set.
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The European Directive on Data Protection European countries have much stricter restrictions on gathering data about private individuals, on the Internet or elsewhere. European citizens have the right to deny the initial collection of information through informed consent principles. They have the right to know and deny the use of data for purposes other than its original intention. They have the right to inspect and correct any data gathered on them. By way of comparison, Europeans practice opt-in whereas Americans practice opt-out. So far, American citizens have none of these rights. American businesses physically operating in European countries or transacting business with European citizens via the Internet must abide by these laws. The U.S. Department of Commerce is helping make it easier by establishing safe harbor mechanisms rather than passing laws. You have to ask the question, “If it’s good enough for the Europeans, why isn’t it good enough for the Americans?” Here’s a website dealing with global privacy issues sponsored by the Privacy Exchange: www.privacyexchange.org/. Internet Challenges to Privacy Under pressure from privacy advocates, government agencies, and the general public, many websites now post privacy policies. Some sites make their policies obvious and others don’t. Some sites actually abide by their policies and others don’t. The Wall Street Journal reported in 2010 and 2011 that 75 percent of the top 1,000 websites include code from social networks such as Facebook and Twitter that match people’s identities with their web-browsing activities even if the person is not actively using the site buttons “Like” and “Tweet.” How do these organizations gather the information? By using cookies, a part of every browser program. If you have Internet access and have ever visited a website, you can bet you have a cookie file on your computer. Most of the data in the file are unintelligible to you. However, they give information to websites about how you prefer the website to be configured, who you are, which website you came from, what you do while on a site, and other information pertinent to the website. You can turn off the cookie option in your browser, but many sites won’t let you access special features if you do. Because the corporate world is demanding better results for the dollars spent on Internet advertising, some websites have developed web beacons to help track users and determine what they do and don’t do on the Internet. Web beacons are tiny, indistinguishable files embedded within a web page or within an e-mail message. The beacon monitors your behavior as you use the page and combines the information with other data collected about you to get a more robust picture of how you are using the website and how effective the advertising is.
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Cookies are typically used by tracking companies to build lists of pages visited from a specific computer. A newer type of technology, beacons, can watch even more activity. Beacons, also known as “web bugs” and “pixels,” are small pieces of software that run on a web page. They can track what a user is doing on the page, including what is being typed or where the mouse is moving. The majority of sites examined by the Journal placed at least seven beacons from outside companies. Dictionary.com had the most, 41, including several from companies that track health conditions and one that says it can target consumers by dozens of factors, including zip code and race. Dictionary.com President Shravan Goli attributed the presence of so many tracking tools to the fact that the site was working with a large number of ad networks, each of which places its own cookies and beacons. After the Journal contacted the company, it cut the number of networks it uses and beefed up its privacy policy to more fully disclose its practices. The widespread use of Adobe Systems Inc.’s Flash software to play videos online offers another opportunity to track people. Flash cookies originally were meant to remember users’ preferences, such as volume settings for online videos. But Flash cookies can also be used by data collectors to reinstall regular cookies that a user has deleted. This can circumvent a user’s attempt to avoid being tracked online. Adobe condemns the practice. (“The Web’s New Gold Mine: Your Secrets,” Wall Street Journal, Angwin, Julia, July 30, 2010) Increasingly, websites are using spyware in an attempt to gather marketing information about visitors and customers. This type of software is installed directly onto your computer and sends data to the company about your surfing habits. Unfortunately, this software can also cause problems with your computer and send information that can be used in identity theft. If you haven’t yet installed spyware detection software on your computer you should consider doing so. Most e-commerce merchants are pushing for self-regulation and the practice of requiring individuals to “opt-out” of data gathering. Opting out allows individuals to tell an organization not to share personal information with any third party. The government initially agreed with that position, but has since realized it isn’t working very well for individuals. In mid-2000, the Federal Trade Commission started seeking government regulation of information gathering and advocates the right of individuals to “opt-in.” Opting in requires individuals to expressly give an organization the right to gather information before any information can be collected. Visit the FTC website (www.ftc.gov/privacy/index.html) for the latest information on this subject. As the textbook points out, very few companies actively protect their users’ privacy. It’s usually not in the company’s best interest to do so. And very few users seem to care. Although most users express a desire to have their privacy protected, they do not actively 4-15 ..
ensure that it is. Less than half of website users polled had read the privacy policies posted on most websites. To which group do you belong? Technical Solutions According to the law you must inform someone if you are taping a telephone conversation with him or her. On the other hand, you can legally record that person’s Internet transmissions without any need to inform them you are doing so. This type of disparity exists because our laws have not kept up with emerging technologies. There are some tools that can help you block someone from tracing your Internet activities as the text discusses. However, if you use your company’s computers for most of your webbrowsing or e-mail activities, you may want to check with your information technology department before you install the tools. The World Wide Web consortium has developed standards for how privacy policies can be embedded into web pages and subsequently be compared to a user’s privacy wishes through the user’s web browser. The Platform for Privacy Practices (P3P) allows you to determine what sites can collect information behind the scenes through your computer’s cookie files. Because the P3P standards are “machine-readable” you don’t have to search each website for its privacy policy. You let the computers do the comparison and automatically block any site not conforming to your wishes. Property Rights: Intellectual Property Intellectual property issues have been around for hundreds of years. Some of the laws and policies in place to settle disputes about copyrights, patents, and trade secrets, have to be rewritten to apply to the Internet. Intellectual property is a result of someone’s effort at creating a product of value based on his or her experiences, knowledge, and education. In short, intellectual property is brainpower. What if you wrote the next great American novel hoping to cash in big time? Maybe you could retire to the Bahamas and drink lemonade on the beach all day. But then you find out that someone posted your next great American novel to the Internet and everyone is reading it free of charge. Now you’re back in your hometown drinking lemonade at the local mall while you decide whether to look for a job at McDonald’s or Burger King. The good news is everyone loves your book! Unfortunately, that sort of thing happens too often in the cyberworld. You’re pretty excited to get that free copy of the newest game software, while the poor guy who spent hours of his time and effort writing it is not so excited to realize he’s not getting any compensation. Everything on the web is considered to be protected under copyright and intellectual property laws unless the website specifically states that the content is public domain. The website doesn’t need to carry the copyright symbol © in order for it to be protected. 4-16 ..
President Clinton signed the Digital Millennium Copyright Act (DMCA) in January 1998 making it a federal offense to violate copyright laws on the Internet, punishable with a fine up to $250,000. Copyright laws and intellectual property rights cannot be violated on the Internet any more than they can in other mediums. Although this isn’t a law class, you should be aware of the fine line between acceptable and legal usage of materials and the illegal theft of materials. When it comes to copyright material, the underlying ideas are not protected, just the publication of the material. On the other hand, a patent grants a monopoly on the underlying concepts and ideas. Before you use anything, especially any material on the World Wide Web, make sure you are using it legally and ethically. Get past the idea that because everything on the web is free, easy to access, and available 24-hours a day, it must therefore be okay to use it however you want. The question you should be asking yourself is, “Is it ethically right and legal?” The Business Software Alliance (www.bsa.org) is an organization working to prevent software piracy and the illegal use of copyrighted material around the world. And don’t think the problem is limited to the 17-year-old computer geek locked in his bedroom. This crime can be committed by anyone, as this news-clip shows: Seventeen high-tech professionals were indicted on federal charges for participating in an Internet piracy ring that hijacked software worth more than $1 million. The government said 12 of those indicted are members of an underground organization while the five others are employees of Intel Corp. The individuals indicted were charged with conspiracy to infringe on copyrights, which carries a maximum sentence of five years in prison, a $250,000 fine, and restitution. (AP Newswire, May 5, 2000) Perhaps the most notorious copyright infringement and intellectual property case in 2000 and 2001 involved the music industry. MP3, one of the most popular methods of illegally downloading music from websites, lost a court battle waged by the music industry. MP3 was forced to pay millions of dollars to the industry for lost revenues. The rock group Metallica sued Napster.com because it allowed people to trade copyrighted material illegally. Napster.com lost the battle and went on to devise methods for legally downloading music. So before you copy your favorite sound clip, remember you’re actually stealing someone else’s property as surely as if you walked into a retail store and took the CD without paying for it. The music industry and the film industry are now suing individuals who continually download copies of songs and movies from free websites. Bottom Line: If it sounds too good to be true, it is. If it’s illegal or immoral or unethical outside the computing arena, it’s probably illegal, immoral, and unethical in the computing arena. If you are aware of a problem or are a victim of unethical, illegal actions, and you don’t do something about it, you’re part of the problem. It’s your new world—use it wisely.
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4.4 How have information systems affected laws for establishing accountability and liability and the quality of everyday life? Many of our laws and court decisions establishing precedents in the area of accountability, liability, and control, were firmly in place long before computers were invented. Many of them date back to the early 1900s, and some simply don’t make sense in this day and age. That’s what we were referring to in the opening paragraphs of this lecture when we talked about new questions for organizations, companies, and the workplace in general. No issue makes this subject more important than the Internet laws our government has tried, and still tries, to pass. Some argue that Internet Service Providers should somehow be liable for content placed on the Internet through their users. Ask yourself these questions: If you receive an obscene phone call, is the telephone company responsible and liable for the problem? If you receive a threatening letter in the mail, is the U.S. Post Office responsible for reading every piece of mail on the chance that there might be a problem in one of the letters? The text gives several examples of recent liability problems and the difficulties companies face as networks, computers, and data increasingly become common strategic tools. Computer-Related Liability Problems The important questions that are plaguing more and more companies are these: Who is liable for any economic, social, or personal harm caused to individuals or businesses when information systems don’t work as they should? Who is responsible when databases are hacked and information is stolen, as happened to Target Department Stores in December 2013? How do companies and retailers gain back customer trust when they fail to prevent computer-related liability problems? System Quality: Data Quality and System Errors As we rely on information systems more, data quality issues are gaining importance. These issues affect you as a consumer and as a business user. As our reliance on technology continues to grow, we’re bound to run into problems caused by poor system quality more often and in unexpected ways. Facebook’s Sept. 23 outage was caused by a software flaw that crippled its database clusters, the company confirmed. The downtime was the worst at the social network in four years. The outage that darkened Facebook for two and a half hours Sept. 23 was caused by a software flaw in its database clusters, the company confirmed. Some of the 500 million-plus Facebook users tweeted about the event on Twitter, wondering what they would do without access to their photos, links, videos and other content they shared on the massive social network. “The key flaw that caused this outage to be so severe was an unfortunate handling of an error condition,” 4-18 ..
said Robert Johnson, director of software engineering at Facebook in a blog post. “An automated system for verifying configuration values ended up causing much more damage than it fixed.” (“Facebook Outage Triggered By Database Software Error,” eWeek.com, Boulton, Clint, Sep 24, 2010) It was likely another eventful weekend for the engineers in Amazon’s web services division. On Sunday afternoon, a hardware failure at Amazon’s U.S.-East data center in North Virginia led to spiraling problems at a host of well-trafficked online services, including Instagram, Vine, AirBnB, and the popular mobile magazine app Flipboard. Amazon (AMZN) blamed the outage on glitches with a single networking device—what it called a “‘grey’ partial failure” that resulted in data loss—and said it was conducting a forensic analysis. The entire incident lasted all of 49 minutes, but like many recent cloud service outages, the resulting questions are likely to last considerably longer. Why are so many prominent web companies overly dependent on a single cloud provider—and a single data center? (“Another Amazon Outage Exposes the Cloud’s Dark Lining,” Bloomberg BusinessWeek, Stone, Brad, Aug. 26. 2013) When the credit reporting agencies screw up your credit record and you can’t get a car loan, whose fault is it? What if you’re driving down the road, the computer chip controlling your brake system fails, and you have a rather nasty crash. Who’s at fault? You, the car company, or the company that made the computer chip? Who is responsible for system downtime when a popular e-mail program has holes allowing viruses to spread and multiply: the software manufacturer or the company that licenses the software? Most of us use software that a manufacturer knows contains bugs. They usually are nothing more than an aggravation and a frustration. But once in a while, they will affect our use of the computer. Our natural tendency is to let the marketplace control the balance by letting the customer punish or reward the producer. But will that be enough, or will the issue end up in the courts? When a network server crashes and day traders miss an important trade, who is responsible for the lost income? The ISP? The financial service company? No one? As more and more companies do business on the Internet, will Internet Service Providers or the companies doing business on the Internet be held accountable for equipment outages that render those businesses unable to process transactions? Three principal sources of poor system performance are: 1. Software bugs and errors 2. Hardware or facility failures 3. Poor input data quality
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Quality of Life: Equity, Access, and Boundaries Invariably, when discussing online technology, some students mention their concern about losing the face-to-face contact with other human beings. We hear stories about children who haven’t developed normal social skills because they spend all their time in front of a computer. No discussion about the quality of life issues would be complete without mentioning the tales of “online love affairs.” Of course, many people lose their jobs and their way of life because of technology. These are all very valid concerns. What, in your opinion, is the impact of all this wired stuff on children? How should we protect them against the threats, real or perceived? The Child Online Privacy Protection Act (COPPA) that went into effect in April 2000 has helped prosecute online predators and others using networks to commit crimes against children. However, it seems the more we try to protect children’s use of the Internet, the more ways people find to harm them. The Electronic Frontier Foundation (www.eff.org), an organization dedicated to “protecting rights and preserving freedom in the electronic frontier,” has lots of information about protecting free speech on the Internet. One quality of life issue that affects more and more people personally is the ability to work from home. Most telecommuters had a “regular day job” 9 to 5, five days a week, in a typical office setting. If they didn’t get their work done today, they would usually wait until they were back in the office tomorrow or Monday. Now because of technology they can work seven days a week, all hours of the day, at home. And sometimes they do. The impact on personal and family life can be considerable. In many regards, this problem extends not just to telecommuters but to many employees who spend their normal 40 to 50 hours a week in the office and then stay “wired” in the evenings, on weekends, and even during vacations. There is an upside to the jobs issue, though. Many parents like telecommuting because they can stay home with, or at least be nearer, their children. More and more people are leaving the big cities and moving to small towns for the quality of life, yet they can still keep their well-paying jobs. Many small companies are able to expand their customer base because of technology, which in turns helps the employees immensely. Completely new businesses are born because of technology. Computer crime is one area that has been extremely hard for our society and our governments to keep up with the rapid change. Many laws have to be rewritten and many new laws must be implemented to accommodate the changes. Computer crime and abuse extends to any wrongdoing involving equipment and Internet usage. We spoke earlier about anonymity not being a license for socially unacceptable behavior. You should remember that everything you do on a network or the Internet is recorded and can be tracked. Many people committing computer crimes and abuse have been caught and prosecuted.
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Interactive Session: Technology: Volkswagen Pollutes Its Reputation with Software to Cheat Emissions Testing (see page 150 of the text) discusses the company’s cheating that was hidden in millions of lines of software code and went undetected for years. Volkswagen’s cheating on its auto emissions tests is not an isolated incident. Spamming (unsolicited e-mail) has been challenged in the courts by Internet Service Providers (ISP) as an unfair practice. The ISPs say thousands of these e-mails clog their systems, and no one wants them anyway. The spammers argue their right to freedom of speech is violated if they can’t send e-mails to anyone they want. Congress passed a new law in late 2003 to clamp down on spamming. Unfortunately, the law doesn’t seem to be producing very many positive results. Other issues affecting our society include job losses and career changes caused by technology. You can argue the positive or negative effects, but one thing is clear: you’ll be a part of the evolution of technology for the rest of your life. You will have to continually update your skills and knowledge in order to remain competitive in the job market. As companies continue to embrace new technology and new methods of using it, you’ll be responsible for ensuring your skills and education remain current. Our government recognizes the danger of allowing unequal access to technology to fester. It has enlisted the help of private individuals and corporations in the effort to install computers and Internet access in public schools and libraries all across the nation and the world. Most schools are now wired for networks and are learning to incorporate technology into the curriculum. There’s even a website (www.digitaldivide.org) dedicated to the digital divide situation. As managers, you should be acutely aware of the health issues caused by computer usage, especially repetitive stress injury (RSI). Why? Because these health issues cost businesses huge amounts of money each year in medical treatment claims and lost productivity. Carpal tunnel syndrome, a subset of RSI, is the most serious health issue plaguing businesses. Computer vision syndrome is increasing as people continually use computer screens and handheld devices that strain eyesight. It doesn’t take much to avoid the problems associated with computer usage. Ergonomics, the study of the relationship between humans and machines, has helped determine that it’s cheaper to purchase equipment that reduces the health risks associated with computers, such as different keyboards, monitors that reduce eye strain, and desks that allow proper body positions. Too much of a good thing can be bad. You’ve heard of road rage, the anger people experience when driving. We are now experiencing road rage on the Information Superhighway, and it’s called technostress. Managers should encourage their employees to take frequent breaks from their computers and to recognize and understand the dangers of isolation from humans. We may be a wired nation, but we still need the human touch.
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As the use of laptops continues to grow, you should be cognizant of the difficulties you may encounter by using one. The very design of laptop computers encourages bad posture among college students and other heavy users, which can lead to headaches, muscle strain and debilitating neck, shoulder and hand injuries, researchers caution. Such a sacrifice to convenience comes at a price, Carneiro noted. Awkward positioning of the fingers and body can cause nerve injury to the wrist and prompt the onset of carpal tunnel syndrome, while poor neck position and shoulder posture can cause muscle strain and soreness in those areas. (“Students warned to beware of ‘laptop-itis,’” USAToday Online, Mozes, Alan, Aug 22, 2010) For the most part, the same precautions you take with regular computers will help you combat difficulties arising from too much laptop use. Interactive Session: Organizations: Are We Relying Too Much on Computers to Think for Us? (see page 153 of the text) discusses the pros and cons of our ever-burgeoning dependence on computers. While some believe automation has made the world better off, others believe our reflexes have become dulled and our expertise has eroded. How has all this technology affected you? Think about it. Ultimately, there is a positive and a negative side to everything. How you handle it determines how it affects you. Bottom Line: Poor data quality and system errors continue to plague information system users and will for years to come. The quality of life you lead and share with others around you is your responsibility. You can limit the amount of time you spend on the Internet and maximize the quality of your experiences for the good. Many people are ready and willing to take advantage of your lapses in accountability, liability, and control. Don’t let them.
Discussion Questions: 1. Discuss the personal and professional implications of so much individual data being gathered, stored, and sold. Should businesses be allowed to gather as much as they want? Should individuals have more control over their data that are gathered? 2. Briefly describe your Internet Service Provider’s e-mail usage policy. If you are on campus, your school should have a usage policy. 3. Describe how your quality of life has improved or declined with the technological advances in the last five years. 4-22 ..
4. How do you think our government should handle the political issue of Internet decency and access limitations? 5. To what extent should Internet Service Providers be held liable and accountable for the use of their equipment?
Answers to Discussion Questions 1. Answers will vary but should include references to the ethical uses and responsibilities that businesses have in regard to individual privacy. Some students will argue that it doesn’t matter—there is no privacy anymore. Other students may favor stricter rules in favor of individual control over the data. 2. Answers will vary according to the ISP and the educational institution. 3. Answers will vary, but improvements should include ease of communication (e-mail, cell phones); ease of access to information (Internet search); making daily tasks easier (banking online, shopping online). Declines in quality of life: ability to work anytime, anywhere blurs the boundary between work and family life; cell phones everywhere can be intrusive and annoying; e-mail can mean too much time spent combing through messages to determine what is important and requires answering. 4. Answers will vary, but might include: The federal government should be involved in monitoring the Internet, should pass federal laws to regulate access, but stay out of decency issues because of the First Amendment; or government should stay away and let the Internet monitor itself. 5. Answers will vary, but might include holding those who choose to use a technology responsible for the consequences of that technology, not the providers of the technology; or holding that ISPs responsible for the harm that follows because of a breakdown of their equipment, on which businesses and individuals depend; that ISPs should monitor the e-mail sent over their equipment. This is a hard one, because an ISP provides a service, like the phone company, and the phone company is not responsible for the phone calls people make unless people use the phone to engage in criminal activities like harassment.
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Management Information Systems, 15E Laudon & Laudon Lecture Files by Barbara J. Ellestad
Chapter 5 IT Infrastructure and Emerging Technologies As information becomes a valuable resource of a digital firm, the infrastructure used to care for it takes on added importance. We’ll examine all of the components that comprise today’s and tomorrow’s IT infrastructure and how best to manage it.
5.1 What is IT infrastructure, and what are the stages and drivers of IT infrastructure evolution? When you mention the phrase “information technology infrastructure,” most people immediately think of just hardware and software. However, there is more to it than just those two. In fact, the most important and often most-ignored component is that of services. Integrating all three components forces a business to think in terms of the value of the whole and not just the parts. Including all three components in any discussion of IT infrastructure truly fits the cliché that the whole is greater than the sum of its parts. Defining IT Infrastructure If you define a firm’s IT infrastructure in terms of technology you limit the discussion to the hardware and software components. By broadening the definition to that of servicebased, you are then bringing into the discussion the services generated by the first two components. Also, you are including the persware element that we discussed in Chapter 1. As technology advances the types of hardware and software available, it becomes more critical for the firm to focus on the services that a firm can provide to its customers, suppliers, employees, and business partners. To round out the list of IT infrastructure components you need to add the following services to computing hardware and software: • • • •
Computing services: Provide platforms that ensure a coherent digital environment Telecommunications services: Determine appropriate data, voice, and video that connect employees, customers, and suppliers Data management services: Not just store, but manage massive amounts of corporate data and make it available for users to analyze Application software services: Enterprise resource planning, customer relationship management, supply chain management, and knowledge management systems
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• • • • •
Physical facilities management services: Physical installation of computing, telecommunications, and data management services IT management services: Plan and develop infrastructures, coordinate IT services among business units, account for IT expenditure, and provide project management services IT standards services: Develop policies that ensure interoperability of all IT infrastructure components IT education services: Train employees to properly use IT investments and educate managers about planning for and managing the investments IT research and development services: Research future IT projects and investments
Evolution of IT Infrastructure Reviewing the evolution of corporate IT infrastructure offers some insight into where we may be headed. •
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General-purpose mainframe and minicomputer era (1959 to present): The mainframe era began with highly centralized computing with networks of terminals concentrated in the computing department. Whereas early models contained proprietary software and data, today’s mainframes are able to process a wide variety of software and data. It’s interesting to note that IBM began this era and remains the sole supplier of mainframe computing. Although the experts and pundits predicted the death of mainframes in the mid-1980s, they have evolved and remain a strong, viable component in many IT infrastructures because of their ability to store and process huge amounts of data and transmissions. Minicomputers helped usher in the concept of decentralized computing. Personal computer era (1981 to present): It’s interesting to note that the advances developed for personal computers in the home have given rise to much of the advances in corporate computing in the last 25 years. As the home user became more comfortable with using computers and more applications were developed for personal computers, employees demanded increased use of computers in the workplace. Although the Wintel PC standard has dominated this era, open-source software is starting to put a big dent into that stronghold. Client/server era (1983 to present): As the desktop and laptop personal computers became more powerful and cheaper, businesses began using them to replace mini-computers and some mainframe computers by networking them together. Think of an octopus, with the body representing the server and the tentacles representing the clients. At the heart of every network is a server. It can be a mainframe, midrange, minicomputer, workstation, or a souped-up personal computer. It’s where some of the data, applications software, and other instructions are stored that network users need in order to communicate with and process transactions on the network. Large companies use a multitiered client/server architecture that has several different levels of servers. Web servers, as the name implies, provide web pages to users. The client computer is the node on the network that users need to access and process transactions and 5-2 ..
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data through the network. Rather than one server trying to do it all, each server is assigned a specific task on an application server. Dividing tasks among multiple servers allows faster, more efficient responses that cost a business less to process than a mainframe would or one computer trying to do it all. Enterprise computing era (1992 to present): Perhaps no other era has seen the explosive growth in functionality and popularity as this era. The problems created by proprietary, closed systems are being solved by the standards and open-source software created in this era. The promise of truly integrated hardware, software, and services is coming true with the technological advances in the last fifteen years. On the other hand, the promises of delivering critical business information painlessly and seamlessly across all organizational levels are made all the more difficult to meet because of the ever-changing landscape of technology products and services. Cloud and mobile computing era (2000 to present): It almost seems as though we’ve come full circle with the concept of cloud computing. This model of computing relies on the massive computing centers owned by the likes of Google, IBM, Microsoft, and even Amazon.com. “What is Google’s cloud? It’s a network made of hundreds of thousands, or by some estimates 1 million, cheap servers, each not much more powerful than the PCs we have in our homes. It stores staggering amounts of data, including numerous copies of the World Wide Web. This makes search faster, helping ferret out answers to billions of queries in a fraction of a second. Unlike many traditional supercomputers, Google’s system never ages. When its individual pieces die, usually after about three years, engineers pluck them out and replace them with new, faster boxes. This means the cloud regenerates as it grows, almost like a living thing.” (“Google and the Wisdom of Clouds,” BusinessWeek, Dec 24, 2007)
As you realize that each era built upon previous advances made in hardware, software, and services, let your imagination drift for a moment to the possibilities that the future holds. It truly is an exciting time to be involved in technology. Technology Drivers of Infrastructure Evolution Here are some of the reasons we’ve evolved so much in the last 20 years. •
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Moore’s Law and Microprocessing Power: Perhaps no other law holds as much weight in the evolution of computers as Moore’s Law. Take a moment to visit the website that describes it in more detail www.intel.com/technology/silicon/mooreslaw/index.html. Microprocessor chips using transistors have helped increase computing power exponentially. However, nanotechnology is the promise of the future. This new technology is being developed because of the limitations of the older technology. The law of mass digital storage: As the amount of digital information expands, so too does our need and desire for more storage. In the early evolution of computing, storage needs were based on written text. Now we need the extra 5-3 ..
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storage for photos, music, and video. How much storage does the average user really need? Is it the chicken-or-the-egg syndrome: Give me more storage and I’ll find something to do with it or, I now have all these new applications therefore I need more storage? One thing is certain; users will demand more storage and the technologists will develop it. Metcalfe’s Law and network economics: If you build a network for ten users, you’ll spend the necessary money for the basic equipment. If you already have the equipment in place, you can add one more user at nominal costs. However, the additional user will bring value to the network far beyond what it costs to add him/her. Declining communications costs and the Internet: One of the biggest drivers in the exploding use of computers is directly attributable to the Internet. It’s getting cheaper every day to connect to the Internet because of declining communication costs. As more and more users connect to the Internet, businesses must find ways to meet the expectations and demands of users, especially in the area of mobile computing devices. Standards and network effects: Nothing has helped grow the Internet more than having technology standards in place allowing suppliers to create and build products that work seamlessly with each other. Users have come to rely on the interoperability of products.
Table 5.1 explains the standards that have laid the groundwork for services we now enjoy in technology. Bottom Line: We’ve come so far so quickly in the evolution of technology. From massive, expensive mainframe computers to inexpensive, handheld devices, the evolution and revolution continues.
5.2 What are the components of IT infrastructure? What if you bought a car that didn’t include tires, a steering wheel, a radio, or a heater? After purchasing this vehicle, you had to shop around for the missing parts. When you entered a store, you are confronted with eight different steering wheels, six different radios, and nine different heaters. You quickly realize how incompatible the parts are with different brands of vehicles and wished that the manufacturers simply put all the parts together for you. Once assembled, you drive to the gas station only to realize that your car can’t use that brand of gasoline. How frustrating. In part, that is what has happened to computers and peripherals over the years. In the early days of personal computers, the printer you had your eye on may not have worked with your brand of computers. You had to buy a scanner built specifically for your computer. You couldn’t connect to the Internet unless you had the correct modem for your Internet Service Provider. If you wanted to share photos with your friends, each of you had to have four different software programs, each of which would process the others’ photos. Now expand these examples to a corporate enterprise system. The evolution we are now experiencing is aiming to fix these problems and make computing 5-4 ..
ubiquitous anytime, anywhere. Let’s look at the seven major components of systems necessary to see us through to this goal. Computer Hardware Platforms The microprocessor is the heart of any computing device no matter how small or large. Two companies produce most microprocessing chips, Intel and Advanced Micro Devices (AMD). Although the network is becoming commonplace and the heart of computing, network service providers must have the necessary server backbone in place to meet increasing demand. Blade servers are meeting the needs of service providers more cheaply and more easily than traditional big-box servers. IBM offers mainframe computers that can also provide the network processing although they are more expensive and require Unix software. In fact, IBM is the only manufacturer of mainframe computers. When we think of hardware platforms we tend to focus on desktop and laptop computers. But in the last few years a second computer hardware platform has emerged that promises to dwarf desktops and laptops—mobile computing devices such as smartphones and tablet computers. Because these devices aren’t expected to accomplish as many complicated tasks as traditional hardware they use “reduced instruction set computing” (RISC) chips. They use less power and are faster than “complex instruction set computing” (CISC) chips used in the larger computers. Operating System Platforms Operating systems tell computers what to do, when to do it, and how. Operations such as logging on, file management, and network connectivity are controlled by the operating system. By far the most prolific operating system is Microsoft Windows in various versions. Windows is also one of the operating systems used by mobile computing devices such as handheld PDAs and cell phones. Unix and Linux are often associated with large networks that require less application overhead and faster processing. Linux open-source software is becoming the operating system of choice for organizations looking to save money. Businesses and governments across the globe are adopting the Linux platform as a way to reduce IT spending and licensing costs. The small mobile computing devices we discussed earlier, cell phones, smartphones, and netbooks, don’t have the computing capacity to handle a full-size operating system software program. And, many of the functions in Linux and Unix aren’t necessary on these smaller computers. Users are opting for lightweight operating systems such as Google Chrome and Android instead. Google Chrome OS is arriving just in time to take advantage of the perfect storm of cloud services, cheap hardware, and a new generation of 5-5 ..
platform-agnostic users. Unlike other Linux-based OSs, Chrome has brand recognition that even the biggest neophyte could get comfortable with. Chrome is also arriving just in time to take advantage of dirt-cheap hardware and super-broke consumers. The future for Chrome based netbooks is in the $200 and under space. At this price level, Microsoft would have to virtually give away Windows. Within a year or two, netbooks could hit the magical price of $99. For this price, people will happily purchase a computer that is nothing more than a simple and fast web-surfing device. While people might expect $300-plus computers to have full-featured OSs they may be less critical when netbooks fall into the impulse buy price range, especially when paired with lightning-fast performance. (“Google Chrome OS Could Be Pivotal in the Cloud Revolution,” PC World, Michael Scalisi, July 14, 2009) The Google Chrome OS makes it easy for users to access cloud computing services through wireless networking. Almost all the software and data are stored on servers and accessed through a web browser. Many smartphones use multitouch technology that allows users to pinch the screen or swipe their fingers over the screen to issue commands. The new Windows 10 operating software and Apple’s iOS extends that technology to full-size desktop and laptop computers. Enterprise Software Applications Integrating applications into seamless processes across the organization is the goal of enterprise software applications. Customer relationship management and supply chain management systems are the two most popular applications in this category. We explore them more extensively in later chapters. These applications are becoming popular and more affordable for even small and medium-size businesses thanks to the proliferation of networks. Data Management and Storage Businesses and organizations are gathering more and more data on customers, employees, and even the business itself. Managing and storing the data so they are easily accessible and provide meaningful information to the organization is becoming a science in and of itself. Storage area networks (SANs) provide a cohesive, economical way to consolidate data from across any and all systems within the business. Online users want instant access to data and SANs help companies provide it. Networking/Telecommunications Platforms As we continue the march toward convergence of all things digital, networking and telecommunications platforms will merge into one. Rather than having one platform for networking computer devices and a separate platform for telecommunications, we’ll see 5-6 ..
one company providing a combination of telephone services, cell phone connectivity, computers and peripheral devices, handheld PDAs, and wireless services all rolled into one. Many telecommunications companies are now partnering with Internet service providers to offer a complete package of digital services. Internet Platforms The Internet and its technology standards continue to expand the services businesses are able to provide their employees, customers, suppliers, and business partners. Intranets and extranets built on Internet technologies give businesses an easy and inexpensive method of providing services that were cost prohibitive a few years ago. Rather than purchase all of the hardware necessary to support websites, intranets, and extranets, many small and medium-sized companies use web hosting services instead. It’s cheaper and easier to have these service providers take care of hardware, software, and security issues while the business concentrates on its core processes. Consulting and System Integration Services Systems used in many medium- and large-sized companies and organizations are so complex that most businesses simply can’t manage all of them on their own. Integration services provided by the likes of IBM and Hewlett-Packard are necessary to simply keep up with changes. In many ways it makes more business sense for a company such as Frito-Lay to concentrate on its core processes of making snack food and let IBM take care of the technology issues. These services become more critical as many companies merge their old legacy systems with newer technologies such as wireless computing. The legacy systems, some as old as 20 or 30 years, simply can’t be thrown away but must work seamlessly with today’s technologies. Companies choose not to totally replace legacy systems because it’s too expensive, involves too much training, and carries too much organizational change. It’s easier to use middleware and other technologies to merge old and new systems. Bottom Line: There are seven major components of a modern IT infrastructure: Hardware platforms, operating system platforms, enterprise software applications, data management and storage, networking/telecommunications platforms, Internet platforms, and consulting and system integration services. Melding them into a cohesive system that adequately serves the digital corporation is difficult but the rewards are many.
5.3 What are the current trends in computer hardware platforms? If some of these IT infrastructure components such as storage and telecommunications have gotten so cheap, why does it seem like companies are spending more and more 5-7 ..
money on information technology? Because users are demanding better, faster, and easier ways to use computers and more ways to communicate with others. Let’s discuss some of these hardware technologies that are helping companies meet the growing technology demand of employees, customers, suppliers, and business partners. The Mobile Digital Platform Anytime, anywhere, 24/7, 365. That’s what computer users now expect. Technology manufacturers are meeting the demand with a host of new communication devices such as cell phones and smartphones. Smartphones are getting—well—smarter, and providing more reasons for users to migrate away from traditional desktop PC computing. The newest gadgets on the market are tablet computers and e-book readers such as the Kindle from Amazon.com or Apple’s iPad. Tablets are miniaturized subnotebooks that are built specifically for wireless communications and Internet access. Even though they may be small in size, they still pack a lot of computing power. On the horizon are wearable computer devices that will perform a wide range of tasks seamlessly with the user and other computing devices. The terms “wearable technology,” “wearable devices,” and “wearables” all refer to electronic technologies or computers that are incorporated into items of clothing and accessories which can comfortably be worn on the body. These wearable devices can perform many of the same computing tasks as mobile phones and laptop computers; however, in some cases, wearable technology can outperform these hand-held devices entirely. Wearable technology tends to be more sophisticated than hand-held technology on the market today because it can provide sensory and scanning features not typically seen in mobile and laptop devices, such as biofeedback and tracking of physiological function. Generally, wearable technology will have some form of communications capability and will allow the wearer access to information in real time. Data-input capabilities are also a feature of such devices, as is local storage. Examples of wearable devices include watches, glasses, contact lenses, e-textiles and smart fabrics, headbands, beanies and caps, jewelry such as rings, bracelets, and hearing aid-like devices that are designed to look like earrings. While wearable technology tends to refer to items that can be put on and taken off with ease, there are more invasive versions of the concept as in the case of implanted devices such as microchips or even smart tattoos. Ultimately, whether a device is worn on or incorporated into the body, the purpose of wearable technology is to create constant, convenient, seamless, portable, and mostly hands-free access to electronics and computers. (Tehrani, Kiana, and Andrew Michael. “Wearable Technology 5-8 ..
and Wearable Devices: Everything You Need to Know.” Wearable Devices Magazine, WearableDevices.com, March 2014. Web. http://www.wearabledevices.com/what-is-a-wearable-device/) Interactive Session: Technology: Wearable Computers Change How We Work (see page 183 of the text) explains how businesses are starting to use wearable computing devices to improve worker productivity and enhance the workplace environment. Consumerization of IT and BYOD In the past, computing devices and software were developed specifically for business applications. Very seldom did the hardware and software spill over into the consumer market. On the flip side, hardware and software created for consumer use saw very little application in the business world. That has changed in the last few years as the two have merged and crossed over. Now, software platforms such as Facebook have found a cozy home in the business world. As more and more people purchased smartphones and other technologies for their personal use, they were not content to leave the handy devices at home when they went to work. The consumerization of IT explains the technology along with BYOD, bring your own device. But, along with bringing their own devices, employees are bringing a new set of problems to the doorstep of their organization’s IT department. The most prevalent problem is securing the business’s core information systems from threats posed by malware and data theft. Access to the corporate network must continue to be protected while still giving employees fairly easy access to data, information, and applications. It’s a delicate balance for the IT department that must manage and control these consumer technologies while making sure they serve the needs of the business. Quantum Computing Some problems are so big it would take conventional computers years to process all the data through hundreds of thousands of processes to arrive at an answer. An emerging technology that may resolve that situation is quantum computing. A quantum computer has enormous processing power through the ability to be in many different states at once, allowing it to perform multiple operations simultaneously. That allows scientific and business problems to be solved millions of times faster than regular computers can solve them. Virtualization Server computer hardware prices have fallen over the years to the point where they’re relatively cheap. Hence, the problem. Rather than increase the efficiency and utilization of existing hardware, many companies just buy more of it and stick it on the shelf. Not much thought is given to the total cost of ownership (TCO) of all the hardware. As it 5-9 ..
turns out, the TCO is as much or more than the original purchase price. And, the hardware utilization rates are extremely low. We’ll examine the concept of TCO more at the end of this chapter. For example, let’s say you leave your kitchen light burning 24 hours a day. You only spend about 4 hours a day actually in the kitchen. You end up wasting 20 hours of electricity for those 4 hours of use. Of course this is a simplified example but you get the idea of how computer usage is wasted running all those servers for a fraction of the time they’re actually used. It’s not unusual for a company to have one server for this application and another server for that application. The applications are stored on separate servers using different operating systems. It’s a very wasteful configuration. Enter virtualization. It’s the process of running multiple operating systems and application programs on one machine and increasing the overall utilization rates of the device. Instead of having ten servers running ten different applications, virtualization consolidates the programs onto one or two servers. Here’s a list of the benefits businesses enjoy from using virtualization: • Increase equipment utilization rates • Conserve data center space and energy usage • Require fewer computers and servers • Combine legacy applications with newer applications • Facilitate centralization and consolidation of hardware administration Companies are saving money and resources through virtualization by using softwaredefined storage (SDS). SDS replaces expensive storage hardware with lower-cost commodity hardware and cloud storage hardware. Cloud Computing Most companies don’t build their own electrical generating plants or their own water treatment facilities. They purchase only the utilities they need, even in peak demand times. Why not do that with computing capacity? If JCPenney.com needs 50 percent more capacity during the 30-day Christmas buying period, why should it have to purchase that much infrastructure only to have it sit idle the other eleven months of the year? Cloud computing is defined by five characteristics: • •
On-demand self-service: Users can access computing capabilities whenever and wherever they are. Ubiquitous network access: No special devices are necessary for accessing data or services.
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Location independent resource pooling: Users don’t need to be concerned about where the data are stored. Rapid elasticity: Computing resources expand and contract as necessary to serve users. Measured service: Users pay only for the computing capabilities actually used.
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Figure 5.9 Cloud Computing Platform Almost any type of computing device can access data and applications from these clouds through three types of services: • • •
Cloud infrastructure as a service: Allows customers to process and store data, and use networking and other resources available from the cloud. Cloud platform as a service: The service provider offers infrastructure and programming tools to customers so they can develop and test applications. Cloud software as a service: The vendor provides software programs on a subscription fee basis.
Interactive Session: Organizations: Computing Takes Off in the Cloud (see page 188 of the text) explores the advantages and disadvantages of using cloud computing in both large and small businesses.
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Cloud computing is becoming popular because customers pay only for the computing infrastructure that they actually use. In many cases users experience lower IT costs than if they had to buy all the equipment, hire the technical staff to run it and maintain it, and purchase software applications. This type of on-demand computing is beneficial to small and medium-size companies because they can easily scale up and scale down their IT requirements as the pace of their business requires. Larger organizations however, may not want their most sensitive data stored on servers that they don’t control. System reliability is also a special concern to all businesses. The unavailability of business data and applications for even a few hours may be unacceptable. Amazon.com Inc.’s Internet-based computing services, used by thousands of business customers to run their web pages and store data, crashed this morning and knocked sites across the U.S. offline. Amazon Web Services servers in northern Virginia suffered outages beginning at about 5 a.m. local time, affecting a portion of U.S. customers, the Seattle-based company said. Twelve hours later, Amazon said all but one zone in the U.S. had been restored. Amazon, the world’s largest online retailer, has billed its cloud-computing services as a cheap and safe way for businesses to outsource their data centers. The outage is evidence that companies can’t wholly rely on cloud services to handle important functions, said Vanessa Alvarez, an analyst at Cambridge, Massachusetts-based Forrester Research Inc. “Customers need to start asking tough questions and not assume everything will be taken care of in the cloud, because it will not,” Alvarez said. “They shouldn’t be counting on a cloud service provider like Amazon to provide disaster recovery.” (BusinessWeek.com, “Amazon Web Services Disruption Knocks Customer Sites Offline,” Galante, Joseph, April 21, 2011) Three kinds of clouds are available: • Public cloud: Owned and operated by external service providers; accessed through the Internet; available to anyone; generally used for non-sensitive data. • Private cloud: Proprietary system owned and operated by a specific company; based on virtualization; available only to users inside the company; generally used for sensitive financial and personal data. • Hybrid cloud: Generally used by large corporations that store the most essential core activities on their own infrastructure and use the cloud for less-critical systems or additional processing capabilities. AT&T has added Amazon Web Services (AWS) as another provider it can give its customers access to via NetBond, a technology that allows the service provider to work with its enterprise customers' cloud services.
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Existing and new AT&T Business customers will be able to have a private and high-speed connection to AWS, including the option to scale their network use at the same rate as their enterprise applications running on the AWS Cloud. Jon Summers, SVP, AT&T Business Solutions, told FierceTelecom that the advent of NetBond and enabling connections to AWS and other cloud providers is helping ease business customers’ migration to a hybrid cloud implementation. “We initially deployed NetBond with the AT&T cloud, but recognized that enterprises more and more are deploying a hybrid cloud model so some workloads may run in the customer's data center, some may run in an AT&T data center, some may run at IBM, AWS or other cloud data centers,” said Summers. “With NetBond we have developed an ecosystem that's really about enabling customers to migrate to their preferred cloud solution based on the application needs they have, but do it in a way that enables a common, highly secure network.” (“AT&T makes cloud bond with Amazon Web Services” Buckley, Sean, Oct 2, 2014, http://www.fiercetelecom.com/story/att-makes-cloud-bond-amazon-webservices/2014-10-02) On-demand computing, another term for cloud computing, mirrors other utilities that provide necessary infrastructure from centralized sources. It’s cheaper and helps companies reduce the total cost of ownership of IT technology. They can also take advantage of newer technologies than they are able to buy and maintain on their own. Cloud computing also gives companies a chance to expand services that perhaps they wouldn’t be able to provide if they had to buy all the hardware and software. Green Computing Virtualization that we discussed earlier makes the concept of green computing more of a reality. It allows businesses to reduce their total cost of ownership of hardware through more efficient use of servers, printers, storage devices and networking equipment. In turn, that reduces the impact on the environment. Power consumption alone raises the TCO of servers to very high levels—businesses spend as much running a server as they did on purchasing it. High-Performance and Power-Saving Processors As businesses require more and more computing capacity, hardware and chip manufacturers are answering the need with multicore processors. Rather than a single chip on a single processing core, you purchase a machine with two or more processors. It reduces the overall number of servers or processors, thus reducing the total cost of 5-13 ..
ownership, including electricity costs. The motivation to reduce power consumption is migrating to netbooks, tablets, smartphones, and mobile computing devices. Bottom Line: There are many different ways a business can meet its computing demands: mobile digital platforms, grid computing, cloud computing, autonomic computing, virtualization, and multicore processing. Although these services may be relatively new, rest assured they will grow in demand as companies require better ways to manage IT infrastructures.
5.4 What are the current computer software platforms and trends? What if you bought a beautiful new car with all the fanciest equipment inside, but when you tried to start the engine nothing happened? How can that be, you ask? The car cost a lot of money and it’s brand new! However, as soon as you put some gasoline in the tank, it starts right up and you’re moving down the road. You can have all the computer hardware money can buy, but if you don’t have the right software, you can’t do very much with the hardware and you’ve wasted a lot of money. Let’s review some information about software platform trends that helps get the most out of your hardware. As we discuss these trends, you’ll find a common thread through all of them—they are not restricted to a certain type of hardware or a certain brand of software. Linux and Open-Source Software Security problems in proprietary software are usually discovered by those working inside the particular software manufacturer. That task is often restricted by the number of employees dedicated to the task, resource allocation, and organizational problems that don’t confound the open-source software movement. Open-source software has proven to be more secure than other leading software programs precisely because its code is so readily available. This means more people are able to review the code, find problems, and fix them more quickly. Open-source software isn’t limited to Linux but includes applications such as Mozilla Firefox web browser and free office suite software such as OpenOffice. OpenOffice.org 3 is the result of over twenty years’ software engineering. Designed from the start as a single piece of software, it has a consistency other products cannot match. A completely open development process means that anyone can report bugs, request new features, or enhance the software. The result: OpenOffice.org 3 does everything you want your office software to do, the way you want it to. (OpenOffice.org) In the early 1990s, a graduate student at the University of Finland wanted to build an operating system that anyone could download from the Internet, no one would own, and hundreds or thousands of people would work together on the creation, maintenance, and 5-14 ..
improvement. He began working on what is now known as Linux, a Unix-like operating system. He posted his program to a web page and allowed anyone to change and improve the code. Its use has expanded rapidly because its small size and low cost make it ideal for information appliances. It’s also less crash-prone than most other operating systems. That’s a feature that makes it very attractive to companies running e-commerce Internet businesses. Software for the Web: Java, HTML, and HTML5 Java fulfills the need for interactive programming over the Internet. What makes this language so enticing is that it is platform-independent. This means that you don’t need to worry about compatibility between separate operating systems such as Windows, Macintosh, or UNIX. Regardless of the hardware or software you use, this language will serve them all. Java creates miniature programs called “applets,” which perform very small, specialized, one-at-a-time tasks. When a user wants to perform the task, the coding is moved from the server where it’s permanently stored and then executed on the client computer. When the task is completed, it’s deleted from the client. In essence, you use an applet once and then literally throw it away. Using applets reduces storage needs on client computers and PCs. Again, it doesn’t matter whether the client is a PC or a terminal attached to a network. In fact, Java applets are being used on handheld computers, and on many other noncomputer appliances. Java also reduces the “bloatware” problem of huge software application programs with more functions than the average person could ever hope to use. You don’t need a large application program to do a simple task. If you want to calculate the monthly payments for a car loan, you simply use a Java applet instead of a huge spreadsheet program. HTML and HTML5 It’s becoming quite common for the average computer user to create web pages using the Hypertext markup language (HTML). In fact, by using the PC software tools we discussed earlier (Word 2010, Lotus 1-2-3, PowerPoint), you can create a web page as easily as you can create a letter, chart, or database. Combining HTML language into everyday applications is one more step toward integrating the Internet into everything we do. The original version of HTML was created when the web was first born. It never took into account that eventually people would want to incorporate audio, video, and pictures within a web page. More importantly, the authors of basic HTML language never envisioned that people would want to access the web through small handheld devices, smartphones, tablets, and netbooks. As our computing hardware has evolved, so too must the software that provides information to all those devices. The next evolution of HTML is HTML5.
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The World Wide Web’s markup language has always been HTML. HTML was primarily designed as a language for semantically describing scientific documents, although its general design and adaptations over the years have enabled it to be used to describe a number of other types of documents. The main area that has not been adequately addressed by HTML is a vague subject referred to as web Applications. (Copied from http://dev.w3.org/html5/spec/Overview.html#background, Dec 2011) HTML5 provides a more robust way to incorporate images, audio, and video into web pages making them more dynamic. It also provides better functionality of web pages on mobile devices such as smartphones and tablet computers. Web Services and Service-Oriented Architecture Web services use Internet technology to link application programs together without having to create custom coding. And, as the name suggests, they are web-based, making them more universally accepted within a business or across traditional organizational boundaries, extending to customers, suppliers, and business partners. The distinct advantage of building web services is their reusability. That is, you can build one web service that can be used by many different businesses. This kind of functionality promises a whole slew of new Internet-related development companies will spring up in the next few years as this idea takes hold. As we use the web for more applications, computer languages are evolving to keep up with new and innovative uses. HTML has worked well for displaying text and graphics. However, current computing environments demand more. XML is designed to control data on a web page or site and make it more manageable. A white paper written by Jon Bosak, Sun Microsystems, explains XML: XML gives us a single, human-readable syntax for serializing just about any kind of structured data—including relational data—in a way that lets it be manipulated and displayed using simple, ubiquitous, standardized tools. The larger implications of a standard, easily processed serial data format are hard to imagine, but they are obviously going to have a large impact on electronic commerce. And it seems clear that electronic commerce is eventually going to become synonymous with commerce in general. XML can do for data what Java has done for programs, which is to make the data both platform-independent and vendor-independent. This capability is driving a wave of middleware XML applications that will begin to wash over us around the beginning of 1999. However, the ability of XML to support data and metadata exchange shouldn’t be allowed to 5-16 ..
distract us from the purpose for which XML was originally designed. The designers of XML had in mind not just a transport layer for data but a universal media-independent publishing format that would support users at every level of expertise in every language. It’s all part of the evolution of the Internet. A web service-oriented architecture combines separate applications like a secure, thirdparty billing transaction with a payment system into one cohesive unit. Software Outsourcing and Cloud Services Earlier we described how businesses were going to outside vendors to meet their hardware needs. Organizations are now doing much the same for their software needs. Three external sources for software outsourcing are: • • •
Software packages from a commercial vendor Cloud-based software services and tools Outsourcing custom application development to an outside software firm
Software Packages and Enterprise Software Rather than design, write, test, and maintain legacy systems, many organizations choose to purchase software packages from other companies that specialize in certain programs. Let’s face it; there isn’t much difference in accounting needs and methodologies for a snack food manufacturer than there is for a paper manufacturer. So why not purchase a prewritten, fully tested, software program regardless of the business you are in? Software Outsourcing Companies are discovering that it’s cheaper and easier to hire third-party vendors for software related tasks such as system maintenance, data management, and program development. Much as they’ve outsourced mundane and repetitive tasks to mainly overseas locations, many companies are outsourcing all kinds of software related work. The Internet has made this option more viable than it ever was. Cloud-Based Software Services and Tools Small and mid-size companies in need of sophisticated software can rent only what they need and can afford through online software as a service (SaaS) providers. For instance, Right Now Technologies provides applications services via the Internet for customer service and marketing programs. Businesses can outsource their accounting needs to a web-based service such as Intuit’s online payroll services.
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Because these services are web-based, data are accessible from virtually any computer connected to the Internet. The road-warriors love having instant access to documents from wherever they are. Workers can collaborate with others in distant offices through a web-based SaaS, and no one has to worry about their files being compatible with others—they are. There is some danger to outsourcing your information resources to this kind of service. Remember, all your data are stored on another company’s server computers and you have little control of it. What happens if the service provider goes out of business? How secure are data stored on the servers? What kind of scalability and capacity planning has the service completed? These are just some of the issues managers must address when they consider using SaaS providers versus in-house technology support. Businesses must exercise caution when using software outsourcing or SaaS providers. If things can go wrong, they likely will. Service level agreements (SLA) help protect both customers and the service providers. Here are the main points of SLAs: • • • • • • •
Defines responsibilities of the service provider and level of service expected by the customer 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 termination
Mashups and Apps You may be familiar with mapping services on the web such as Mapquest.com or Google maps. These applications provide an easy method to find your way around town. Separately, you may have used a shopping site to locate stores that carry products you’re most interested in. What if you could combine these two separate applications into one and make your web browsing easier and faster—not to mention your offline shopping excursion? That’s the idea behind mashups. Mashups combine two online applications— mapping and shopping—into one new application. If you’d like to see an example of how convenient mashups are, visit MotoMap.com to get consolidated information and maps of motor cross and dirt bike trails across the United States. Let’s say you’re shopping at Macy’s and see a blouse or shirt that you just love. The price seems a little high but you’re not sure you can get it more cheaply somewhere else. All you have to do is pull out your smartphone, download an app, scan the bar code or enter a few details about the blouse, and in seconds you’ll have information about other places that carry the item, the price, and maybe how many they have in stock. Apps, short for applications, are very small programs that perform one particular task. They can be loaded to your handheld computing device, including smartphones, e-book readers (in some cases), or tablet computers such as the iPad. Some are free and others range from 5-18 ..
$0.99 to $4.99. They generally are written by third-party developers following a strict set of guidelines established by the device maker. As the excerpt below shows, third-party companies are now helping small business owners develop their own apps. Tom Johnson is no engineer. But that didn’t stop him from creating software that helps him market his wedding-video business. Johnson crafted an application, downloadable to the Apple (AAPL) iPhone, that plays a sample video, connects users to a blog, and lets would-be clients call his company, Alliance Video Products, by pushing a single button. Best of all for a non-engineer like Johnson, he did it in a single day, without writing a single line of code. To create the app, Johnson relied on a company called Swebapps.com, one of a new crop of services that help clients order up their own smartphone apps—often in less time and for less money than it would take to develop an app from scratch. Like Alliance Video Products, churches, museums, schools, and other small businesses of every stripe can now get into the app-making game—creating downloadable games, travel guides, quizzes, and blog feeds—thanks to sites like AppBreeder.com, GameSalad.com, and MyAppBuilder.com. Often all it takes is plugging specs into online templates. (“Do-It-Yourself iPhone Apps,” Kharif, Olga, BusinessWeek Technology Insider.com, Nov 1, 2009) It’s worth noting that most apps are developed for a specific device or devices from a specific company. Apps that are written for the Apple company will run on any Apple device. However, apps written for an Apple device will generally not run on a device manufactured or sold by Samsung or a BlackBerry. More and more apps are being created for the business user that lets her access server documents, call up sales data from the corporate database, or schedule meetings with colleagues or customers. Bottom Line: The five major themes in contemporary software platform evolution—Linux and open-source software; Java; web services and serviceoriented architecture; mashups and apps; and software outsourcing—are providing companies new options in IT infrastructure technologies.
5.5 What are the challenges of managing IT infrastructure and management solutions? The speed and computing capacity of technology continues to advance at dizzying speeds and in ways we can hardly dream. Star Trek is no longer a vision for the 24th century but for next week. Keeping up with all the advancements can be a major task in itself. Dealing with Platform and Infrastructure Change
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To be sure, it’s extremely hard to figure out ahead of time how much computing capacity a company will need. It’s like gazing into a crystal ball and trying to discern the future. Managers need to design scalability into their systems so that they don’t under- or overbuild their systems. The idea is to initially build the system for what the company thinks they need, but to design it in such a way that increasing capacity is a fairly easy thing to do. If the system is more successful than originally thought, or as the number of users increases, capacity can be increased without having to start over from scratch. Now that employees are relying on mobile computing devices to accomplish more tasks, businesses need to develop policies and procedures that are adaptable to the new technology. The issues businesses need to address include: • • •
Inventorying all mobile devices in business use Developing policies and tools for tracking, updating, and securing them Controlling the data and applications that run on them
Firms that use cloud computing and software-as-a-service need to address these issues: • • •
Make new contractual arrangements with remote vendors for IT infrastructure availability. Meet corporate standards for information security. Determine and ensure acceptable levels of computer response time and availability.
Management and Governance Technology continues to proliferate in every business, large and small. Users are more familiar and comfortable with technology and usually see it as a helpful addition to their workload. Sometimes though that can lead to disagreements about who will manage an organization’s IT infrastructure. Will you have highly centralized control that may stifle the ability of users to get the job done but provide for a cohesive, secure computing environment? Or will you have a decentralized governance of information technology that can also create a myriad of problems for the company? Unfortunately, there are no absolute right or wrong answers. These questions must be answered individually for each organization. Making Wise Infrastructure Investments Electronic business, electronic commerce, and digitization of the corporate world continue to grow. The Internet is touted as being 24/7, anytime, anywhere. For that model to work, hardware, software, and data must be available 24/7, anytime, anywhere. Companies are rethinking their strategic models for creating, processing, storing, and delivering data to meet the demands of employees, customers, suppliers, and business partners. If a company fails to do so they risk losing business and thousands or millions 5-20 ..
of dollars. Because of easy Internet access and competition, customers can simply go elsewhere if the company doesn’t adjust to the new world. Total Cost of Ownership (TCO) of Technology Assets The cost issue is becoming more important to businesses and companies as computer technology and networks grow. Depending on the configuration of the network, a company can save or lose many dollars. What’s most important to remember is that the Total Cost of Ownership (TCO) should extend past the hard dollars spent on hardware and software. The cost should incorporate such items as employee training, their ability to perform necessary functions given the network configuration, and lost productivity when the network is down. The TCO should also include the amount of money spent on communications wiring (telephone wires, fiber-optic cable, etc.) and security and access issues. Table 5.3 can help you determine the TCO cost components you need to consider for your organization.
By no means should managers simply count the dollars spent on the hardware and software; they need to also determine the persware cost. Competitive Forces Model for IT Infrastructure Investment Does your company spend too little on IT infrastructure thereby foregoing opportunities for new or improved products and services? Or does your company spend too much on IT infrastructure thereby wasting precious resources that could be utilized elsewhere? By using a competitive forces model for IT infrastructure investment, your company could align its IT spending with its needs.
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• • • • • •
Inventory the market demand for your firm’s services Analyze your firm’s five-year business strategy Examine your firm’s IT strategy, infrastructure, and cost for the next five years Determine where your firm is on the bell curve between old technologies and brand new ones Benchmark your service levels against your competitors Benchmark your IT expenditures against your competitors
Some of these tasks are very difficult because of how quickly technology improvements come into the marketplace. Even so, it’s worth the effort. Bottom Line: So where are we going with all this technology? Computers that are easier to use and incorporate into our everyday lives are in the near future. Improved technologies for business computing are being introduced each day. Faster and smaller information appliances are coming to a store near you. Managers at all levels of an organization will be involved in the process of selecting IT infrastructure components appropriate for the organization’s needs. When it comes to the future of computing, our imagination is the only thing holding us back.
Discussion Questions: 1. Determine the total cost of ownership associated with the technology in your workplace or classroom, even if that’s your own home. Use your hourly wage or salary as a basis to figure the persware cost. 2. Describe the five technology drivers of the infrastructure evolution. Which do you think has been the most influential in helping us achieve the level of technology we enjoy today? 3. Discuss how cloud computing can provide value to a business. 4. What is Java and how is it changing the computing environment? 5. Discuss the business value of open-source software.
Answers to Discussion Questions 1. Answers should include references to the hardware costs, including cabling, telephone line access charges, and printer costs such as paper and ink cartridges; software costs, including programs, upgrades, and program fixes; and persware costs such as training and technical support, which should be figured using the student’s actual or perceived hourly wage or salary. 5-22 ..
2. Five drivers of the technology infrastructure evolution include: • Moore’s Law and Microprocessing Power: The number of components on a chip with the smallest manufacturing costs per component has doubled each year. • Law of Mass Digital Storage: The amount of digital information is roughly doubling every year while the cost of storing digital information is falling at an exponential rate of 100 percent a year. • Metcalfe’s Law and Network Economics: The value or power of a network grows exponentially as a function of the number of network members. There are increasing returns to scale that network members receive as more and more people join the network. • Declining Communications Costs and the Internet: The rapid decline in the costs of communication and the exponential growth in the size of the Internet. • Standards and Network Effects: Specifications that establish the compatibility of products and the ability to communicate in a network. 3. Cloud computing allows a company to purchase computing capacity from remote, large-scale data processing centers during peak demand periods. A company can purchase only the capacity or service necessary to provide scalability. The companies offering cloud computing services can also provide new technologies that a business may not be able to provide for itself. 4. Java uses applets, which are miniature programs that perform very small, specialized, one-at-a-time tasks. Once the task is completed, the applet is “thrown away.” Using applets reduces storage needs on client computers and PCs. By using Java, users don’t have to purchase and use huge software programs. Java fulfills the need for interactive programming over the Internet. It is operating system-independent and processor-independent. Java applets are being used on handheld computers, and on many other noncomputer appliances. 5. Open-source software provides business value by lowering the cost of purchasing software. Open-source software is based on the premise that it is superior to commercially produced proprietary software because thousands of programmers around the world working for no pay can read, perfect, distribute, and modify the source code much faster, and with more reliable results than small teams of programmers working for a single software company.
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Management Information Systems, 15E Laudon & Laudon Lecture Files by Barbara J. Ellestad
Chapter 6 Foundations of Business Intelligence: Databases and Information Management Information is becoming as important a business resource as money, material, and people. Even though a company compiles millions of pieces of data doesn’t mean it can produce information that its employees, suppliers, and customers can use. Businesses are realizing the competitive advantage they can gain by compiling useful information, not just data.
6.1 What are the problems of managing data resources in a traditional file environment? Why should you learn about organizing data? Because it’s almost inevitable that someday you’ll be establishing or at least working with a database of some kind. As with anything else, understanding the lingo is the first step to understanding the whole concept of managing and maintaining information. It all comes down to turning data into useful information, not just a bunch of bits and bytes. File Organization Terms and Concepts
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Figure 6.1: The Data Hierarchy The first few terms, field, record, file, and database, are depicted in Figure 6.1, which shows the relationship among them. An entity is basically the person, place, thing, or event on which you maintain information. Each characteristic or quality describing an entity is called an attribute. In the table below, each column describes a characteristic (attribute) of John Jones’ (who is the entity) address. First Name John
Last Name Jones
Street 111 Main St
City Center City
State Ohio
Zip 22334
Telephone 555-123-6666
Suppose you decide to create a database for your newspaper delivery business. In order to succeed, you need to keep accurate, useful information for each of your customers. You set up a database to maintain the information. For each customer, you create a record. Within each record you have the following fields: customer first name, customer last name, street address, city, state, zip, and telephone number. Smith, Jones, and Brooks are the records within a file you decide to call Paper Delivery. The entities then are Smith, Jones, and Brooks, the people about whom you are maintaining information. The attributes are customer’s name (first and last) and address (street, city, state, zip code,
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telephone number). This is a very simplistic example of a database, but it should help you understand the terminology. Problems with the Traditional File Environment Building and maintaining separate databases within an organization is usually the main cause of “islands of information.” It may begin in all innocence, but it can quickly grow to monstrous proportions. Let’s look at some of the problems traditional file environments have caused. Data Redundancy and Inconsistency: Have you ever gotten two pieces of mail from the same organization? For instance, you get two promotional flyers from your friendly neighborhood grocery store every month. It may not necessarily be that you’re a popular person. It’s probably because your data was somehow entered twice into the business’s database. That’s data redundancy. Now, let’s say you change residences and, consequently, your address. You notify everyone of your new address including your local bank. Everything is going smoothly with your monthly statements. All of a sudden, at the end of the year, the bank sends a Christmas card to your new address and one to your old address. Why? Because your new address was changed in one database, but the bank maintains a separate database for its Christmas card list and your address was never changed in it. That’s data inconsistency. Just from these two simple examples you can see how data redundancy and inconsistency can waste resources and cause nightmares on a much larger scale. Program-Data Dependence: Some computer software programs, mainly those written for large, mainframe computers, require data to be constructed in a particular way. Because the data are specific to that program, it can’t be used in a different program. If an organization wants to use the same data in a different program, it has to reconstruct it. Now the organization is spending dollars and time to establish and maintain separate sets of data on the same entities because of program-data dependence. Lack of Flexibility: The sales and marketing manager needs information about his company’s new production schedule. However, he doesn’t need all of the data in the same order as the production manager’s weekly report specifies. Too bad. The company’s database system lacks the flexibility to give the sales manager the information he needs, how he needs it, and when he would like to receive it. Poor Security: Traditional file environments have little or no security controls that limit who receives data or how they use it. With all the data captured and stored in a typical business, that’s unacceptable. Lack of Data Sharing and Availability: What if the CEO of a business wants to compare sales of Widget A with production schedules? That might be difficult if production data on the widgets is maintained differently by the sales department. This problem happens far more frequently in older traditional file environments that lack the ability to share data and make it available across the organization. 6-3 ..
Bottom Line: Many problems such as data redundancy, program-data dependence, inflexibility, poor data security, and inability to share data among applications have occurred with traditional file environments. Managers and workers must know and understand how databases are constructed so they know how to use the information resource to their advantage.
6.2 What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful? The key to establishing an effective, efficient database is to involve the entire organization as much as possible, even if everyone will not immediately be connected to it or use it. Perhaps they won’t be a part of it in the beginning, but they very well could be later on. Database management systems make it easy, fast, and efficient to relate pieces of data together to compile useful information. Database Management Systems You’ve heard the old saying, “Don’t put all your eggs in one basket.” When it comes to data, just the opposite is true. You want to put all your corporate data in one system that will serve the organization as a whole. Doing so makes it easier, cheaper, and more efficient to use the data across the entire organization. It makes it easier to use in applications and makes it available through many different delivery methods. A database management system (DBMS) is basically another software program like Word or Excel or e-mail. This type of software is more complicated; it permits an organization to centralize data, manage them efficiently, and provide access to the stored data by application programs. Physical views of data are often different from the logical views of the same data when they are actually being used. For instance, assume you store tablets of paper in your lower-right desk drawer. You store your pencils in the upper-left drawer. When it comes time to write your request for a pay raise, you pull out the paper and pencil and put them together on your desktop. It isn’t important to the task at hand where the items were stored physically; you are concerned with the logical idea of the two items coming together to help you accomplish the task. The physical view of data focuses on where the data are actually stored in the record or in a file. The physical view is important to programmers who must manipulate the data as they are physically stored in the database. Does it really matter to the user that the customer address is physically stored on the disk before the customer name? Probably not. However, when users create a report of 6-4 ..
customers located in Indiana, they generally will list the customer name first and then the address. So it’s more important to the end user to bring the data from its physical location on the storage device to a logical view in the output device, whether it’s on screen or on paper. How a DBMS Solves the Problems of the Traditional File Environment If you have just one database that serves the entire organization, you eliminate the islands of information and, in turn, most of the problems we discussed earlier. If you have only one database you reduce the chances of having redundant and inconsistent data because each entity has only one record. You construct the data separate from the programs that will use them. The data are available to whoever needs them, in the form that works best for the task at hand. Securing just one database is much easier than controlling access to multiple databases. Relational DBMS A relational database stores data in tables. The data are then extracted and combined into whatever form or format the user needs. The tables are sometimes called files, although that is actually a misnomer, because you can have multiple tables in one file. Data in each table are broken down into fields. A field, or column, contains a single attribute for an entity. A group of fields is stored in a record or tuple (the technical term for record). Figure 6.4 in the text shows the composition of relational database tables. Each record requires a key field, or unique identifier. The best example of this is your social security number—there is only one per person. That explains in part why so many companies and organizations ask for your social security number when you do business with them. In a relational database, each table contains a primary key, a unique identifier for each record. To make sure the tables relate to each other, the primary key from one table is stored in a related table as a foreign key. For instance, in the customer table below the primary key is the unique customer ID. That primary key is then stored in the order table as the foreign key so that the two tables have a direct relationship. Customer Table Field Name Description Customer Name Self-Explanatory Customer Address Self-Explanatory Customer ID Primary Key Order Number Foreign Key
Order Table Field Name Description Order Number Primary Key Order Item Self-Explanatory Number of Items Ordered Self-Explanatory Customer ID Foreign Key
There are two important points you should remember about creating and maintaining relational database tables. First, you should ensure that attributes for a particular entity apply only to that entity. That is, you would not include fields in the customer record that 6-5 ..
apply to products the customer orders. Fields relating to products would be in a separate table. Second, you want to create the smallest possible fields for each record. For instance, you would create separate fields for a customer’s first name and last name rather than a single field for the entire name. It makes it easier to sort and manipulate the records later when you are creating reports. Wrong way: Name John L. Jones
Address 111 Main St Center City Ohio 22334
Telephone number 555-123-6666
Right way: First Name John
Middle Initial L.
Last Name Jones
Street
City
State
Zip
Telephone
111 Main St
Center City
Ohio
22334
555-123-6666
Operations of a Relational DBMS Use these three basic operations to develop relational databases: • Select: Create a subset of records meeting the stated criteria. • Join: Combine related tables to provide more information than individual tables. • Project: Create a new table from subsets of previous tables. The biggest problem with these databases is the misconception that every data element should be stored in the same table. In fact, each data element should be analyzed in relation to other data elements, with the goal of making the tables as small in size as possible. The ideal relational database will have many small tables, not one big one. On the surface that may seem like extra work and effort, but by keeping the tables small, they can serve a wider audience because they are more flexible. This setup is especially helpful in reducing redundancy and increasing the usefulness of data. Capabilities of Database Management Systems There are three important capabilities of DBMS that traditional file environments lack— data definition, data dictionary, and a data manipulation language. Data definition: Marketing looks at customer addresses differently from shipping, so you must make sure that all database users are speaking the same language. Think of it this way: Marketing is speaking French, production is speaking German, and human resources is speaking Japanese. They are all saying the same thing, but it’s very difficult for them to understand one another. Creating the data definitions sometimes gets shortchanged. Programmers who build the definitions sometimes say “Hey, an address is an address, so what.” That’s when it becomes critical to involve users in the development of the data definitions. 6-6 ..
Data dictionary: Each data element or field should be carefully analyzed when the database is first built or as the elements are later added. Determine what each element will be used for, who will be the primary user, and how it fits into the overall scheme of things. Then write down all the element’s characteristics and make them easily available to all users. This is one of the most important steps in creating a good database. Each data definition is then included in the data dictionary. Why is it so important to document the data dictionary? Let’s say Suzy, who was in on the initial design and building of the database, moves on and Joe takes her place. It may not be so apparent to him what all the data elements really mean, and he can easily make mistakes from not knowing or understanding the correct use of the data. He will apply his own interpretation, which may or may not be correct. Once again, it ultimately comes down to a persware problem. Users and programmers can consult the data dictionary to determine what data elements are available before they create new ones that are the same or similar to those already in the data dictionary. This can eliminate data redundancy and inconsistency. Querying and Reporting Data manipulation language: This is the third important capability of a DBMS. It’s a formal language used to manipulate the data in the database and make sure they are formulated into useful information. The goal of this language should be to make it easy for users to build their own queries and reports. Data manipulation languages are getting easier to use and more prevalent. SQL (Structured Query Language) is the most prominent language and is now embedded in desktop applications such as Microsoft Access. Designing Databases Don’t start pounding on the keyboard just yet! That’s a common mistake that may cause you many headaches later on. You have a lot of work to do to design a database before you touch the computer. First, you should think long and hard about how you use information in your current situation. Think of how it is organized, stored, and used. Now imagine how this information could be organized better and used more easily throughout the organization. What part of the current system would you be willing to get rid of and what would you add? Involve as many end users in this planning stage as possible. They are the ones who will prosper or suffer because of the decisions made at this point. Normalization and Entity-Relationship Diagrams
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We mentioned before that you want to create the smallest data fields possible. You also want to avoid redundancy among tables and not allow a relationship to contain repeating data groups. You do not want to have two tables storing a customer’s name. That makes it more difficult to keep data properly organized and updated. What would happen if you changed the customer’s name in one table and forgot to change it in the second table? Minimizing redundancy and increasing the stability and flexibility of databases is called normalization. Your goals for creating a good data model are: • • • •
Including all entities and the relationships among them Organizing data to minimize redundancy Maximizing data accuracy Making data easily accessible
Whichever relationship type you use, you need to make sure the relationship remains consistent by enforcing referential integrity. That is, if you create a table that points to another table, you must add corresponding records to both tables. Determine the relationships between each data entity by using an entity-relationship diagram like the one below.
Figure 6.11 An Entity-Relationship Diagram Determine which data elements work best together and how you will organize them in tables. Break your groups of data into as small a unit as possible (normalization). Even when you say it’s as small as it can get, go back through again. Decide what the key identifier will be for each record. See, you’ve done all this and you haven’t even touched the computer yet! Give it your best shot in the beginning: It costs a lot of time, money, and frustration to go back and make changes or corrections or to live with a poorly-designed database. Non-Relational Databases and Databases in the Cloud Relational databases will serve your company well if all your data can be neatly tucked into rows and columns. Unfortunately, much of the data a business wants to access aren’t structured like that. Data are now stored in text messages, social media postings, maps, and the like. Non-relational database management systems are better at managing large data set on distributed computing networks. They can easily be scaled up or down depending on the particular needs of your business at a particular time. 6-8 ..
Cloud computing service companies provide a way for you to manage your company’s data through Internet access using a web browser. At the present time you may not be able to create a sophisticated relational database management system but it won’t be long before it’s a standard service for organizations of all sizes. Pricing for cloud-based database services are predicated upon: • • • • •
Usage—small databases cost less than larger ones Volume of data stored Number of input-output requests Amount of data written to the database Amount of data read from the database
Small- and medium-sized businesses can benefit from using cloud-based databases by not having to maintain the information technology infrastructure needed to establish a local database. Large businesses can benefit from the services by using it as an adjunct to their onsite database and moving peak usage to the cloud.
Bottom Line: Relational databases solve many of the problems inherent with traditional file environments. Database management systems have three critical components: the data definition, the data dictionary, and the data manipulation language. Managers should make sure that end users are fully involved in properly designing organizational databases using normalization and entity-relationship diagrams.
6.3 What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? Corporations and businesses go to great lengths to collect and store information about their suppliers and customers. What they haven’t done a good job of in the past is fully using the data to take advantage of new products or markets. They’re trying, though, as we see in this section. The Challenge of Big Data Just a bit ago, we talked about how much of the data businesses want to collect, store, process, and use are no longer sorted neatly and easily into rows, columns, and tables. E-mail messages, text messages, tweets, and even output from large mainframe computers that process huge amounts of data, now contain information companies and managers are looking for. Postings to Facebook and LinkedIn contain data that can be useful to businesses if they are able to turn it into useful information.
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The term big data is used to describe those kinds of data that cannot be stored and processed in typical database management systems. Although the term isn’t meant to describe the quantity of data, it does reach into the exabyte and petabyte range. Companies want and need to capture, store, process, and generate information from big data because it shows patterns in business transactions and processes that may be useful to executives and managers. Two former Wynn executives and a San Francisco technology industry leader are using big data to try to change the way hotels set their room rates. Their company, Duetto, uses algorithms to monitor market behavior and recommend how much money a hotel should charge for its rooms. Duetto’s goal is to give hotels a more nuanced understanding of potential customers so they can fluctuate rates accordingly. Duetto looks at data including flight times and weather patterns along with information pulled from the hotel’s website—like what happens when someone explores the cost of a room but doesn’t book anything. “We’re basically giving insight into analytics that the hotels have never look at before,” said co-founder Marco Benvenuti, one of the Wynn veterans who is now Duetto’s chief analytics and product officer. Benvenuti said that when hotels usually adjust their rates, they do so across the board. Duetto could tell them just how much to raise or lower the price of one type of room to appeal to a specific customer group. On the gaming side, Duetto is able to predict how much money a segment of customers is likely to spend—on gambling and other activities—and then recommend who should receive complimentary offers. (Las Vegas Sun, “Company takes data-rich approach to helping hotels set room rates,” Morris, J.D., September 10, 2014)
Interactive Session: Organizations: New York City Moves to Data-Driven Crime Fighting (see page 228 of the text) describes how one of the biggest cities in the world is using big data for crime fighting and crime-mapping.
Business Intelligence Infrastructure Businesses collect millions of pieces of data. Using the right tools, a business can use its data to develop effective competitive strategies that we discussed in previous chapters. Rather than guessing about which products or services are your best sellers, business intelligence provides concrete methods of analyzing exactly what customers want and how best to supply them. Three benefits of using business intelligence include: 6-10 ..
• • •
Capability to amass information Develop knowledge about customers, competitors, and internal operations Change decision-making behavior to achieve higher profitability
Many times businesses store data in separate systems even though they’ve made great strides in migrating everything into one large database. In some cases the data are structured, semistructured, or unstructured. Somehow, all that has to come together at some point using appropriate tools and technologies. How to do that effectively and efficiently is what we’ll look at now. Data Warehouses and Data Marts As organizations want and need more information about their company, their products, and their customers, the concept of data warehousing has become very popular. Remember those islands of information we keep talking about? Unfortunately, too many of them have proliferated over the years and now companies are trying to rein them in by using data warehousing. No, data warehouses are not great big buildings with shelves and shelves of bits and bytes stored on them. They are huge computer files that store old and new data about anything and everything that a company wants to maintain information on. Data come from a variety of sources, both internal and external to the organization. They are then stored together in a data warehouse from which they can be accessed and analyzed to fit the user’s needs. Because a data warehouse can be cumbersome because of its size and sheer volume of data, a company can break the information into smaller groups called data marts. It’s easier and cheaper to sort through data marts that tend to be more focused on a particular subject. It’s still useful to have a huge data warehouse, though, so that information is available to everyone who wants or needs it. You can let the user determine how the data will be manipulated and used. Using data warehouses and data marts correctly can give management a tremendous amount of information that can be used to trim costs, reduce inventory, put products in the right stores at the right time, attract new customers, or keep old customers happy. Hadoop For the kinds of data we discussed earlier that don’t fit neatly into rows, columns, and tables, a new technology called Hadoop is better for handling unstructured and semistructured big data. Hadoop is an open-source software framework that uses distributed parallel processing across a network of small computers.
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The software divides huge data set problems into smaller subsets, sends the subsets to smaller computers for processing, and then gathers the results back into a data set that is analyzed. There are two main components of the system: • Hadoop distributed file system used for data storage • MapReduce for high-performance parallel data processing
In-Memory Computing Typically, database management systems rely on disk-based storage. When it comes time to process the data, they are accessed from the disk storage, brought into the computer’s main memory (RAM), and then moved back again. Not only does it take a long time to move the data back and forth and process it, bottlenecks often occur in the system. In-memory computing eliminates the bottlenecks and the data movement time by moving all the data at once into the computer’s main RAM memory and processing it all at once. That’s only possible because of the advances in chip technology, multicore processing, and lower prices for main memory. Analytic Platforms Preconfigured hardware–software systems specifically designed for query processing and analytics are now available for both relational and non-relational datasets. These analytic platforms include in-memory systems and non-relational database management systems. They are just one part of the overall business intelligence infrastructure shown in Figure 6.12 below
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Figure 6.12 Contemporary Business Intelligence Infrastructure Analytical Tools: Relationships, Patterns, Trends Once all the data are captured, stored, and processed, hopefully a business will do something with it. The technologies in the following sections will tell you how to turn data into useful information. Online Analytical Processing (OLAP) As technology improves, so does our ability to manipulate information maintained in databases. Have you ever played with a Rubik’s Cube—one of those little multicolored puzzle boxes you can twist around and around to come up with various color combinations? That’s a close analogy to how multidimensional data analysis or online analytical processing (OLAP) works. In theory, it’s easy to change data around to fit your needs.
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Figure 6.13: Multidimensional Data Model Data Mining Data mining technology allows a digital firm to get more information than ever before from its data. One danger in data mining is the problem of getting information that on the surface may seem meaningful, but when put into context of the organization’s needs, simply doesn’t provide any useful information. For instance, data mining can tell you that on a hot summer day in the middle of Texas, more bottled water is sold in convenience stores than in grocery stores. That’s information managers can use to make sure more stock is targeted to convenience stores. Data mining could also reveal that when customers purchase white socks, they also purchase bottled water 62 percent of the time. We seriously doubt there is any correlation between the two purchases. The point is that you need to beware of using data mining as a sole source of decision making and make sure your requests are as focused as possible. These are the five types of information managers can obtain from data mining: • • • • •
Associations: Determine occurrences linked to a single event Sequences: Determine events that are linked over time Classification: Discover characteristics of customers and make predictions about their behavior Clustering: Discover groups within data Forecasting: Use existing values to forecast what other values will be
Many companies collect lots of data about their business and customers. The most difficult part has been to turn that data into useful information. Firms are using better data 6-14 ..
mining techniques to target customers and suppliers with just the right information at the right time. For instance, based on past purchases, Chadwick’s clothing retailer determines that a customer is more likely to purchase casual clothing than formal wear at certain times of the year. Based on its predictive analysis, the retailer then tailors its sales offers to meet that expected behavior. Text Mining and Web Mining Much of the data created that might be useful to businesses is stored not in databases but in text-based documents. Word files, e-mails, call center transcripts, and services reports contain valuable data that managers can use to assess operations and help make better decisions about the organization. Unfortunately, there has not been an easy way to mine those documents until recently. Text mining tools help scrub text files to find data or to discern patterns and relationships. It’s quite possible you’ve read comments left by others on Facebook pages, at the end of news stories, and even entire websites dedicated to specific causes. Sometimes those comments and postings are favorable to a business and sometimes they aren’t. Either way, companies want to know how their customers feel about them, which is possible through sentiment analysis. Smart companies use the analysis to improve customer interfaces or solve problems they otherwise wouldn’t have known exist. Because so much business is taking place over the web, businesses are trying to mine data from it also. There are three categories of web mining processes: • • •
Web content mining: Extract knowledge from the content of web pages—text, images, audio, and video Web structure mining: Data related to the structure of a website—links between documents Web usage mining: User interaction data recorded by web servers—user behavior on a website
One website, Gilt.com, sells designer clothes and other high-end items online to “members only.” It showcases overstocked inventory from major brands at 60 to 70 percent discounts. Here’s what the CEO, Susan Lyne says about the company’s web mining efforts: “We have an enormous amount of data about our customers. We know not only what you buy, we know every sale you visited, every item you clicked on, anything you tried to add to your cart, anything you waitlisted. We give all this information to the brands. And we use it, too, of course. We say, ‘We want more of that.’ We take the brands’ excess, yes. But they also make more [of what we request] or they make specific items
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for us.” (BusinessWeek, “Facetime: Susan Lyne on Gilt.com’s Pleasures and Pressures,” Berfield, Susan, Dec 14, 2009) Databases and the Web Web browsers are far easier to use than most of the query languages associated with the other programs on mainframe computer systems. Companies realize how easy it is to provide employees, customers, and suppliers with web-based access to databases rather than creating proprietary systems. It’s also proving cheaper to create “front-end” browser applications that can more easily link information from disparate systems than to try to combine all the systems on the “back-end.” That is, you link internal databases to the web through software programs that provide a connection to the database without major reconfigurations. A database server, which is a special dedicated computer, maintains the DBMS. A software program, called an application server, processes the transactions and offers data access. A user making an inquiry through the web server can connect to the organization’s database and receive information in the form of a web page. Figure 6.14 shows how servers provide the interface between the database and the web.
Figure 6.14 Linking Internal Databases to the Web The benefits of using a web browser to access a database include: • Ease-of-use • Less training for users • No changes to the internal database • Allows a business to keep its old legacy system instead of replacing it • Cheaper than building a new system from scratch • Creates new efficiencies and opportunities • Provides employees with integrated firm-wide views of information
Bottom Line: There are many ways to manipulate databases so that an organization can save money and still have useful information. With technological improvements companies don’t have to continually start from scratch but can blend the old with 6-16 ..
the new when they want to update their systems. The web is the perfect delivery vehicle for databases and is cheaper than building proprietary systems.
6.4 Why are information policy, data administration, and data quality assurance essential for managing the firm’s data resources? At the beginning we said that as many users as possible should be brought together to plan the database. We believed it so much then that we’ll say it again here. By excluding groups of users in the planning stages, no matter how insignificant that group may seem, a company courts trouble. Establishing an Information Policy No one part of the organization should feel that it owns information to the exclusivity of other departments or people in the organization. A certain department may have the primary responsibility for updating and maintaining the data, but that department still has to share the information across the whole company if necessary. Well-written information policies outline the rules for using this important resource, including how it will be shared, maintained, distributed, and updated. Ask any manager what her resources are and she’s likely to list people, equipment, buildings, and money. Very few managers will include information on the list, yet it can be more valuable than some of the others. A data administration function, reporting to senior management, emphasizes the importance of this resource. This function helps define and structure the information requirements for the entire organization to ensure it receives the attention it deserves. Data administration is responsible for: • Developing information policies • Planning for data • Overseeing logical database design • Developing data dictionaries • Monitoring the usage of data by techies and nontechies Data governance describes the importance of creating policies and processes for employing data in organizations. Making sure data are available and usable, have integrity, and are secure is one part. Promoting data privacy, security, quality, and complying with government regulations such as the Sarbanes-Oxley Act is the second part. You need to get the nontechies talking and working with the techies, preferably together in a group that is responsible for database administration. Users will take on more responsibility for accessing data on their own through query languages if they understand 6-17 ..
the structure of the database. Users need to understand the role they play in treating information as an important corporate resource. Not only will they require a user-friendly structure for the database, but they will also need lots of training and handholding up front. It will pay off in the long run. Ensuring Data Quality Let’s bring the problem of poor data quality close to home. What if the person updating your college records fails to record your grade correctly for this course and gives you a D instead of a B or an A? What if your completion of this course isn’t even recorded? Because of the bad data, you could lose your financial aid or perhaps get a rather nasty e-mail from Mom and Dad. Think of the time and difficulty getting the data corrected. Data quality audits verify data accuracy in one of three ways: • Survey entire data files • Survey samples from data files • Survey end users about their perceptions of data quality It’s better for the company or organization to uncover poor quality data than to have customers, suppliers, or governmental agencies uncover the problems. Whether a company creates a single data warehouse from scratch or puts a web-front on old, disparate, disjointed databases, it still needs to ensure data cleansing receives the attention it should. It’s too expensive, both in monetary and customer-oriented senses, to leave bad data hanging around. A special type of software helps make this job easier by surveying data files, correcting errors in the data, and consistently integrating data throughout the organization. Interactive Session: Management: Keurig Green Mountain Embraces Data Governance (see page 239 of the text) discusses the difficulty managers may have when information systems are not integrated and data are located in disjointed systems. Managers and system users must work to ensure the highest quality of data at every step.
Bottom Line: As with any other resource, managers must administer their data, plan their uses, and discover new opportunities for the data to serve the organization through changing technologies. If data quality suffers, it’s a sure bet the information obtained from that data will be of poor quality also.
Discussion Questions:
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1. Describe the three capabilities of database management systems: data definition, data dictionary, and data manipulation language. Discuss the importance of creating and using a data dictionary with a large corporate database. 2. Discuss the importance of business intelligence as it relates to databases. 3. What do you see as the benefits of using a web-like browser to access information from a data warehouse? 4. What advantage do non-relational databases and cloud databases provide to businesses? 5. Discuss management issues associated with databases like information policies, data administration, data governance, and data quality?
Answers to Discussion Questions: 1. A DBMS has three capabilities: 1) data definition is the capability to specify the structure of the content of the data. It’s used to create database tables and define the characteristics of the fields in each table; 2) the data dictionary stores definitions of data elements and their characteristics; 3) the data manipulation language is used to add, change, delete, and retrieve data in the database. Data dictionaries are important because they are a lasting source of information about each data element that helps ensure the credibility and quality of data. Dictionaries for large corporate databases should include information about usage, ownership, authorization, security, business functions, programs, and reports that use each data element. 2. The tools available for business intelligence include database query software, multidimensional data analysis, and data mining. Business intelligence provides firms with the capability to amass information (data warehouses); develop knowledge about customers, competitors, and internal operations (OLAP, data mining); and change decision-making behavior to achieve higher profitability and other business goals. The firm’s operational databases keep track of the transactions generated by running the business. These databases feed data to the data warehouse. Managers use business intelligence tools to find patterns and meanings in the data. Managers then act on what they have learned from analyzing the data by making more informed and intelligent business decisions. 3. Web browsers are easier to use than most database query languages for accessing and compiling information. An organization can build a web-based “front-end” to the database without having to rework the database structure itself. No special software for users, other than a browser program, is necessary for accessing databases attached to a website.
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4. New types of data that don’t fit neatly into rows, columns, and tables exist in many different forms. Non-relational databases use a more flexible data model and are designed for managing large data sets across many distributed machines. They easily scale up or down depending on the needs of the users. Cloud-based data management services allow start-ups or small- to medium-sized businesses access to sophisticated database processing they could not afford to develop on their own. The shared hardware and software platforms reduce the number of servers, DBMS, and storage devices necessary for one-time or occasional data processing projects. 5. Managers should focus on four issues regarding data resources: information policies, data administration, data governance, and data quality. Information policies are important management tools because they specify rules for sharing, disseminating, acquiring, standardizing, classifying, and inventorying information. Data administration is responsible for specific policies and procedures through which data can be managed as an organizational resource. Data governance describes the importance of creating policies and processes for employing data in organizations; making sure data are available and usable, have integrity, and are secure; and, promoting data privacy, security, quality, and complying with government regulations. Data quality audits can identify problems with faulty data and help rectify errors in the database before they create even more management problems.
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Management Information Systems, 15E Laudon & Laudon Lecture Notes by Barbara J. Ellestad
Chapter 7 Telecommunications, the Internet, and Wireless Technology Anytime, anywhere, anyway, is the mantra of many computer users. Improved telecommunications technologies, the process of electronically communicating information, are making it possible. Looking for an example of how much this revolution is touching every aspect of how we work, live, play, and learn? Look no further than this page—you wouldn’t be reading this if it weren’t for telecommunication networks!
7.1 What are the principal components of telecommunications networks and key networking technologies? This section shows you how these networks are actually constructed and discusses the various elements involved in connecting all these computers. Knowing how it all works can give you insight into the changes that have taken place and an idea of what the future holds. You can also get ideas about how you can take advantage of the future now! Networking and Communication Trends For the most part, all of us have grown up with separate service providers and networks for our landbased telephones, cellular phones, and computers. We’ve been used to the idea that television cable service was separate from landline telephone service. Radio was separate albeit free. Cellular telephone services were separated from all of them. Now all of these telecommunication services are converging on the Internet and either blurring or destroying the lines of demarcation. It will become harder to determine where one ends and another starts as high-speed broadband network connections continue to expand and companies continue to develop products that meet consumer demands. The need for broadband access has made satellite and the fiber optic cables, the two high bandwidth transmission media of choice in today’s telecommunications services. Fiber optic cables provide a high transmission capacity; it provides broad bandwidth and capacity to transmit all forms of communication (voice, data and video). A fiber optic connection is faster than wireless by many orders of magnitude. A single optical fiber can carry about 3 trillion bits per second (bps). The fastest wireless service (fixed wireless access) approaches 2 million bps. So, fiber optics can be more than a million times faster. (http://cbdd.wsu.edu/kewlcontent/cdoutput/TR501/page26.htm. Accessed Nov 2009)
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What Is a Computer Network? Before we go much further, let’s make sure you understand how computer networks are configured. Figure 7.1 shows a simple network structure.
Figure 7.1: Components of a Simple Network. What you should keep in mind is that you can continually add components to this kind of network and expand it exponentially. You can take a simple desktop computer and by way of a Network Interface Card (NIC), incorporate it into an existing network. To share network resources such as printers, and to route communications on a LAN, you require special software called a network operating system (NOS). Hubs and switches help route traffic on the network to the right computing device. When two or more networks are connected to each other, you need a router that sends data transmissions to the correct network device. Very large networks may require multiple routers so transmissions flow more quickly. Because of the ever-growing complexity of networks, a new approach is available for managing their configurations called software-defined networking (SDN). Network administrators use the software installed on inexpensive commodity servers to manage traffic loads in a more flexible and efficient way. Networks in Large Companies Compare Figure 7.1 above that diagrams a simple computer network to Figure 7.2 that diagrams a corporate network infrastructure. You’ll see that the network you might use in a large company isn’t all that different from what you might use in your home. Obviously there will be more computing devices and servers but basically you’ll have the same network infrastructure.
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Figure 7.2: Corporate Network Infrastructure. Most corporations, large or small, will use a combination of public and private transmission mediums, including networks built separately for voice communication and computer transactions. Slowly, the separate networks are converging into one network that can transmit any type of data generated by any type of device. Key Digital Networking Technologies Let’s look at three key technologies necessary for network computing. Client/Server Computing The client/server network facilitates computing on all kinds of networks including the Internet. Instead of one huge mainframe with individual nodes, smaller computers called servers connect to many clients. This type of network is ideal for companies that are continually expanding their networks or replacing hardware components. Packet Switching Think about going to the grocery store and buying a week’s worth of food. For some of us that may be 20 packages of Ramen noodles; for others that could be quite a bit of food. You buy all the things, load them all into your cart, and head for the checkout line. You pay for your food while it’s being bagged. Assuming you bought lots of items, not all of them are packed into the same bag. You might have four or five bags, maybe more. You take them home, unpack the bags, and reassemble all your goods in the cupboard. You’ve just experienced packet switching.
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Packet switching is a method of breaking large blocks of data into smaller chunks and routing them in the most economical way through whichever communication channel is available. When you access this lecture file on the web, it appears as though all the data came into your client computer together. But they didn’t. The data were broken into small packets on their way out of the server computer and then sent to and reassembled on the client computer. It happens so quickly and so efficiently that you don’t even notice. Packet switching also checks for transmission errors when data travel from one location to another. TCP/IP and Connectivity How does your Internet Service Provider manage to send your e-mail to the right place? We’re talking millions and millions of people sending e-mail and using the World Wide Web every day. How do you keep from getting Mary’s e-mail intended for Billy in Atlanta? Notice that each computer user connected to a network has a separate, individual address. No two addresses are exactly the same. All of these addresses are stored on various computers placed around the networks. Software stored on routers uses these addresses to route the data to the right location. Routers use protocols to help route data around the many networks to get them to their correct destination. The most popular model for connecting networks is the Transmission Control Protocol/Internet Protocol (TCP/IP). Even though this protocol was originally created for what we now call the Internet, it is easily transferred to networks of all sizes. It provides the easiest methodology for communicating between computers through standardized protocols that ignore the hardware and software platforms of the individual pieces of equipment. Companies can create web-based interfaces for different databases for data input/output and accessing information without actually combining the data physically in one huge computer. They do so by using TCP/IP models. With these protocols, they can reduce the disruption to the organization and decrease the overall costs of adding to their network. This diagram shows you how TCP/IP works.
Figure 7.4: The Transmission Control Protocol TCP/IP Reference Model. 7-4 ..
The most important benefit of the TCP/IP model is that it allows two computers to communicate even if they are based on different hardware and software platforms. Bottom Line: All computer networks are basically the same. Many small networks can be connected to form larger networks, which in turn can be connected to the Internet. Protocols are the rules used in networks to ensure that transmissions can pass between the various components. The world of telecommunications and networking has changed drastically over the last ten years. If the pundits and experts are correct, and there’s no reason to believe they aren’t, we haven’t seen anything yet!
7.2 What are the different types of networks? It’s likely that as a company grows, so will its networking needs and capabilities. Signals: Digital vs. Analog Everything going into a computer system must be transformed into the digital signals of the computer. That is, a computer understands only zeros and ones. However, in the networking world much of the data are transmitted over telephone lines. These lines don’t recognize zeros and ones. They understand only what are called analog signals—continuous waveform signals. To change the signals back and forth between analog and digital transmission methods, you need a modem.
Figure 7.5 Functions of the Modem Types of Networks There are many different types of networks that organizations can use to connect their employees, managers, customers, suppliers, and business partners. It’s important that the right one is used. Local Area Networks The local area network (LAN) is probably the most common network setup. You can have as few as two computers or as many as you can possibly wire together in the local area. Other devices such as printers and even network-enabled pianos can be a part of a LAN. You can set up a LAN for local area processing within your company and then connect it to a larger outside network that could be linked to distant locations.
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Many small businesses choose to forego a client/server network architecture in favor of a peer-to-peer network in which all the computers on the network are equal. Data on one computer can be accessed easily by any other computer. Setting up a small network with this configuration saves the cost of having a separate server computer. Metropolitan and Wide Area Networks A wide area network (WAN) is basically the same thing as a LAN, only for a broader geographic setting. This network is not limited by space and distance, and WANs use a combination of technologies to connect all the distant locations. A WAN may take on a derivative name such as MAN (metropolitan area network) simply to describe its physical location. Transmission Media and Transmission Speed Some experts call us a wired nation. If you consider all the methods we use to communicate, we should be referred to as a wireless nation. Our paging systems and cellular telephones use microwave and satellite technologies to transmit our voice and data communications from one place to another. We have cell phones, personal communication services (PCS), mobile data networks, and personal digital assistants (PDAs) to help us compute on the go. Now when people say they are “going to the office,” it could just as well be their car or truck! All the transmission channels discussed in this section combine to give you what seems to be a single clear channel from one physical location to another physical location. In fact, it is very likely that when you access the Internet and call up a website you are using a combination of twisted pair wire, fiber optic cable, microwave stations, and satellites to transmit data from your computer to another computer. Table 7.2 provides a description and speed of each type of transmission medium you may use when communicating from one point to another.
Bandwidth: Transmission Speed
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When you transmit the latest information from a website to your personal computer, the speed at which it moves across all the transmission media is measured in bits per second (BPS). The speed at which the bits are transmitted in each cycle is referred to as hertz. If you transmit one million bits in each cycle, you would call that rate megahertz (one million bits per a single cycle). The bandwidth of a communication channel is measured by the difference between the highest and lowest frequencies that can be transmitted by that channel. Bottom Line: Communication channels consist of wired and wireless media. Processors and software are combined with the protocols and transmission media to form a network. There are many different types of network infrastructure configurations. The one that is best for your organization depends on your situation. Many new network services are being introduced to increase the speed of network access and will probably reach your world in the next few years.
7.3 How do the Internet and Internet technology work, and how do they support communication and e-business? The latest research numbers from the Pew Internet and American Life website show that 79 percent of American adults (including 95 percent of Americans age 18 to 29) use the Internet. (Pew Internet and American Life website, http://www.pewinternet.org Oct 2010) Try picking up a newspaper or magazine, listening to the radio or television, or simply talking to people, and you’ll be hard-pressed not to hear something about the Internet and how it’s changing businesses and the way people buy and sell items. What Is the Internet? The Internet was developed in 1969 for the U.S. military and eventually spread to universities and civilian researchers. Because of its open structure, interest in its use began to grow beyond these exclusive groups. Internetworking is the idea that computer networks are connected to other networks allowing data to flow freely. The Internet is best described by what it isn’t. There is: • No single computer • No single control source • No single owner • No single entry point • No single type of application The Internet consists of computer networks spread all over the world, through wired and wireless transmission media, which contain software codes that allow them to talk to each other. That’s it. If you tried to find a single “front door” to the Internet, you’d be looking for a long, long time. Small businesses and individuals connect to the Internet through Internet Service Providers (ISP) such as Earthlink or CoxMedia. In many areas the ISP is a small local company connected to a larger network. With recent mergers in the entertainment and Internet industries, some cable TV companies such as TimeWarner may serve as the ISP for home users. 7-7 ..
One way of physically connecting to the Internet is with a Digital Subscriber Line (DSL). It uses regular telephone lines to carry both voice and data transmissions at very high speeds. Because many home computer users already have cable TV installed in their homes, the telecommunications industry is using cable Internet connections to pump data into the home. If you have many people on the same cable line, each individual accessing the line will notice progressively slower speeds as the number of users increases. It is much faster than a dial-up modem, though. Larger organizations, such as universities and corporations, can afford a T1 line, which supports extremely high rates of data transmission. These lines are capable of carrying voice and data transmissions over 24 channels, which make them ideal for larger networks. Because they are expensive, it’s not something you’d install in your home. Internet Addressing and Architecture Every address used on the Internet whether it’s an e-mail address or a website address is nothing more than a series of numbers called an Internet Protocol address or IP for short. Computers spread out around the Internet and various networks convert the series of numbers such as 195.128.15.11 to an easily read address such as www.USAToday.com. The Domain Name System The Domain Name System was devised because it’s much easier for people to read letters and words than to work with series of numbers. The DNS uses a hierarchical breakdown of addresses as Figure 7.6 shows.
Figure 7.6: The Domain Name System.
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Domain names used in e-mail addresses and website addresses are easily obtained through several services such as www.networksolutions.com and www.register.com. How do you get a domain name? Be the first to request a unique name and pay the required fee. That’s all there is to it. Internet Architecture and Governance Even though no one owns the Internet as a whole, parts of it are owned and controlled by many different private and public entities. Network channels in the United States are largely private whereas in other foreign countries, for example China, the government owns the backbone. To ensure continuity and connectivity throughout the world, various organizations have been established to help administer the Internet: • • •
Internet Architecture Board: defines the overall structure of the Internet Internet Corporation for Assigned Names and Numbers (ICAAN): assigns IP addresses World Wide Web Consortium: sets standards for the web
Just remember, no one owns it. And, it’s not free. Interactive Session: Organizations: The Battle Over Net Neutrality (see p 263 of the text) introduces arguments for charging Internet users based on the amount of transmission capacity they use. There are some very good points made by both proponents and opponents. Not only is bandwidth saturation becoming a problem on Internet connections and other network connections, but now the problem is spreading to mobile phone networks as evidenced by the article below lamenting AT&T’s difficulties with its iPhone users. AT&T wants its iPhone users to use less wireless data, and it may consider new pricing models to curb users’ data usage as it tries to keep up with growing demand. At an investor conference in New York on Wednesday, Ralph de la Vega, AT&T’s head of wireless, said the wireless operator is considering incentives to get consumers to reduce their data usage. De la Vega said 3 percent of smartphone users are consuming 40 percent of the network capacity. “We’re going to try to focus on making sure we give incentives to those small percentages to either reduce or modify their usage so they don’t crowd out the other customers in those same cell sites,” said de la Vega according to a transcript of the conference. “And you’ll see us address that more in detail.” He went on to say that most consumers aren’t aware which applications use a lot of bandwidth and which do not. For example, e-mail does not consume a lot of bandwidth, whereas streaming video and audio do consume a great deal of bandwidth. “What’s driving usage on the network and driving these high usage situations are things like video, or audio that keeps playing around the clock,” he said, according to the transcript provided by AT&T. “And so we’ve got to get to those customers and have them recognize that they need to change their pattern, or there will be other things that they are going to have to do to reduce their usage.” 7-9 ..
AT&T has been struggling to keep up with demand for wireless-data usage on its network. The iPhone, launched more than two years ago, has revolutionized mobile web usage. The device, which was built more for accessing the Net than making calls, can access more than 100,000 applications, many of which use the mobile Internet. iPhone users on average consume five to seven times more data per month than average wireless subscribers, according to analyst firm Sanford Bernstein. And all this usage is clogging the network, causing many iPhone users, especially in large cities such as New York and San Francisco, to experience dropped calls, slow 3G service, and issues connecting to the network at all. (“AT&T considers incentives to curb heavy data usage,” CNet News, Marguerite Reardon, Dec 9, 2009) The Future Internet: IPv6 and Internet2 As the Internet and other networks continue to proliferate, it’s becoming very difficult to work with the limited number of IP addresses available in the old system. Therefore new IP addressing schemas are being developed along with an expanded Internet architecture. IPv6 is an initiative designed to increase the available IP addresses to handle the burgeoning number of users on the Internet. If experts’ predictions are correct about the increasing usage and reliance on the Internet, and there’s no reason to believe they aren’t, we need to improve and change the current configuration to meet future demand. The Internet2 project may help. The Next Generation Internet project has similar goals of advancing the use of the Internet in ways that will enhance our lives. Here’s how the Internet2 website (http://www.internet2.com) compares the two projects: “Internet2 is a collaborative effort by more than 180 U.S. universities, working with partners in industry and government, to develop advanced Internet technologies and applications to support the research and education missions of higher education. Internet2 is a project of the University Corporation for Advanced Internet Development (UCAID). The Next Generation Internet (NGI) initiative is a multi-agency federal research and development program that is developing advanced networking technologies, developing revolutionary applications that require advanced networking, and demonstrating these capabilities on testbeds that are 100 to 1,000 times faster end-to-end than today’s Internet.” Don’t worry that personal users of the “old” Internet will be left behind. New technologies developed for Internet2 and NGI will trickle down to the traditional Internet and make it easier for everyone to use. Internet Services and Communication Tools With the recent introduction of new communication and information appliances, such as smartphones, PDAs, cell phones, and mobile data networks, organizations have found it necessary to upgrade their networks to incorporate these new technologies.
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Internet Services We keep complaining about information overload, yet we crave more. The Internet provides access to data about any topic you can imagine through software-based services such as discussion groups, newsgroups, chat functions, instant messaging, Telnet, and FTP (file transfer protocol). Keep in mind that false information is as readily available as is true and correct information. Just be careful about the source of information you access. The most useful feature of e-mail is the ability to attach files to a message and send them to colleagues anywhere in the world. This feature alone makes it a valuable tool for telecommuters and for collaborating with coworkers, wherever they may be. Unfortunately the effectiveness of e-mail as a viable communication tool is diminished by spam and junk mail. The sheer numbers of e-mail message sent are overwhelming some corporate e-mail servers. Some businesses are now encouraging “no e-mail Fridays.” Companies are using chat and instant messaging as a viable alternative to e-mail. Use one of the search engines or directly access a popular portal page such as www.yahoo.com or www.msn.com and you’ll probably see a link to instant messaging services. AOL’s instant messaging technology is available to anyone, even those who don’t use AOL as their service provider. Most IM services let you set up private chatrooms and will tell you when family, friends, or colleagues are online so you can “talk” to them. Some cell phones also allow you to send and receive IM messages from wherever you are. Interactive Session: Management: Monitoring Employees on Networks: Unethical or Good Business? (see p 268 of the text) discusses both sides of a very sticky situation between employers and employees. It points out the need for every company to have corporate policies regarding employee use of e-mail and the Internet.
Voice over IP Internet telephony services such as Skype.com have vastly improved over the last few years and are now becoming a popular way for a growing number of people to communicate over the Internet. The VoIP (Voice over Internet Protocol) technology threatens traditional telephone companies unless they adapt their business model to include this technology. You make long distance telephone calls free (from PC to PC) or for a much reduced price (PC to regular telephone) using this technology. Here are a couple excerpts from the website, VoIP-Info.org: “Internet and computer technology have already changed the way people live, work and communicate. VoIP (Voice over Internet Protocol) is one of the converged technologies behind this communication revolution. An ever growing number of Internet connections around the world allow VoIP, which turns Internet infrastructure into a giant global telephone network. VoIP works in conjunction with other technology such as 3G cellular network and wireless (Wi-Fi) that eventually could create a huge global mobile phone network. 7-11 ..
It is the good news for consumers who can make phone calls worldwide at a very low or no cost and with great features that traditional telephone companies can’t offer for free now. Looking forward, we believe Internet Telephony innovations are far beyond what we can imagine now. Let’s utilize those technology advances and enjoy the feature-rich, low cost and evolutionary communication tools.” “VoIP on WiMax will make the latest 3G technologies obsolete before they are completely installed. The reason is because 3G cell phone technology is capable of 2Mbs while WiFi is at 11Mbs in bursts and WiMax will be even greater therefore 3G is not needed as VoIP over WiMax is going to provide more data, faster speeds and greater numbers of users. WiFi and WiMax may actually solve the goals of conquering the digital divide. There will be a small price for this disruptive technology. There will be small legal battles fought such as this one over territory with government agencies and private sector. In the WiFi Online Newsletter commenting on a Wall Street Journal Article we saw Verizon fighting with the City of Philadelphia over their citywide WiFi and if you think about it they do potentially have quite a bit to lose don't they?” (http://www.einfoxp.com, copied Nov 2012) The important thing to remember with all this new technology is that nothing is standing still. The telecommunications and computer industries are working at breakneck speed to improve technologies in order to improve the networking experience not just for companies, but also for home users. By combining all the divergent networks into converged networks, businesses are able to save money. More importantly, they are able to offer more efficient use of all the new technology. Unified Communications You use e-mail. Then you switch to the telephone. Then you move to electronic conferencing. On to instant messaging. Each of these has a separate channel and separate platform. Don’t you wish you could merge them all into one unified communication package and save yourself time, aggravation, and headaches? Now you can thanks to a single universally accessible service that lets you switch back and forth between all these methods of communicating with others. Unified Communications from Cisco combines all forms of business communications into a single, unified system that provides powerful new ways to collaborate. Cisco Unified Communications gives companies the ability to: •
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Collaborate across any workspace: Advanced collaboration tools make it possible to create high-quality, secure, adaptive workspaces throughout your organization. When co-workers, partners, vendors, and customers can collaborate more effectively, organizations can quickly adapt to market changes and build competitive advantage. Accelerate decision making: Sophisticated unified communications capabilities such as presence, instant messaging, and rich media services help ensure that information reaches the right person right away. This dramatically improves enduser and enterprise productivity. 7-12 ..
•
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Innovate across the value chain: Embedding unified communications capabilities into business applications allows organizations to transform business processes, and enjoy new levels of customer satisfaction and innovation. Integrate with other industry-leading applications: Cisco Unified Communications is open. It integrates with other industry-leading applications and a wide variety of endpoints, so workers can collaborate in real time using their choice of tools and applications. (www.Cisco.com, Nov 2008)
Virtual Private Networks Companies all over the world are building virtual private networks (VPN) to help reduce costs and make it easier for customers, suppliers, and employees to communicate. And why not? The Internet technology offers organizations a much cheaper alternative to the high cost of building and maintaining their own technology or using other technologies that aren’t built on the open standards of the Internet. VPNs also offer companies an extra layer of security protection through the tunneling process because of the “wrapping” effect not offered with generic transmissions.
The Web In 1989, a scientist named Tim Berners-Lee created a software program to help him keep track of his personal information. He eventually offered the software to other users and called it the World Wide Web. In 1991, commercial use of the Internet was permitted for the first time and that’s when its use started to explode. In 1993, Netscape Communications Inc., was formed by Marc Andreeson and Jim Clark to market a new software application for the web called a browser. This graphical user interface allowed users to maneuver around websites using a point-and-click method instead of textual commands. The World Wide Web is a vast repository of data and information connected through hyperlinks. When you think about the fact that it didn’t even exist 25 years ago, it’s amazing to realize how much it has permeated everything we do in our personal and business lives. Hypertext We discussed protocols before: the rules by which data are transmitted over networks. The Hypertext Transfer Protocol (http) is what allows the web to operate. When you see a Uniform Resource Locator (URL) address on a website, it will generally start with http://www. Most software browser programs now automatically insert that for you so you can simply enter the domain name of the website you want to access—businessweek.com, for instance. A URL that begins with https indicates a site using secure socket layers that offers more secure transmission protocols than the plain http. Web Servers All websites are stored on web servers scattered throughout the Internet. Rather than a small business owning and maintaining its own web server computers, it can pay a web hosting service to maintain the 7-13 ..
site. It’s often cheaper and easier and the small business doesn’t have to worry about downtime, scalability issues, or security. There is a difference between a web site and a web page. A web site has the short domain address, such as www.prenhall.com. It is the central repository for many, many individual web pages that are included at the end of the address after the domain name and a slash. For example, www.prenhall.com/paper.html is a web page within the website for Prentice Hall. A web page is a single document stored within the website and probably linked to other pages on the site. Generally the home page is the first page you’ll see when you initially access a website. It’s usually identified through the file name index.htm or default.html. Searching for Information on the Web Search engines and directories use various methods to help you find information on the web. You shouldn’t restrict yourself to just one or two search engines, but should try many different ones. You may be surprised at the different results you’ll get using the same keyword search. Some search engines use special software programs to monitor the web for new or updated sites or pages. When they reach a new site or page, they analyze the contents and determine the correct category in which it will be listed. They then add it to their database so that it will appear on the search result list when someone enters the appropriate subject. You can search for FTP sites, videos, blogs, newswires, business news, stock quotes, and weather using these search engine capabilities. Figure 7.12 below diagrams how the Google search engine operates behind the scenes.
Fig 7.12 How Google Works 7-14 ..
When you’re shopping for products in a brick-and-mortar store, how many times have you wondered if the price on that new bicycle is the best you can get? With mobile search capability on your smartphone or tablet, you can access other stores or dealers and determine on the spot if you’re getting the best deal. Mobile search also comes in handy if you’re trying to find restaurants, hotels, or popular sightseeing spots in an unfamiliar area. “It’s fair to say people aren’t searching for different things on mobile, they’re just searching at different times,” says Feng. With mobile, you can search for a restaurant, a museum or a shop right then and there, so mobile search tends to pick up in the evenings and on weekends, when consumers are on the go. Not surprisingly, desktop search is higher during the day, when people are at work — aside from a mobile spike during lunchtime. While it may take a few years for mobile search volume to exceed PC search volume, mobile is taking an increasingly large stake in search queries. On Mother’s Day, 33% of searches for “flowers” were from mobile devices. One shortcoming of mobile search, however, is that people’s thumbs aren’t very nimble—search sites see 1.5x more typos in queries on smartphones than on PCs. (Mashable.com, “6 Hot Mobile Search Trends from Google & Bing,” Lauren Drell, July 12, 2011)
Search result listings show you which websites contain information related to your search words or phrases. The listings may also include sponsored links to sites related to your search request. Sponsored links are part of a burgeoning business known as search engine marketing. It provides businesses a new way to connect to potential customers through the special links at the top of the search result list or a special box on the right side of the search result page. Each time a user clicks on a sponsored link, the advertiser pays a fee to the search engine. Because most people tend to stick to the first ten results of a search list, it’s important that webmasters and site owners do what they can to have their sites listed as close to the top of the list as possible. Search engine optimization is the art and science of creating websites and pages so that happens. For instance, if your website is devoted to selling African violets, you can include keywords in your home page in such a way that your site will rank higher than others in search results. Another trick is to link your site to similar sites devoted to the same subject—link your site to the African Violets Society of America’s site. Sometimes search engines can be too thorough or too mechanical in producing results for search phrases. Social search uses results of your friends’ searches, their friends’ searches, and recommendations from other people to produce results of a search query rather than using mathematical algorithms. Chances are greater that you’ll get more relevant site listings. Let’s assume you want to find the specifications online of an Apple iPad so you can compare it to an Amazon Kindle. You enter the search term “iPad specifications” in Google’s search engine and voilà, you get a hundred suggested sites to purchase the product rather than the specifications themselves. Google is working hard to fix that problem through its development of semantic search. Its goal is to build a search engine that understands human thoughts and phrases rather than just finding words in its 7-15 ..
database. It’s also working hard to improve its search engine results to return videos and pictures that may be relevant to your search. Many search engine home pages such as altavista.com have shopping bots available at a single click. Other shopping bot sites such as www.pricingcentral.com gather information from many sources and combine it for ease in comparing prices and availability. Keep in mind that some of the prices available through these kinds of sites may not be the absolute lowest you could find on your own. Some companies pay a service fee to the shopping bot sites to have their products listed regardless of whether they are the lowest price. Buyer, beware. Web 2.0 Making the web convenient, easy to use, and having it work for us, is the idea behind Web 2.0 services. Let’s say you’re looking for a new home in a new city that you’re not familiar with. You’d like to see information about local schools and perhaps crime statistics for your new neighborhood. You could spend hours researching data and trying to figure out how all the information correlates. Or, you could use a Web 2.0 service called a mashup and have the computer connect the dots for you. You don’t have to search for information at all if you don’t want. Perhaps you’re an avid reader of blogs about golf. Rather than checking the entire blogosphere every day for new information, you register your information needs with a RSS (Real Simple Syndication) service. When new information is available you’ll automatically receive a notification on your desktop similar to the newscast ticker tapes you see on your television screen. What began as a convenient method of receiving blog updates has now spread across a variety of news, sports, and information services to provide a convenient method of staying connected. Twitter.com produces microblogging posts that are limited to 140 characters. Wikis are becoming a popular way to share information among employees, managers, suppliers, partners, and even customers. For instance, your collaborative team is devising a new advertising campaign. You have lots of input that previously was passed around the team via e-mail. But that’s unwieldy and doesn’t give any of your team members a convenient method of searching for information. Who wants to sort through 83 e-mails looking for one piece of information? Instead your team could use a wiki to post ideas, information, or details of the latest version of your campaign in one consolidated location. All your team members could post comments, edit comments from others, and collectively store all the files associated with the project. Searching for a particular piece of data is easy and fast. Wikis are much easier to use than more sophisticated knowledge management systems and the software is much cheaper. What started out as a way for teenagers and college students to connect to their friends online and share photos and gossip, is now a multi-billion dollar social networking industry embraced by the likes of IBM, Ford Motor Company, and Coca-Cola. They have gone far beyond simply staying in touch with a few dozen—or few hundred—friends to an almost necessity in corporate life. Here are a few tips from the Australian government for businesses who want to use social networking and social media to reach out to their customers and users:
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Pros of social media Social media can have the benefits of word of mouth, but on a larger scale and reach a high number of potential customers. Potential advantages can include: • reduced marketing costs • increased sales • increased traffic to your website • improved ranking on search engines • greater customer engagement • greater access to international markets • opportunity for customer feedback • opportunity to conduct market research about your customers • improved networking opportunities with customers and other businesses. Cons of social media Social media may not be suited to every business. If you are unprepared and launch your social media presence without proper planning, you could waste valuable time and money. Some of the possible disadvantages you should be aware of are: • Not having a clear marketing or social media strategy may result in reduced benefits for your business. • Additional resources may be needed to manage your online presence. • Social media is immediate and needs daily monitoring. • If you don’t actively manage your social media presence, you may not see any real benefits. • Greater exposure online has the potential to attract risks. Risks can include negative feedback, information leaks or hacking. Whatever the risk, preparing your policy and procedures carefully beforehand can help you manage the risks. False or misleading claims made on your social media channels by your business or by a customer can be subject to consumer law. Customer fan posts and testimonials that are misleading or deceptive to other customers, particularly about competitor products/services may result in your business being fined. (Copied from http://www.business.gov.au/business-topics/business-planning/social-media/Pages/prosand-cons-of-social-media.aspx, November 2014) Web 3.0 and the Future Web The same individual who began the web, Tim Berners-Lee, is now involved in creating Web 3.0, also called the semantic web. Basically, data and content on the web are currently stored in individual files that don’t easily connect one to another. A Word file may be stored on a corporate database server while a spreadsheet file about the same subject is stored on your laptop. What if all that data were automatically connected so when you try to find all the information you need about your company’s latest marketing campaign, the semantic web would do it for you? Some Internet experts believe the next generation of the web—Web 3.0—will make tasks like your search for movies and food faster and easier. Instead of multiple searches, 7-17 ..
you might type a complex sentence or two in your Web 3.0 browser, and the web will do the rest. In our example, you could type “I want to see a funny movie and then eat at a good Mexican restaurant. What are my options?” The Web 3.0 browser will analyze your response, search the Internet for all possible answers, and then organize the results for you. That’s not all. Many of these experts believe that the Web 3.0 browser will act like a personal assistant. As you search the web, the browser learns what you are interested in. The more you use the web, the more your browser learns about you and the less specific you’ll need to be with your questions. Eventually you might be able to ask your browser open questions like “where should I go for lunch?” Your browser would consult its records of what you like and dislike, take into account your current location and then suggest a list of restaurants. (Copied from http://computer.howstuffworks.com/web30.htm, Jonathan Strickland, Dec. 2011) The old saying “a picture is worth a thousand words” is now playing out on the Internet with popular sites such as Pinterest and Instagram. These sites are not just for individual use but businesses can benefit from them as well if they use the features correctly.
Collecting followers has become an important part of how businesses connect with their customers online. But on Pinterest, followers don’t play the same role as they do on other services. Instead of thinking of followers as your audience on Pinterest, think of them as the gateway to your audience on Pinterest. Here’s what we mean: People use Pinterest to discover, save and do things that inspire them. Repinning is the action they take when they save things they want to do or buy later. While people’s main motivation to Pin is to save things for themselves, anything they repin spreads to their own followers who are looking at their home feeds to discover things from people with similar tastes and interests. That means the number of people who actually see your Pins is often far greater than your number of followers. In fact, the average Pin gets repinned 11 times. (“Why you don’t need as many followers as you think”, Knight, Kevin, Pinterest.com, October 8, 2014) Businesses and organizations generate so much data with all the new technologies now available. They want to put the data to good use to improve operations and profits. But it’s a lot of data – hence the name ‘Big Data.’ Wireless sensor networks and other networks send their output over an “Internet of Things” for analysis. Any object that generates data can be the focus of the Internet of Things. So many computing devices now include sensors that collect data and make it available in many different forms of information.
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Other trends pointing towards the future web include the App Internet, cloud computing and software as a service, ubiquitous connectivity, and the transformation of the web into a seamless and interoperable true web of networks.
Bottom Line: The Internet is a vast worldwide compilation of networked computers. IP addresses and the Domain Name System help ensure transmissions are routed to the correct recipient. Many applications such as e-mail, FTP, newsgroups, instant messaging, and chatting are available. The Internet2 and NGI projects will improve on the current Internet configurations and make it easier and faster to exchange information and data. Companies wanting to gain a competitive advantage need to incorporate Internet and web-based services into their business model. Web 3.0 and the Internet of Things point to the future of the web.
7.4 What are the principal technologies and standards for wireless networking, communication, and Internet access? Much as we’ve seen a convergence in wired digital devices such as computers, televisions, and telephones, we’re seeing a widespread convergence in wireless technology and the services it offers. If content can be digitized it can be transmitted over wireless networks. That includes voice, documents, photographs, music, movies, television shows, you name it. Why should we wait to show pictures of our vacation until we get home when we can instantly transmit them over the Internet via a photo-equipped cell phone? Why can’t we take a thousand songs loaded on a wireless device with us wherever we go? On the ground, wireless communications use a variety of gadgets such as paging systems, e-mail handheld devices such as the BlackBerry PIM, and cell phones. One of the hottest emerging communication appliances is the smartphone equipped with web browser software. Some merchants are teaming with web portals to use global positioning systems to pinpoint your location. Once the merchants know you’re in the local area, they offer you discounts on meals, clothing, and movies if you respond within the hour. As you’re walking down the sidewalk, you can use your smartphone to locate restaurants, check movie schedules, review sports scores, take and send photographs, and use maps to find your way. Cellular Systems Interestingly enough, the United States is not among the most “wired wireless” countries in the world; that honor goes to South Korea, Japan, and many European countries. Many developing nations are bypassing traditional, old-fashioned communication infrastructures and going straight to wireless. It’s easier and cheaper. Unfortunately each world region has adopted different standards for wireless networks and very often the standards don’t allow for cross transmissions. Two major standards used in the world are: • •
Global System for Mobile Communication (GSM): bandwidth is based on time division multiple access and is used in Europe, China, and Asia, and some regions of the United States. Code Division Multiple Access (CDMA): transmits over several radio frequencies and randomly assigns users to a range of frequencies over time. It is used mostly in the United States. 7-19 ..
Just as we’ve experienced generations of computers and computer languages, we allocate generational labels to wireless phone systems. Basically, we are working with two generations of cell technology: • •
3G networks: appeared in the early 2000s and are based on packet-switch technology that allows large amounts of data transmission. Supports voice, video, graphics, and wireless broadband Internet access. 4G networks: just beginning to roll out in 2009 and 2010. Provides speeds between 1Mbps and 1Gbps with premium quality and high security.
Wireless Computer Networks and Internet Access In order for wireless networks to work in tandem with each other it is necessary to create standards such as we have with Internet protocols and other network technologies. Bluetooth The Bluetooth wireless technology standard comes installed on some computers, which helps create small personal area networks (PANs). It’s more appropriate to use Bluetooth technology in batterypowered devices that are within close proximity to one another. Bluetooth technology is mostly used to connect keyboards, printers, computers, and handheld devices all within very close range. Bluetooth technology is a short-range communications technology that is simple, secure, and everywhere. You can find it in billions of devices ranging from mobile phones and computers to medical devices and home entertainment products. It is intended to replace the cables connecting devices, while maintaining high levels of security. The key features of Bluetooth technology are robustness, low power, and low cost. The Bluetooth Specification defines a uniform structure for a wide range of devices to connect and communicate with each other. When two Bluetooth enabled devices connect to each other, this is called pairing. The structure and the global acceptance of Bluetooth technology means any Bluetooth enabled device, almost everywhere in the world, can connect to other Bluetooth enabled devices located in proximity to one another. Connections between Bluetooth enabled electronic devices allow these devices to communicate wirelessly through short-range, ad hoc networks known as piconets. Piconets are established dynamically and automatically as Bluetooth enabled devices enter and leave radio proximity meaning that you can easily connect whenever and wherever it’s convenient for you. (Copied from www.bluetooth.com, Dec 2011) Even though the Bluetooth technology got off to a slow start in the early 2000s, it is now being used for all kinds of applications, even automobiles. Vehicles are coming equipped with Bluetooth technology 7-20 ..
and allow the use of hands-free cell phones, stereos, global positioning systems, and security devices. Figure 7.13 demonstrates a typical Bluetooth network.
Fig 7.13 A Bluetooth Network (PAN) Wi-Fi and Wireless Internet Access We mentioned earlier that today’s computing environment should be referred to as “wireless.” The recent proliferation of wireless technology is technically known as the 802.11 networking standard. It’s more commonly, and easily, called Wi-Fi for wireless fidelity. Wi-Fi can be installed on your existing computers to connect them through a router hub via access points. If you have several computers at home or in the office, a Wi-Fi network can help save money by negating the need for additional phone lines for Internet access or to use a single peripheral device such as a printer among several different computers. Each computer requires a wireless NIC (network interface card) containing a built-in radio and antenna. These cards are relatively inexpensive and you can avoid duplicating more expensive equipment by using a wireless network. You can access Wi-Fi networks in public areas such as libraries, Internet cafes, hotels, and airports. Access points to a wireless network are called hot spots and are proliferating in many public places. You should be aware of the dangers in using these hot spots. They lack strong security measures typical of wireless networks. You may experience interference problems as more users try to access the network. One of the biggest challenges facing the Wi-Fi industry is creating enough hotspots all around the country to provide blanket coverage without interruption. Currently there are still not enough continuous connections and many times users are dropped without warning. It’s similar to the situation cell phones users have experienced with dropped calls and service interruptions. 7-21 ..
WiMax Unfortunately, there are still large regions of the United States that must continue to rely on old telephone systems for Internet access. That prevents users from taking advantage of new high-speed access and many of the feature-rich applications available on the Internet. And because of limitations in frequency ranges associated with Wi-Fi, Bluetooth, and other technologies, many users are left out of the Internet evolution. A new technology called WiMax is being developed to help fill the gaps all across the country. WiMax increases the range of transmissions up to approximately 30 miles and increases the transmission speeds significantly over that available on regular telephone lines and dial-up modems. RFID and Wireless Sensor Networks Radio Frequency Identification (RFID) systems are an excellent example of how wireless technology is totally remaking supply chain management systems. RFID tags are small microchips that contain information about the product. This technology holds a distinct advantage over the old bar codes because it doesn’t require line-of-sight readers. Instead the tags transmit data via radio frequencies to computing devices that track the product. The tags can be either active or passive. Let’s compare the characteristics of each: • •
Active RFID tags: battery powered; data can be rewritten; have a longer read range, shorter operational life Passive RFID tags: no power source, smaller, lighter, and less expensive; unlimited operational lifetime; shorter read range
Figure 7.15 shows how the RFID technology works.
Figure 7.15: How RFID works. RFID tags offer more inventory management control over products than the current bar code technology for several reasons: •
More data can be written to RFID tags 7-22 ..
• • •
More real-time data can be provided by RFID tags RFID tags can trigger other processes within the computer system RFID tags do not require line-of-sight readers
Even though RFID tags are more expensive than bar code technologies, costs are dropping as they become more prevalent and the system switch-over is completed. For example, in 2001 a single RFID tag cost approximately $2.00. An RFID tag in 2010 costs approximately 10 cents. In 2011, the cost of passive tags started at US$0.05 each and special tags, meant to be mounted on metal or withstand gamma sterilization, can go up to US$5. Active tags for tracking containers, medical assets, or monitoring environmental conditions in data centers all start at US$50 and can go up over US$100 each. Battery Assisted Passive (BAP) tags are in the US$3–10 range and also have sensor capability like temperature and humidity. (Copied from Wikipedia.com, Dec. 2011) Near field communication (NFC) uses RFID technology that allows two devices to exchange data. It’s most commonly used in wireless payment services, to retrieve information or to exchange videos or information. Wireless Sensor Networks Businesses use wireless sensor networks (WSNs) to connect handheld devices with data storage devices and allow workers to roam untethered through warehouses and office buildings. In the long run, WSNs will be cheaper for businesses and homes because no structural changes will need to be made to the building’s walls, ceilings, or floors. If you want to add equipment, you’ll simply add another node to the network. You won’t have to cut holes, run wires, or alter the physical structure at all. Wireless sensor networks and other networks send their output over an “Internet of Things” for analysis. Any object that generates data can be the focus of the Internet of Things. Smart cities are the talk of all towns these days. Whether defined by ubiquitous sensors, high-speed Internet or smart transportation, every city from Seoul to Helsinki is teching up and boasting about it. With the help of Intel, Dublin’s brick lanes, lush parks and gray river banks will soon be seamlessly linked with high-tech sensors capable of gathering information such as air quality, noise levels and microclimate data. The project will initially focus mainly on environmental data, but the smart network is designed to implement a range of other applications in the future, from citizen feedback to guiding tourists. Data from the monitoring stations provide real-time information on meteorological conditions, air quality and potential health risks, as well as the chance of flooding. Still, Dublin’s had only 13 smog warnings since 1995, after regulations were tightened up. “We think we will see some novel, innovative services being deployed that we cannot predict today,” says Martin Curley, vice president and director, Intel Labs Europe.
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Clearly, some applications are more appealing than others. The stations could be used for video monitoring and preventing crime, or to track people through phones or special bracelets so that, for example, a lost person with Alzheimer’s could be located. But it is all a bit Big Brotherish. Constantly allowing Apple to know our locations or letting Google skim our e-mails for advertising purposes rings the same bell. Even Curley admits there are ethical and privacy issues at stake. “But we use standard procedures to ensure full compliance with national and EU legislation,” he says. In any case, the race is on to master the Internet of Things, whether Dublin heads it or not, and whether or not people love the idea. (“An Unexpected Capital for the Internet of Things,” Laura Secorun Palet for OZY, Oct. 11, 2014, NationalGeographic.com)
Bottom Line: Wireless technologies such as Bluetooth and Wi-Fi create small networks that connect just about any kind of computing device. They are easier to configure and connect than wired technologies and allow users more flexibility and access. Wireless access points, or hotspots, are springing up in airports, hotels, coffee shops, and rest stops all across the country and world. RFID technology is giving companies new opportunities and challenges for supply chain management.
Discussion Questions: 1. Discuss the advantages of a company using the TCP/IP standard to build a network. 2. Discuss some of the Internet services available to businesses and how they can provide value. 3. Discuss the emerging Voice over Internet Protocol (VoIP) technology and some of the advantages it may provide to businesses. 4. Use your imagination and come up with ideas of how your organization or company can use a wireless network. What current processes will you have to change to incorporate your idea? 5. Describe the advantages of using RFID tags rather than bar code technology.
Answers to Discussion Questions: 1. The TCP/IP provides a universally agreed-on method for breaking up digital messages into packets, routing them to the proper addresses, and then reassembling them into coherent messages. Businesses using the TCP/IP standard can use a wide variety of hardware and software that is readily available thus sidestepping the need to create proprietary software and special hardware. Because of the universal acceptance of the TCP/IP standard, businesses can build networks that anyone anywhere can use. 7-24 ..
2. A few of the Internet services available to businesses include e-mail, wikis, electronic discussion groups, chatting, instant messaging, Telnet, FTP, and of course the World Wide Web. All of these services provide a universal method of connecting employees, customers, suppliers, and business partners in an inexpensive way. 3. Voice over IP (VoIP) enables companies to use Internet technology for telephone voice transmission over the Internet or private networks. VoIP technology uses the Internet Protocol (IP) to deliver voice information in digital form using packet switching, avoiding the tolls charged by local and long-distance telephone networks. VoIP calls can be made and received with a desktop computer equipped with a microphone and speakers or with a VoIP-enabled telephone. 4. Answers will vary but should include information about the benefits of linking functional areas of an organization to increase communication among co-workers and teams, making information more accessible to employees and suppliers, and reducing costs associated with disseminating information. Answers should address how to integrate wireless technology into the rest of the firm’s IT infrastructure, how to maintain security and privacy, and how the relationships among employees, customers, suppliers, and business partners will change. 5. RFID tags provide wireless transmission of more data in a real-time mode than does bar code technology. The RFID tags can trigger other processes with an information system based on the data contained in the tag. Because RFID tags do not require line-of-sight readers, data transmissions are faster and easier.
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Management Information Systems, 15E Laudon & Laudon Lecture Notes by Barbara J. Ellestad
Chapter 8 Securing Information Systems As our society and the world itself come to depend on computers and information systems more and more, firms must put forth a better effort in making their systems less vulnerable and more reliable. The systems must also be more secure when processing transactions and maintaining data. These two issues, which we address in this chapter, are the biggest issues facing those wanting to do business on or expand their operations to the Internet. The threats are real, but so are the solutions.
8.1 Why are information systems vulnerable to destruction, error, and abuse? As firms become more technologically oriented, they must become more aware of security and control issues surrounding their information systems and protect the resources more stringently than ever before. It’s that simple. Why Systems Are Vulnerable Information systems are vulnerable to technical, organizational, and environmental threats from internal and external sources. The weakest link in the chain is poor system management. If managers at all levels don’t make security and reliability their number one priority, then the threats to an information system can easily become real. The figure below gives you an idea of some of the threats to each component of a typical network.
Figure 8.1: Contemporary Security Challenges and Vulnerabilities
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Businesses that partner with outside companies are more vulnerable because at least some data may be less controlled. Partnering companies may not protect information as stringently. Hardware and software safeguards may not be as important to outsiders. Employees of the partnering firm may not view security as diligently as the primary business. In today’s business environment, it’s not enough to protect hardware and software physically located within an organization. Mobile computing devices such as smartphones, cell phones, netbooks, and laptops, add to the vulnerability of information systems by creating new points of entry into information systems. There are more than one million apps for Apple mobile computing devices and 800,000 apps for Droid-based devices. Even though most of these small software programs are well-constructed, some could potentially threaten corporate networks. Internet Vulnerabilities If electronic business is to prosper and truly move into the mainstream of commerce, everyone involved—merchants, financial institutions, software vendors, and security suppliers such as VeriSign—has to make security a top priority, starting right now. Security is very hard to get right under the best of circumstances and just about impossible when it isn’t the focus of attention. If the industry doesn’t get this right—and fast—it’s setting the stage for a catastrophic loss of confidence. (Business Week, March 26, 2001) In a survey my company carried out last year, security professionals were asked to identify the most common sources of automated worm attacks. Not surprisingly, three of the top four causes pointed directly at dirty PCs. Forty-three percent said employee laptops were the primary source of worm attacks, 34 percent fingered contractor laptops, and 27 percent claimed that home PCs connected to virtual private networks (VPNs) were the guilty parties. (“Time to send a consistent message on security,” Jon Oltsik, CNET News.com Feb 23, 2006) These two articles show how long the problem with poor security has existed and how vulnerable computing systems are. Every point of entry into the Internet network is a point of vulnerability. If you connect to the Internet with a cable modem or DSL you are much more vulnerable to hackers on your home PC than if you connect with a dial-up modem. That’s because you are always connected, with a permanent IP address, which makes it easier for hackers to find you. The only smart thing to do is keep your software up-to-date and include firewall protection. Because distributed computing is used extensively in network systems, you have more points of entry, which can make attacking the system easier. The more people you have 8-2 ..
using the system, the more potential for fraud and abuse of the information maintained in that system. That’s why you have to make it everybody’s business to protect the system. It’s easy for people to say that they are only one person and therefore they won’t make much difference. But it only takes one person to let down the necessary safeguards in order for one other person to disable a system or destroy data. Wireless Security Challenges It’s a difficult balancing act when it comes to making wireless systems easy to access and yet difficult to penetrate. Internet cafés, airports, hotels, and other hotspot access points need to make it easy for users to use the network systems with the 802.11 standard. Yet, because it is so easy, hackers and crackers can easily access unsuspecting users’ systems and steal data or use the entry point as a way to spread malicious programs. The hackers can use war driving techniques to gain access to wireless networks not only in hotels and airports, but private businesses and government centers. Wireless networks are vulnerable in the following ways: • • • • •
Radio frequency bands are easy to scan. Signals are spread over a wide range of frequencies. Service set identifiers (SSID) are broadcast multiple times and are easily picked up. Rogue access points can be established on different radio channels and divert signals from authentic points. Wired equivalent privacy (WEP) isn’t very effective because it relies on user input.
Malicious Software: Viruses, Worms, Trojan Horses, and Spyware Have you ever picked up a cold or the flu from another human? Probably. You then spread it to two or three other people through touch or association. Those people spread it to two or three more people each. Pretty soon it seems that everyone on campus or at work is sick. That is how computer viruses are spread. You copy a file from an infected source, use the file, and maybe send it to friends or associates. The virus is now on your computer and spreads to files other than the original. You then send the same or even a different file to a few friends and their computers are infected. Web-enabled and e-mail-enabled cell phones are now being targeted as a way to spread viruses. It is not just PCs that are vulnerable to virus attacks these days—now you also have to protect your phone from mobile phone virus and PDA, too. Advanced mobile phones run the same kind of applications as desktop and laptop computers, and they have multiple wireless connections so they too get infected by mobile phone virus and spread cell phone virus. 8-3 ..
There are currently about 100 mobile viruses that can disable a phone or create bills of hundreds of dollars by sending pricey picture messages. The first mobile virus spreading “in the wild” emerged less than two years ago. While this is still a tiny number compared with personal computer viruses, the threat is expected to increase. (Copied from www.nospysoftware.com, Dec 2011) A different type of malware called worms can also destroy data on computers or clog network systems with software-generated electronic transmissions. Worms are similar to viruses in that they can create additional file copies on a computer and generate e-mails to other computers with the infected file attached. Worms differ from viruses because they don’t need human intervention to spread from one computer to another. That helps explain why computer worms spread much more rapidly than computer viruses. Drive-by downloads are malware stored in a downloaded file that you intentionally or unintentionally request from a web source. Trojan horses cause problems because they force a computer system to perform unexpected operations, often to the detriment of the system and the user. This type of malware is usually masked in e-mail messages although it can be stored on web sites. This table gives you examples of malicious code that are spread through vulnerable Internet-connected systems.
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We previously mentioned that mobile computing devices such as smartphones and tablet computers increase the vulnerability of corporate networks because they create new points of entry. Social networking web sites such as Facebook and web sites that use Web 2.0 applications also pose security threats. Users assume that every message they get from “friends” or every well-constructed web site is authentic. Unfortunately, that’s a wrong assumption. Facebook has become an easy target for unauthorized users to infiltrate networks and spread malware. Website applications are becoming a magnet for hackers to gain access to users’ computers. It’s imperative that web site programmers and authors create underlying code that properly validates and filters data entered by site users. That will help prevent SQL injection attacks that target databases and unleash malicious code. A new threat to computers and mobile devices, called ransomware, requires users to pay a certain amount of money to unlock their files or remove annoying pop-up messages. According to Wikipedia, “CryptoLocker, a ransomware worm that surfaced in late-2013, had procured an estimated US$3 million before it was taken down by authorities.” Hackers operating on the Internet's “Dark Web” are spreading a new, more sophisticated generation of the malicious software known as “ransomware,” anonymously shaking down anyone with an unprotected computer, from lawyers and cops to small businesses. Where small groups of anonymous hackers once hit individual consumers, the hackers have now organized into crime syndicates that boldly launch massive attacks against entire companies, computer experts and law enforcement authorities said.
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Some victims get lost in the cumbersome details of the ransom payment process and run out of time, leaving their computers locked forever. Others pay right away and have their computers unlocked. Still others pay up, only to have the hackers run off with the money—and with the secret key. (“Hackers ramp up computer attacks that demand ‘ransom’,” Leinwand Leger, Donna, USA TODAY May 14, 2014) Not all spyware is damaging to a computer system. It is a popular method for some web sites to monitor how users navigate through a site, providing critical information that the web designers and developers can use to improve the site. Unfortunately, some spyware is becoming a preferred method for hackers to install malicious code on computers and allow them to infiltrate an unsuspecting computer. Key loggers are an example of how spyware programs are used to capture personal or business information from unsuspecting users. Hackers and Computer Crime Hackers and crackers, those who intentionally create havoc or do damage to a computer system, have been around for a long time. Many companies don’t report hackers’ attempts to enter their systems because they don’t want people to realize their systems are vulnerable. That makes it hard to gather real statistics about the extent of hacking attempts and successes. Unauthorized access is a huge problem, though. In a typical game of cat-and-mouse, hackers constantly develop new ways to get around security software. Unfortunately, they usually have the upper hand because they can create hacking methods faster than security software companies can create, update, and distribute software that blocks them. Users who fail to keep their software updated inadvertently help hackers continue to ply their trade. Some hackers penetrate systems just to see if they can. They use special computer systems that continually check for password files that can be copied. Or they look for areas of the system that have been “left open,” so to speak, where they can enter the system. Sometimes they don’t do any damage, but far too often they destroy files, erase data, or steal data for their own use through cybervandalism. Other hackers attack systems because they don’t like the company. Victims of a data breach at the security analysis firm Stratfor apparently are being targeted a second time after speaking out about the hacking. Stratfor said on its Facebook page that some individuals who offered public support for the company after it revealed it was hacked “may be being targeted for doing so.” The loose-knit hacking movement “Anonymous” claimed Sunday through Twitter that it had stolen thousands of credit card numbers and other personal information belonging to the company’s clients. Anonymous
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members posted links to some of the information Sunday and more on Monday. Stratfor, based in Austin, Texas, said its affected clients and its supporters are at risk of having sensitive information repeatedly published on other websites. The company has resorted to communicating through Facebook while its website remains down and its e-mail suspended. (“Hackers Target Supporters of Breached Security Firm,” Associated Press, Dec 27, 2011) Spoofing and Sniffing These are two other methods hackers and criminals use to gain improper or illegal access to computer systems. Spoofing is becoming a common way to steal financial information through fake web sites. The spoofed site is almost a mirror image of the real site and unless the unsuspecting user examines the spoof closely, he/she may inadvertently give out important personal and financial information. Using a sniffer program is a popular way to “grab” information as it passes over transmission lines regardless of whether they are hard-wired or wireless. It is almost impossible to detect and encryption is about the only way to safeguard against it. Denial of Service Attacks As companies and organizations expand their business to web sites, they are opening another point of vulnerability through denial of service attacks. Using botnets to launch distributed denial of service attacks is becoming all too common. The hackers seem to enjoy attacking the most popular web sites such as Facebook and Twitter. “On this otherwise happy Thursday morning, Twitter is the target of a denial of service attack,” wrote Stone (Twitter co-found Biz Stone). “Attacks such as this are malicious efforts orchestrated to disrupt and make unavailable services such as online banks, credit card payment gateways, and in this case, Twitter for intended customers or users. We are defending against this attack now and will continue to update our status blog as we continue to defend and later investigate.” In a denial-of-service attack, a malicious party barrages a server with so many requests that it can’t keep up, or causes it to reset. As a result, legitimate users can only access the server very slowly—or not at all, as appears to be the case here. (“Denial-of-Service Attack Knocks Twitter Offline,” Van Buskirk, Elliott, www.wired.com, Aug 6, 2009) Denial of service attacks are at the core of some of the most serious forms of cyberwarfare being played out across the world between countries and governments. From Russia to Iran to South Korea, government networks are being targeted through 8-7 ..
these kinds of attacks. The use of botnets makes it very difficult to determine the origin of the attacks and pinpoint responsibility. The news article below offers one idea of how to help fix problems hackers create. The government is reviewing an Australian program that will allow Internet service providers to alert customers if their computers are taken over by hackers and could limit online access if people don’t fix the problem. Obama administration officials have met with industry experts to find ways to increase online safety while trying to balance securing the Internet and guarding people’s privacy and civil liberties. Possibilities include provisions in the Australia plan that enable customers to get warnings from their Internet providers if their computer gets taken over by hackers through a botnet, a network of infected computers usually controlled by hackers through a small number of scattered PCs. Computer owners are often unaware that their machine is linked to a botnet and is being used to shut down targeted websites, distribute malicious code or spread spam. “Without security you have no privacy,” Schmidt [White House cybercoordinator Howard Schmidt] said in an interview. Internet service providers, he added, can help “make sure our systems are cleaned up if they’re infected and keep them clean.” (“U.S. studying Australian Internet security program,” Baldor, Lolita, Associated Press, Oct 2010) Computer Crime Some of the crimes we have just described are the most popular. Computer crime is a growing national and international threat to the continued development of e-business and e-commerce. When the Internet was first created in the late 1960s, the designers intentionally built it to be open and easily accessible. Little did they know 40 years later, that structure would be the very cause of so much crime and vandalism. Table 8.2 lists the best known examples of computer crime.
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It’s very difficult for our society and our governments to keep up with the rapid changes in the types of computer crime being committed. Many laws have to be rewritten and many new laws must be implemented to accommodate the changes. Identity Theft The fastest growing crime off or on the Internet is identity theft. Even though identity theft is most likely to occur in an offline environment, once your personal information has been stolen it’s easy to use it in an online environment. “The biggest risk for identity fraud is from the old-fashioned theft of your wallet or paper records from your trash. And from people who know you. People who are close to you can set up known accounts and have the information sent to a new address. So the fraud goes on longer and is harder to discover,” says James Van Dyke of Javelin Strategy in Pleasanton, California. (USAToday Online, Jan 26, 2005) Several government web sites provide extensive information about how to prevent identity theft. The Federal Trade Commission at www.ftc.gov gives you information about what to do if you think your identity has been stolen. Another governmentsponsored site is OnGuardOnline.gov: “OnGuardOnline.gov provides practical tips from the federal government and the technology industry to help you be on guard against Internet fraud, secure your computer, and protect your personal information.” There are many precautions people can take to help prevent identity theft. One way is to scrutinize e-mails or phone calls that ask for your personal information or financial account information. No legitimate financial institution will ever send an e-mail 8-9 ..
requesting you to supply your account information. That is the number one indicator that the e-mail is a phishing e-mail. You should ignore and delete the e-mail immediately. You can also access www.annualcreditreport.com and receive free copies of your credit reports from the three major credit reporting bureaus to monitor the information about your credit card and financial activities. Phishers are back with a vengeance, armed with some alarming new trickery. Those e-mail scammers who try to fool you into typing your user name and passwords at faked financial web pages have been around in force since 2002. They remain active, though many web users have gotten adept at spotting, and avoiding, ruses to get their financial account logons. However, after a lull at the start of this year, phishing attacks suddenly spiked 200% from May through September, according to IBM’s X-Force research team. Phishers are going after log-ons to web mail, social networking and online gaming accounts, security experts say. With possession of your web mail user name and password, cybercrooks can carry out a matrix of lucrative online capers, made all the easier if you use just one or a handful of the same passwords. They can send out emails that appear to come from you to everyone in your address book to try to get them to divulge passwords. And they can scour your e-mail folders for clues to the social networks and online banks you use, then crack into those accounts—and change the passwords so only they can access them. (“Change Passwords: Crooks Want Keys to Your Email,” Ocohido, Byron, USAToday Online, Oct 27, 2009)
Other ways your identity can be stolen is through evil twins based on wireless network intrusions and pharming, the use of bogus web sites. All of these are classified as computer crimes for which our government is continually passing new laws. Click Fraud All those ads you see on web sites cost the sponsor money. Every time someone clicks on an ad, the sponsor is charged a pay-per-click fee. The fee is based on the popularity of the search words that generated the ad. What if your company is paying for an ad with little or no resultant traffic to your web site? That’s what happens in the case of click fraud. A person or a software program continually hits on the ad, driving up the advertising fees, without any intention of actually visiting the site. The growing ranks of businesspeople worried about click fraud typically have no complaint about versions of their ads that appear on actual Google or Yahoo web pages, often next to search results. The trouble arises when the Internet giants boost their profits by recycling ads to millions of other sites, ranging from the familiar, such as cnn.com, to dummy web addresses like insurance1472.com, which display lists of ads and little if 8-10 ..
anything else. When somebody clicks on these recycled ads, marketers such as MostChoice get billed, sometimes even if the clicks appear to come from Mongolia. Google or Yahoo then share the revenue with a daisy chain of web site hosts and operators. A penny or so even trickles down to the lowly clickers. That means Google and Yahoo at times passively profit from click fraud and, in theory, have an incentive to tolerate it. So do smaller search engines and marketing networks that similarly recycle ads. (BusinessWeek, October 2, 2006) Global Threats: Cyberterrorism and Cyberwarfare As terrorism continues to increase the possibility of physical attacks anywhere in the world, computer systems can be targeted as often as buildings, cars, or trains. Governments realize this and are investigating ways of preventing cyberattacks or minimizing the damage caused to the vast number of networks that are vulnerable. The U.S. government and many of its allies and enemies are working to prevent their systems from cyberwarfare attacks. FBI Director Robert S. Mueller III warned Thursday that the cyberterrorism threat is “real and … rapidly expanding.” Terrorists have shown “a clear interest” in pursuing hacking skills, he told thousands of security professionals at the RSA Conference in San Francisco. “They will either train their own recruits or hire outsiders, with an eye toward combining physical attacks with cyberattacks,” he said. “Al-Qaeda’s online presence has become as potent as its physical presence” over the last decade, he said. Osama bin Laden long ago identified cyberspace as “a means to damage both our economy and our psyche—and countless extremists have taken this to heart,” he said. Terror groups are using the Internet to recruit, radicalize and incite terrorism, he said. They are posting videos on how to build backpack bombs and bioweapons. “They are using social networking to link terrorist plotters and plans,” he said. Mueller also used his remarks to stress that the cyber threat cannot be fought by government alone. He urged companies to come forward and tell authorities when their computer systems have been hacked. “Maintaining a silence will not benefit your or your company in the long run,” he said. (Washington Post, “FBI Director Warns of Rapidly Expanding Cyber Terrorism Threat,” Ellen Nakashima, Mar. 4, 2010) Internal Threats: Employees It is surprising to learn that most computer crime against companies is committed by current or former employees. They know the system best, are entrusted with huge 8-11 ..
amounts of data, and have the easiest access. Managers and executives need to be aware of potential internal threats to their systems and put special measures in place to safeguard systems and data. They also need to impress upon all employees how important security is throughout the system right down to the last person. •
Jesse William McGraw worked as a night security guard at Northern Central Medical Plaza in Dallas where he essentially had free run of the building. While working, McGraw gained physical access to more than ten of the hospital’s computers, including those located in a nurses’ station and controlling the heating, ventilation and air conditioning (HVAC) systems. He enabled the computers to be accessed remotely and removed certain security features (for example, by uninstalling anti-virus programs), which made the entire network more vulnerable to attack. McGraw also installed malicious codes, or “bots,” on several computers. In March 2011, he was sentenced to nine years in prison for installing malware on the facilities’ computers.
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A former computer programmer at Goldman Sachs & Co., was sentenced in March 2011 to 97 months in prison for theft of trade secrets and interstate transportation of stolen property. For just over two years, Sergey Aleynikov was employed at Goldman Sachs as a computer programmer responsible for developing computer programs supporting the firm’s high-frequency trading on various commodities and equities markets. Shortly after 5 p.m. on his last day of employment, Aleynikov transferred substantial portions of the Goldman Sachs’ proprietary computer code for its trading platform to an outside computer server in Germany. He encrypted the files and transferred them over the Internet without informing Goldman Sachs. During the sentencing proceeding, U.S. District Court Judge Denise L. Cote said Aleynikov’s conduct deserved “a significant sentence because the scope of his theft was audacious—motivated solely by greed, and it was characterized by supreme disloyalty to his employer.”
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A federal jury convicted a former Dow Chemical Company employee of stealing trade secrets and selling them to companies in China, as well as committing perjury. According to the evidence presented in court in early 2011, Wen Chyu Liu (also known as David Liou) came to the United States from China for graduate work. He began working for Dow in 1965 and retired in 1992. Liu traveled throughout China to market the stolen information, and court evidence showed that he paid current and former Dow employees for material and information. In one instance, Liu bribed a then-employee with $50,000 in cash to provide Dow’s process manual and other CPE-related information. (Copied from www.maloneynovotny.com/, Dec. 2011)
Password theft is the easiest way for hackers to gain access to a system. No, they don’t come into your office at night and look at the piece of paper in your desk drawer that has your password written on it. They generally use specially written software programs that can build various passwords to see if any of them will work. That’s why you should use odd combinations of letters and numbers not easily associated with your name to create 8-12 ..
your password. The longer the password, the harder it is to replicate. The same password should not be used for more than one access point. Using multiple passwords limits the damage done if a hacker does manage to obtain a single password. Safeguarding individual passwords from social engineering maliciousness is the responsibility of everyone in the organization. An effective way of limiting access to data is to establish computer-generated logs that show every employee who logged on, what they did, what part of the system they accessed, and whether any data were used or updated. Logs are easily created by system software programs and should be periodically reviewed by the information technology staff and department managers. If nothing else, it gives them an idea of what their employees are doing. Software Vulnerability You too can be a millionaire! On the ABC television show “Who Wants to be a Millionaire,” one contestant won the top prize of $1 million by knowing which insect represented a computer “bug.” The term bug, used to describe a defect in a software program, has been around since the 1940s and 1950s. Back then, computers were powered by vacuum tubes—hundreds and thousands of them. Grace Hopper, an early computer pioneer, was troubleshooting a computer that had quit running. When her team opened the back of the computer to see what was wrong, they found a moth had landed on one of the tubes and burnt it out. She coined the term “bug” to describe a problem with computers. Zero-day vulnerabilities are security holes in software code unknown to its creator but through which hackers can enter a system and wreak havoc. It’s called zero day because the software creator has zero days after learning about the hole in which to fix the code. With millions of lines of code, it’s impossible to have a completely error-free program. Most software manufacturers know their products contain bugs when they release them to the marketplace. They provide free updates, patches, and fixes on their web sites. That’s why it’s a good idea not to buy the original version of a new software program but to wait until some of the major bugs have been found and corrected. Because bugs are so easy to create, most unintentionally, you can reduce the number of them in your programs by using the tools discussed in other chapters of the Laudon text to design good programs. Many bugs originate in poorly defined and designed programs and keep infiltrating all parts of the program. Bottom Line: Information systems security is everyone’s business. Understanding the vulnerabilities present in hardware, software, data, and networks, is the first step to good security. The “it won’t happen to me” attitude is trouble. Instituting measures to decrease the bugs and defects in software and data entry can solve many system quality problems.
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8.2 What is the business value of security and control? Transactions worth billions and trillions of dollars are carried out on networks every day. Think of the impact if the networks experience downtime for even a few minutes. And, the problem is far worse than companies may reveal: There is evidence that unknown foreign entities have probed the computer networks of the power grid. Some electrical companies report thousands of probes every month, although we do not know (and it may not make much difference) whether these were cyber crime or part of a military reconnaissance effort. There is also anecdotal reporting that potential military opponents have done the reconnaissance necessary for a cyber attack on the power grid, mapping the underlying network infrastructure and locating potential vulnerabilities.
Military precedent, foreign military publications, and new vulnerabilities combine to suggest that foreign opponents have added cyber attack on the power gird to their portfolio of possible actions in a conflict with the United States. Perhaps a better way to express this is that the United States cannot safely assume that it is not vulnerable to cyber attacks on its electrical grid, and should consider how it might improve its ability to defend theses networks. (“The Electrical Grid as a Target for Cyber Attack,” James Andrew Lewis, Center for Strategic and International Studies, March 2010) If a business doesn’t adequately protect its systems for any other reason, it should just to avoid expensive and time-consuming legal action. The national retailer T.J. Maxx was forced to spend about $200 million in litigation and damage costs after it experienced a serious security breach in 2008. The money could certainly have been put to better use. Data breaches in other retailers’ systems have cost as much as $1 billion dollars. Legal and Regulatory Requirements for Electronic Records Management Because so much of our personal and financial information is now maintained electronically, the U.S. government is beginning to pass laws mandating how the data will be protected from unauthorized or illegal misuse. Congress has passed several measures outlining the requirements for electronic records management: • • •
HIPAA: Protects medical and health care data. Gramm-Leach-Bliley Act: Requires financial institutions to ensure the security and confidentiality of customer data. Sarbanes-Oxley Act: Requires companies and their management to safeguard the accuracy and integrity of financial information that is used internally and released externally. 8-14 ..
All of these laws are in response to computer crimes and abuses that businesses or individuals have committed or experienced. It’s very difficult to pass the laws and costly for businesses who struggle to comply with them. Electronic Evidence and Computer Forensics Several things are happening in the corporate world that are changing the requirements for how companies handle their electronic documents: 1) Companies are communicating more and more with e-mail and other forms of electronic transmissions, and 2) Courts are allowing all forms of communication to be held as evidence. Therefore businesses must develop methods of capturing, storing, and presenting any and all electronic communications including e-mail, instant messaging, and e-commerce transactions. Computer forensics is a growing field because of the increasing digitization of documents and communications. Many people believe that just because they delete a file from a computer file directory that it’s no longer available or recoverable. That’s a false belief. Ambient data remains on hard drives in magnetic form long after it’s apparently been deleted. People trained in computer forensics are able to uncover ambient data and other forms of electronic evidence that can be used in courts of law. Businesses and employees must increase their awareness of the necessity for keeping good records. Bottom Line: Regardless of where or how electronic transmissions were generated or received, businesses are now responsible for making sure they are monitored, stored, and available for scrutiny. These new requirements significantly change the way businesses view their information resources.
8.3 What are the components of an organizational framework for security and control? How do you help prevent some of the problems we’ve discussed? One of the best ways is to institute controls into your information system the same way you might in any other system; through methods, policies, and procedures. Information Systems Controls Think about what a typical company does when it builds a new office building. From the beginning of the design phase until the building is occupied, the company decides how the physical security of the building and its occupants will be handled. It builds locks into the doors, maybe even designs a single entry control point. It builds a special wing for the executive offices that has extra thick bulletproof glass. There are fences around the perimeter of the building that control the loading docks.
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These are just a few examples to get you to think about the fact that the company designs the security into the building from the beginning. It doesn’t wait until everything is built. You should do the same thing with an information system. It’s no different from any other system that requires planning and well-thought-out policies and procedures before construction begins. The two types of information system controls are: • •
General controls: Software, physical hardware, computer operations, data security, implementation process, and administrative. Table 8.4 describes each of these. Application controls: Input, processing, and output.
Interactive Session: Organizations: The Flash Crash: A New Culprit (see page 311 of the text) describes what can happen when internal controls are not adequately instituted and systems are left vulnerable to manipulation.
Risk Assessment Companies and government systems constantly use risk assessment to determine weak links in their physical building security. You can use the same methodology to assess the risk in your information system. Use risk assessment to set up cost comparisons for 8-16 ..
developing and maintaining security against the loss potential. It’s done all the time in other systems, so use it for your information system as well. Security Policy Companies spend a lot of money on physical security such as locks on doors or fences around supply depots. They need to do the same thing for their information systems. Because of the increasing liability for security breaches, many companies are now establishing a chief security officer position to help ensure the firm maximizes the protection of information resources. Some tools available to the CSO are: • • •
Security policy: Principle document that determines security goals and how they will be achieved. Acceptable use policy: Outlines acceptable and unacceptable uses of hardware and telecommunications equipment; specifies consequences for noncompliance. Identity management system: Manages access to each part of the information system.
Identity management is one of the most important principles of a strong, viable security policy. It includes: • Business processes and software tools for identifying valid system users. • Controlling access to system resources. • Policies for identifying and authorizing different categories of system users. • Specifying what systems or portions of systems each user is allowed to access. • Processes and technologies for authenticating users and protecting their identities Figure 8.3 shows how an identity management system would limit access for two different users.
Figure 8.3: Access Rules for a Personnel System 8-17 ..
Disaster Recovery Planning and Business Continuity Planning Floods, fires, hurricanes, even tsunamis, happen without a moment’s notice. Perhaps the most important element of a successful system is a disaster recovery plan. Some firms, not just in New York City and Washington D.C. but around the world, discovered the necessity for a well-written and tested plan on September 11, 2001. Those firms that had completed business continuity planning were able to carry on business, while those that hadn’t, spent days and weeks recovering from the terrorist attacks. It’s important that managers and employees work with information system technicians to develop these plans. Too much is at stake to leave the planning process to one group or the other. The Role of Auditing Companies audit their financial data using outside firms to make sure there aren’t any discrepancies in their accounting processes. Perhaps they audit their supply systems on a periodic basis to make sure everything is on the up-and-up. They should also audit their information systems. After all, information is as an important resource as any other in the organization. Information Systems audits verify that the system was developed according to specifications, that the input, processing, and output systems are operating according to requirements, and that the data is protected against theft, abuse, and misuse. In essence, an MIS audit checks all the controls we’ve discussed in this chapter. Bottom Line: General and application controls help protect information systems. Risk assessments help determine which assets require protection and how much protection they need. Business continuity and disaster recovery planning are more important than ever for businesses.
8.4 What are the most important tools and technologies for safeguarding information resources? Let’s look at some of the ways a firm can help protect itself. Identity Management and Authentication Continuous headlines telling of hackers’ exploits in the past year should be enough to convince every company of the need to install firewalls, identity management systems, and other security measures. With the installation of cable modems or DSL lines, home users must follow the same guidelines. These new connections, which leave your personal computer “always on,” are just as vulnerable to attacks as corporate systems. 8-18 ..
If you allow employees to keep certain data on their machines that are not backed up to the mainframe computer, you need to ensure that safeguards are installed on the individual PCs. Make sure you have controls in place for access to individual data, backing it up, and properly protecting it against corruption. Do you even have a policy about whether employees can store data on their individual terminals? In corporate systems, it’s important to ensure authentication methods are in place so that unauthorized users can’t gain access to the system and its data. Access can be granted in one of three ways: something you know—passwords; something you have—tokens or smart cards; something you are—biometric authentication. Because most simple password systems are too weak and make the system too vulnerable, security experts are devising new methods to control access. Tokens and smart cards are small, physical devices individuals use to securely access information systems. Biometric authentication is becoming more popular as a method of protecting systems and data as the technology is refined. While you may have seen the fingerprint or facial recognition techniques only on sci-fi movies, rest assured it may be the next wave of security that’s installed in your organization. Because it’s quite easy to break through one means of authentication, namely a straightforward password system, two-factor authentication is becoming more popular. It requires two forms of authentication like a bank card (one form) that needs a PIN number (second form) for access. Firewalls, Intrusion Detection Systems, and Antivirus Software The four types of firewalls described in the text are: • Packet filtering: Data packet header information is examined in isolation. • Stateful inspection: The actual message comes through the firewall but must be identified by the user as passable. • Network address translation (NAT): Conceals IP addresses and makes it more difficult to penetrate systems. • Application proxy filter: Sort of like a fence through which a substitute message passes. Intrusion Detection Systems Firewalls can deter, but not completely prevent, network penetration from outsiders and should be viewed as one element in an overall security plan. In addition to firewalls, digital firms relying on networks use intrusion detection systems to help them protect their systems.
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In March 2002, Wright Patterson Air Force Base, Ohio, reported more than 250,000 unauthorized attempted entries into its computer systems by hackers in a 24-hour period. The intrusion detection systems it had in place allowed authorities to track the hacker attempts and thwart damage to its critical data and systems. Antivirus and Antispyware Software Whether you use a stand-alone PC or your computer is attached to a network, you’re just asking for trouble if you don’t have antivirus software. This type of software checks every incoming file for viruses. Not if, but when, you receive an infected file, the software alerts you to its presence and usually quarantines it until you decide what to do with it. You can choose to delete the file or “clean” it. Make sure you update your antivirus software at least once a week because new viruses are constantly being written and passed around. Some antivirus software companies now make it very easy to keep your antivirus software current through online updates. McAfee.com will detect when you are online and notify you when new updates are available. With a few mouse clicks, you download the software to protect against the newest viruses. Unified Threat Management Systems It’s a daunting task to individually manage all the security tools available to business. Unified threat management technologies help organizations by providing all of them in one comprehensive package. It’s a great way for small- and medium-size organizations to ensure they cover all the security vulnerabilities in their systems. Securing Wireless Networks It’s important for Wi-Fi users to protect their data and electronic transmissions as wireless networks and their access points proliferate around the country. Security is easily penetrated because of the very nature of the spectrum transmission used in Wi-Fi. Unless users take stringent precautions to protect their computers, it’s relatively easy for hackers to obtain access to files. Stronger encryption and authentications systems for WiFi than the original Wired Equivalent Privacy (WEP) are included in newer computer models. Wi-fi Protected Access (WPA) improves security on wireless networks but individual users still carry the responsibility to make sure passwords are changed from the original and encryption systems are used to help protect data. Encryption and Public Key Infrastructure Most people are reluctant to buy and sell on the Internet because they’re afraid of theft, fraud, and interception of transactions. To help ease the mind and make transactions secure, many companies are using very sophisticated methods of protecting data as they travel across the various transmission mediums through the use of encryption.
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The standard methods of making online transactions more secure are Secure Socket Layers, Transport Layer Security (TLS), and Secure Hypertext Transport Protocol. The next time you’re on an e-commerce or e-business web site, look in the address text box of your browser and notice if the address begins with https. If so, the site incorporates one of these two security measures. Watch any World War II movie and you’ll see episodes of the good guys intercepting coded messages from the enemy. The messages were scrambled and almost impossible to interpret. But the good guys always won out in the end and unscrambled the message in time to save the world. Now we use sophisticated software programs to encrypt or scramble transmissions before they are sent. The sender and recipient have special software programs they can use to encode and decode the transaction on each end.
Figure 8.6: Public Key Encryption This figure shows you how public key encryption works using two keys: one public and one private. The keys are created through complicated mathematical formulas. The longer the key, the harder it is to decipher. That’s the whole point of encryption. Encryption software programs incorporate authentication and message integrity in its program to ensure senders and receivers are protected against many of the computer crimes committed on networks and the Internet. Another way of providing authenticity to network transmissions is by using a digital certificate. Just as your personal signature is connected to you, a digital certificate provides a way of proving you are who you say you are. GlobalSign.com has lots of information about its digital certificate product and other useful information about this technology. You can get a demo certificate, find someone’s certificate, or get more information about how to use your own certificate.
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Figure 8.7 Digital Certificates
Public key infrastructure (PKI) is another method for providing secure authentication of online identity and makes users more comfortable transacting business over networks. Ensuring System Availability Many companies create fault-tolerant computer systems that are used as back-ups to help keep operations running if the main system should go out. These back-up systems add to the overall cost of the system—but think about the losses if the system experiences a significant period of downtime. Add the cost of lost productivity by employees to lost transactions and unhappy customers; you do the math. Just imagine what would happen if an airline reservation system (a typical online transaction processing system) went down. Have you ever called a company to place an order for a new dress and it couldn’t take your order because the computer was down? Maybe you called back later, and maybe you didn’t. Controlling Network Traffic: Deep Packet Inspection Network data traffic takes many different forms, from simple text file transfers to massive audio or video file transmission. Obviously, the small text files take up less bandwidth and can be transmitted faster than the larger files. Deep packet inspection technologies help identify which types of files are being transferred and delay those that hog the network. It makes sense to a point except when the technology is misused or abused.
In the net neutrality debate, Internet Service Providers like AT&T and Verizon, have said they need to charge content providers for prioritization
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so they can invest in improving infrastructure: faster Internet service for all, they say. But placing a price on prioritizing content creates an inherent disincentive to expand infrastructure. ISPs would profit from a congested Internet in which some content providers will be more than willing to pay an additional fee for faster delivery to users. Content providers like the New York Times and Google would have little choice but to fork it over to get their information to end users. But end users would be unlikely to see the promised upgrades in speed. Those are some of the results of research we conducted on the Internet market. Despite the fierce back-and-forth on net neutrality, there is a surprising lack of rigorous economic analysis on the topic. To change that, we built a game-theoretic economic model to address this question: Do ISPs have more incentive to expand their infrastructure capacity when net neutrality is abolished? This is a key claim, used widely by ISP companies in arguing against maintaining a net neutral Internet. The money from fees levied on content providers, they say, would be incentive to improve and expand infrastructure. In this argument, web surfers gain access to a faster Internet. But our analysis shows that if net neutrality were abolished, ISPs actually have less incentive to expand infrastructure. (“Traffic Jams, ISPs, and Net Neutrality,” http://gigaom.com, Nov 13, 2011) Security Outsourcing If your company lacks the internal resources to adequately plan for disaster, you can use an outside source such as managed security service providers. They may be better at the necessary planning and offering appropriate hardware and software resources because they specialize in such things. Security Issues for Cloud Computing and the Mobile Digital Platform The concept of cloud computing sounds like nirvana to many companies. Someone else takes the responsibility of building and maintaining very expensive information systems. Someone else spends the money and time to ensure the systems are up-to-date and use the latest technology. You pay only for what you use. Sounds great until you consider the flip side of the coin. Just how secure is your data stored in the clouds? Security in the Cloud
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Regardless of where your company stores its data, performs data processing, or how it transmit data to and from, your company is ultimately the only one who is responsible for security. Even if a cloud provider has every security certification in the book, that’s no guarantee your specific servers, apps, and networks are secure. When it comes to, say, compliance with the credit card industry’s PCI DSS (Payment Card Industry Data Security Standard) a retailer or credit card processor is audited on how well their servers and applications are deployed on the platforms provided by a cloud vendor such as Amazon or Google. “If you set up your applications badly,” says Staten, “it doesn‘t matter how secure the platform you’re running on is.” Securing Siemens’ cloud environment required looking at IT “from the outside in” and securing every conceivable path by which a user could access critical information, says Kollar. Securing each platform was not a significant challenge, he says, but ensuring all the needed security technologies worked together was. Staten says it may require “architect-to-architect” sit-downs to assure a vendor hasn’t, for example, cut costs “by simply giving each customer their own table space in the same database,” as that would allow any customer to see any other customer’s data. (InfoWorld, “Busting Cloud Computing Myths,” Scheier, Robert L., Jun 22, 2009) Securing Mobile Platforms Hackers don’t discriminate when it comes to targeting computing devices. They will go after your unprotected smartphone just as gladly as they will your desktop or laptop computer. Don’t leave yourself an easy target. As Internet telephony and mobile computing handle more and more data, they will become more frequent targets of cyber crime. From the outset, VoIP infrastructure has been vulnerable to the same types of attacks that plague other networked computing architectures. When voice is digitized, encoded, compressed into packets and exchanged over IP networks, it is susceptible to misuse. Cyber criminals will be drawn to the VoIP medium to engage in voice fraud, data theft and other scams—similar to the problems e-mail has experienced. Denial of service, remote code execution and botnets all apply to VoIP networks, and will become more problematic for mobile devices as well. Patrick Traynor, an assistant professor in the School of Computer Science at Georgia Tech and a member of GTISC, discussed the concept of the “digital wallet,” in which smartphones store personal identity, payment
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card information and more. Already in Japan, people use their cell phones at vending machines and subway token dispensers. According to Traynor, “malware will be injected onto cell phones to turn them into bots. Large cellular botnets could then be used to perpetrate a DoS attack against the core of the cellular network. But because the mobile communications field is evolving so quickly, it presents a unique opportunity to design security properly—an opportunity we missed with the PC.” (Georgia Tech Information Security Center, “Emerging Cyber Threats Report for 2009,” www.gtisc.gatech.edu/pdf/CyberThreatsReport2009.pdf accessed Nov 2009) Interactive Session: Technology: BYOD: A Security Nightmare? (see page 325 of the text) points out security issues each smartphone user needs to be concerned about. With more than 1.25 million apps available for download, the potential for security abuses is huge.
Ensuring Software Quality There are two methods to help improve software programs and ensure better quality of them. The first one, software metrics, allows IS departments and users to measure a system’s performance and identify problems as they occur. You could measure the number of transactions that are processed in a given amount of time or measure your company’s online response time. As with any other type of metric, software metrics must be carefully designed, formal, objective, and used consistently. Testing software for bugs and the inevitable errors is so important and yet, so often overlooked. The two best methods of testing are walkthroughs and debugging. Walkthroughs are done before the software is written. Obviously, debugging is done after software is written when errors are found. Bottom Line: Some of the technologies and tools businesses use for security and control include access control, firewalls, intrusion detection systems, antivirus software, and encryption. The tools available for ensuring business continuity include fault-tolerant systems and high-availability computing. Security is everyone’s concern throughout the organization.
Discussion Questions: 1. Discuss why wireless networks are more susceptible to security problems and how businesses can protect them. 2. Discuss the security issues associated with cloud computing and what cloud users should do about them. 8-25 ..
3. Discuss the threat employees pose to information system security. 4. Discuss three laws recently passed by the U.S. government that created electronic records management obligations for businesses. 5. Discuss the elements of a good security policy that every business should have.
Answers to Discussion Questions: 1. Wireless networks are more susceptible to security problems because they are built on the 802.11 standard of transmission that allows computing devices to easily connect with one another and transfer data. The service set identifiers (SSID) identifying the access points in a Wi-Fi network are broadcast multiple times and can be picked up fairly easily by intruders’ sniffer programs. Corporations can protect their wireless systems through a combination of Wired Equivalent Privacy (WEP) and virtual private network technology. 2. Cloud users are still responsible for their data, how it’s processed and stored, and how it’s transmitted. Most cloud providers will not assume security risks for user data. Some of the ways cloud users can address these issues is to develop a service level agreement that includes documentation addressing security issues and make sure they understand what they will be responsible for versus what the cloud provider will do. 3. Employees pose serious threats to a security system because of lack of awareness about security vulnerabilities. Employees fail to adequately safeguard their passwords leaving the system open to theft and misuse of data. Employees may enter faulty data into the system or fail to process data correctly. They also can misuse and abuse an organization’s hardware, software, and data. 4. Three major laws recently passed by the U.S. government to help make data and information more secure include the HIPAA (Health Insurance Portability and Accountability Act), the Gramm-Leach-Bliley Act, and the Sarbanes-Oxley Act. 5. Security policies should cover acceptable use, user authorization, and identity management systems. The policy should include statements ranking information risks, identify acceptable security goals, and identify mechanisms for achieving the goals. The policy should describe who generates and controls information, what existing security policies are in place to protect information, what level of risk management is willing to accept for each asset, and estimates of how much it will cost to achieve an acceptable level of risk.
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Management Information Systems, 15E Laudon & Laudon Lecture Notes by Barbara J. Ellestad
Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications Over the last decade businesses have come to realize how important it is to totally integrate business processes across the enterprise. We’ve spoken about “islands of information” many times. In today’s fast-paced world, managing information assets is more important than ever before. In this chapter we’ll look at how important it is for information to be available in every nook and cranny of an enterprise.
9.1 How do enterprise systems help businesses achieve operational excellence? We’ve look at enterprise resource planning systems in previous chapters and also discovered the importance of efficiently and effectively maintaining data that businesses can develop into useful information. As we’ve seen, it can be disastrous for an organization to have more than one set of data for customers, employees, and suppliers. The best idea is to have one database that supplies information where and when necessary across functional lines. Everyone from employees to managers, from customers to suppliers, would have the necessary tools to extract the data that they need and present it in the format that fits them best. That’s where enterprise systems come in. What Are Enterprise Systems? Enterprise systems aim to correct the problem of firms not having integrated information. Also known as enterprise resource planning (ERP) systems, their main goal is to bridge the communication gap among all departments and all information users within a company. If production enters information about its processes, the data are available to accounting, sales, and human resources. If sales and marketing is planning a new advertising campaign, anyone anywhere within the organization will have access to that information. Enterprise systems truly allow a company to use information as a vital resource and enhance the bottom line. Data integration throughout the firm is the key. Consolidated data from divisions and departments throughout the business, including key business processes, are immediately available to any authorized user. The greatest enticement of enterprise systems is the
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chance to cut costs firm wide and enhance the ability to pass information throughout the organization. Enterprise Software Many businesses assume that their operations are totally integrated across functional lines. After all, manufacturing responds to an order from sales and produces a product for which accounting and finance sends an invoice. A production manager sends an e-mail to the human resources department requesting five new employees. When the marketing department decides on a new advertising campaign, a copy of the brochure is included in each employee’s pay envelope at the end of the month. Once a week all department managers meet with the executive staff and review statistics from last month’s business. What’s the problem? Many times, departments fail to fully communicate with all the other departments about every process that is taking place in a company. They don’t do it on purpose but forget how important total communication about every process and every piece of data is. Sales sends an order to manufacturing with a shipment date that can’t possibly be met. Accounting and finance pays a bill for supplies that production never ordered. Human resources holds a training class that interferes with a rush production job. What’s the solution? Enterprise software allows every functional area to share every process and every piece of data. A business can select specific processes in specific areas but eventually everything the company does will be shared across all lines. The software uses predefined processes and requires the company to adapt itself to the software. While many companies may balk at having to change, the software is designed around the best practices for that particular function. The company can benefit from using the most successful solutions in a particular industry to help achieve its objectives. The software helps the organization automate many of the steps taken from industry-wide best practices instead of having to do everything manually. And best of all, the software will help employees remember all of the necessary steps in a process and provide the data to all who need it. Table 9.1 is a list of the most common, most popular business processes that are automatically included in a typical enterprise system.
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Although enterprise software can be somewhat modified, it is very expensive and very difficult to do so. Because the software is so complex, changing just one of the processes may disrupt some of the other interdependent modules. However, manufacturers of the enterprise software programs are modifying the software to envelop Internet services and make the data available to external sources such as suppliers, governmental agencies, and customers. Business Value of Enterprise Systems Done correctly, enterprise systems can offer big rewards. Conversely, done incorrectly they can cause a firm huge headaches, loss of business, employee turmoil, and wasted dollars. The changes in the enterprise will be tremendous: • • •
Management: Improved management decision making, with a comprehensive view of performance across all functional areas. More efficient operations and customer-driven business processes: All functional areas can focus more on the customer and respond to product demand more efficiently. A more uniform organization: A more disciplined approach to business throughout the entire firm, regardless of physical location and/or organizational structure.
Bottom Line: Enterprise systems force a company to fully integrate all business processes. These systems usually require massive changes in the structure and organization of a business and are difficult to implement. However, the changes can make a tremendous improvement in a firm by using the best practices of the industry and requiring all functional areas to focus more on the customer.
9.2 How do supply chain management systems coordinate planning, production, and logistics with suppliers? Oh, for the days when the old saying “the customer is king” was just a catch phrase. Now, it’s an absolute reality and companies that don’t live up to the phrase will get creamed in the marketplace. There are no more separate entities or distinct lines in the sand when it comes to integrating supply chains. It’s more like shifting sand. The Supply Chain A supply chain is similar to a spider’s web. It includes all of the internal functions of an organization, along with suppliers, distributors, retailers, and customers. They are all 9-3 ..
intertwined and rely on information from one another to effectively meet the business’s objectives. Exactly what are all the activities involved in getting a product from conception to delivery? There are probably many more than you can easily think of. And there are many more people involved than you might imagine. It may be helpful to break the supply chain into three distinct groups: • • •
Upstream: Suppliers that deal directly with a manufacturer and their suppliers. Downstream: Distributors and those that deliver products to customers. Internally: The employees that transform materials, components, and services into the actual products.
Think of a mountain stream that starts very small, flows downhill, gathers more water as it combines with other streams, feeds into a river that continues to flow and eventually meets up with other rivers, and on into the ocean. The mountain stream is analogous to suppliers, the river represents manufacturers, and the ocean can be compared to customers. Information Systems and Supply Chain Management As with other functional areas, information is the glue that holds the supply chain together. Lack of or faulty information can wreak havoc on the entire chain from getting supplies into the manufacturing process and getting the final product to the customer. In a perfect world, just-in-time strategies for ordering and delivering supplies would be an ordinary process. Unfortunately, we don’t live in a perfect world. Natural disasters, dockworker strikes, and terrorist activities such as September 11, 2001, can disrupt even the most carefully planned supply chains in an instant. Businesses have to plan as best they can around these kinds of events but they can’t foresee every problem. The bullwhip effect on the supply chain is more natural than you might think and happens in virtually every industry. PC makers insist their inventories are in good shape. But there are signs of trouble further down the supply chain. Analysts were taken aback to learn that the Taiwan companies that make the guts of notebooks for market leaders Hewlett-Packard Co. and Dell Inc. saw February sales plunge 10% to 15%. What’s going on? PC makers, encouraged by robust 35% growth in thirdquarter notebook unit sales and signs of even stronger holiday demand, ramped up their orders from Taiwan by a staggering 68%, according to the Taipei-based Market Intelligence Center. But while the sales surge kept going through the fourth quarter, analysts fear that the sudden drop in 9-4 ..
supplier orders means that the pace has slipped in the first quarter of this year. Analysts add that PC makers incorrectly assumed that laptops were so hot that they were immune from the post-Christmas sales slump that has traditionally afflicted desktops. (BusinessWeek, March 15, 2004)
In the example of the bullwhip effect explained above, if the PC makers had been able to pass timely and accurate information to their parts suppliers, perhaps the sudden swing in supplying computer parts could have been avoided. Many companies don’t want to give up too much of their information because they fear that outsiders will compromise the information. Unfortunately, this way of old-style thinking costs too much money in terms of lost opportunities, overstocked and underused parts, and overpriced products. Supply Chain Management Software Supply chain planning systems can provide information up and down the chain and help everyone involved do a better forecasting job. In the example above, the information could pass more easily between the PC retailers and the parts suppliers. While the retailers were still remiss in accurately forecasting PC sales for the first quarter, the parts suppliers could have altered their manufacturing schedules quicker and avoided the huge inventory build-up. Supply chain planning systems enable firms to: • • • • • • • •
Generate demand forecasts. Develop sourcing and manufacturing plans. Share information about changes easier and faster so work can be better coordinated. Develop better demand planning that matches production closer with customer demands. Manage the flow of products through distribution centers and warehouses by using supply chain execution systems. Coordinate activities with supply chain partners. Handle complex interdependencies among various supply chain processes. Allow users to balance the costs of transportation, delivery, and handling.
Global Supply Chains and the Internet The islands of information that we’ve frequently mentioned don’t exist just inside the corporation but also exist all up and down the supply chain. Adapting the supply chain software to the Internet and opening up information to suppliers, logistical experts, and distributors can greatly help a company reduce costs and ensure products are delivered when needed to the right location. It won’t help a company’s bottom line to have 1000 parkas delivered to Arizona in March when upstate New York is suffering through a difficult winter. 9-5 ..
The same type of internal collaboration that organizations can generate through intranets can be extended to supply chain partners through extranets. Suppliers can log on to a company’s extranet site and review next week’s production schedule. The supplier can ensure enough production supplies are delivered to a manufacturer without over- or under-extending itself. Changes to the production schedule can be communicated easier to suppliers through Internet-enabled applications. Long-term forecasts can be posted to an extranet and schedules adjusted. No expensive proprietary systems are necessary because all information is transmitted through ordinary web-based applications. Internal and external users can use online applications to view delivery schedules or determine the optimal logistics for moving products. Global Supply Chain Issues Some of the issues businesses will face if they choose to use global supply chains are: • • • • •
Greater geographic distances and time differences Additional costs for transportation, inventory, and local taxes and fees Varying performance standards Foreign government regulations Cultural differences
Although the Internet helps suppliers, manufacturers, and partners communicate easier through e-mail, faxes, or phone calls, those communication methods open the door to errors or mistakes. Using web-based supply chain management systems gives all the players a way to make data and information more easily available through browsers and portals. Using the Internet helps mitigate some of these issues, but it’s not a panacea for all of them. Companies must still deal with foreign governments and cultural differences for which there are no easy answers or Internet applications. Demand-Driven Supply Chains: From Push to Pull Manufacturing and Efficient Customer Response Traditionally, customers purchase whatever products are available. Although colors, sizes, and prices may vary somewhat, generally a manufacturer decides what to produce by forecasting what the potential demand might be through a push-based model. That is quickly changing to a pull-based model in which the customer tells the manufacturer ahead of time what he/she wants to buy. One of the best examples of this new pull-based model is Dell Computer’s build-to-order business model. Dell doesn’t build a computer until it receives a customer order. Then it builds the computer to the customer’s specifications. Granted, the customer must choose from a pre-determined list of options, but Dell doesn’t have a huge stock of unsold inventory that no one wants based on faulty demand forecasting. 9-6 ..
Figure 9.4 below shows the differences between the push-based and pull-based supply chain models.
Figure 9.4: Push- vs. Pull-Based Supply Chain Models Automobile manufacturers are also adopting pull-based modeling for their customers. A customer in Des Moines can log onto a web site and select the color, engine, options, and kind of tires for his/her new car. The order is sent to the factory in Detroit and the manufacturer’s suppliers simultaneously. Although the customer must wait for delivery, at least he/she will get exactly the car they wanted. Figure 9.5 diagrams an Internetdriven supply chain.
Figure 9.5: The Emerging Internet-Driven Supply Chain
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Business Value of Supply Chain Management Systems The benefits of implementing an integrated, networked supply chain management system include: • • • • •
Match supply to demand Reduce inventory levels Improve delivery service Speed product time to market Use assets more effectively
In turn a company can: • • • •
Improve customer service and responsiveness Reduce costs Increase sales Utilize cash better
These last four benefits of implementing a supply chain management system point directly to improving the bottom line for the company. By making the supply chain more efficient a company can save millions of dollars, improve its relationships with its customers, and sell more products. Interactive Session: Management: Logistics and Transportation Management at LG Electronics (see page 350 of the text) shows the importance of having timely access to concise information and not just data. Management needed increased logistics visibility so that it could preempt bottlenecks rather than fashioning reflexive, and often imprudent, remedies.
Bottom Line: Supply chain management systems integrate all of the processes by supplying information to all entities involved in the chain. More precise, current information allows organizations to improve demand forecasting and better measure the performance effectiveness of a supply chain. Better information also allows a firm to move from push-based to pull-based modeling.
9.3 How do customer relationship management systems help firms achieve customer intimacy? In the past, CRM served a simple purpose inside your enterprise: It kept track of your customers, their addresses and their orders. Now, though, there’s far more that comes under the CRM umbrella, from connecting 9-8 ..
with your customers through social media to being able to instantly transmit customer data to a call center agent when customers call in for help. That’s why it’s a good idea to regularly take a close look at your CRM infrastructure: With all the new functionality available in CRM tools today, you need to determine if your existing system is still meeting the needs of your business and customers. But while your CRM applications and all of your data are critical, the real analysis has to start with the customer relationship strategy inside your enterprise, says Mary Wardley, an analyst with IDC. Without knowing what you want, where you’ve been and where you are going, it will to be hard to reach your goals, she says. “One of my main tenets regarding CRM as a discipline is that you have to have a CRM strategy inside your organization, regardless of whether you even have CRM applications ” Wardley says. “No matter what kind of company you are, you must have a customer relationship management strategy because that is your customer service strategy.” With a CRM strategy in place, you can then bring CRM applications into the discussion to ensure that they support your strategy and help you meet corporate goals, from sales to revenue to market share. (“Is Your CRM System Meeting Your Enterprise Needs?,” CIO.com, Todd R. Weiss, June 29, 2011) Although many companies strive to be “customer-centric” very few have been able to completely focus every functional area of the organization on the customer. Largely due to new avenues of information customers have through the Internet, organizations must fight harder to keep the customers they work so hard to get in the first place. What Is Customer Relationship Management? The goals of customer relationship management systems are to optimize customer satisfaction and customer retention, which in turn will maximize revenue and profitability. Many companies are overloaded with data about customers. Unfortunately, too many companies don’t have any useful information that can help them increase customer satisfaction and retention, thereby increasing revenues and profitability. The ability to turn raw data into useful information is where CRM systems shine. CRM systems gather customer information from all corners of a business, consolidate the information and then provide it to all of the organization’s customer touch points. By offering a consolidated viewpoint of the customer to these touch points, a company can cater to the customer that offers the most profitability. 9-9 ..
Financial institutions are a prime example of how effective CRM systems can be to help identify the customers that offer the most “bang for the buck.” Most of the larger banks offer more than just checking and savings accounts. They provide investment services, insurance policies, and loans. It’s much cheaper for Wells Fargo bank for instance, to provide its current customers with all of these financial products, rather than try to attract new customers for each of the separate product lines. Information gleaned from a CRM system provides Wells Fargo with information about which customers are more likely to purchase these products and its sales force targets that market better. Customer Relationship Management Software CRM application software ranges in size and complexity making it possible for an organization to select the type of software it needs the most. Modules focusing on partner relationship management or employee relationship management can be integrated into the customer relationship management software at a later date. Partner relationship management systems are a reflection of internal customer relationship management systems but extend past the immediate borders of a firm to its selling partners. For instance, Levi’s Jeans doesn’t sell directly to its customers but rather through other retail outlets. How Levi’s partners cater to the customer directly affects its profitability. Therefore, Levi’s is very interested in sharing information about its customers with its partners to increase sales of its products. Using partner relationship management systems not only helps Levi’s but also its retailers. Employee relationship management modules associated with CRM focus more on how employees perform and interact with customers. These modules help a company manage: • Employee objectives • Employee performance • Performance-based compensation • Employee training Some of the more common capabilities of CRM software are: • Sales force automation: Allows the sales force to focus on the most profitable customer. It also reduces the cost per sale for acquiring new customers and retaining old ones. Improves sales forecasting, territory management, and team selling. • Customer service: Gathers information from a variety of sources and makes it available across organizational functions so that data is input only once. Includes web-based self-service capabilities. • Marketing: Allows companies to engage in cross-selling, up-selling, and bundling through better analysis of customer data. Figure 9.8 shows how customer data feeds into these three functions. 9-10 ..
Figure 9.8 CRM Software Capabilities Operational and Analytical CRM It’s important to understand the difference between the operational and analytical aspects of CRM systems. Operational CRM includes everything a company should provide those employees who interface directly or indirectly with the customer: the sales force, call centers, and support activities. Managers and decision makers use the analytical CRM to help them improve business performance. The analytical CRM uses data from the operational CRM and provides managers with the opportunity to target smaller, specific customer groups or market segmentation. Rather than trying to blanket a huge group of potential customers, many of whom are not interested, managers use the analytical CRM to focus their efforts on those customers who can offer the most profit at the least cost. One of the most important benefits of analytical CRM is the ability to determine the customer lifetime value (CLTV). The text mentions that it costs six times more to gain a new customer than to keep an old one. By measuring the CLTV of customers, organizations can calculate customer profitability and determine which customers they should cater to.
Interactive Session: Organizations: Customer Relationship Management Helps Celcom Become Number One (see page 357 of the text) describes how the business improved its customer relationship management and was able to respond much 9-11 ..
more rapidly to customers. The company is much closer to achieving its brand vision: pleasing its customers and exceeding their expectations. Business Value of Customer Relationship Management Systems As the old saying goes, “We’re wasting half of our advertising budget; we just don’t know which half.” CRM software will help managers better understand their customers thereby helping them make better decisions about product lines and marketing campaigns. CRM systems can also help reduce the customer churn rate and identify which customers are most profitable. Hopefully, CRM will help them discover which half of the ad budget is wasted. Once again, the benefits of using CRM systems are worth the challenges you’ll face. Benefits: • • • • • •
Increased customer satisfaction Reduced marketing costs More effective marketing Lower costs for customer acquisition and retention Increased sales revenue Better response to customer needs
Bottom Line: Customer relationship management systems allow a firm to focus all of its energy and attention on developing profitable customers and foregoing unprofitable ones. Useful information produced by CRM systems allow firms to improve business performance while reducing costs associated with gaining and retaining customers. Information can be shared internally and externally.
9.4 What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies? Before implementing enterprise application systems, organizations need a very clear picture of where they are now and where they want to go. Organizations must decide which processes provide the most value and which processes need the most improvement. And the firm must allocate the organization resources where they are most needed. Enterprise Application Challenges
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The return on investment to companies that implement enterprise systems can be enormous in terms of enhanced information among suppliers, employees, customers, and business partners. The better the information is, the better the decisions. The better the information is, the better the products and services are for the customer. More customers lead to higher profits for the company (hopefully). Hang on for a rough ride: •
•
• • •
Daunting Implementation: Technological and fundamental changes will pervade every corner of the organization. The organizational structure and culture will change. The most daunting task will be retraining thousands of workers and convincing them the change is good. It will be easier to fail than to succeed. High Up-Front Costs and Future Benefits: There is no such thing as an overnight success when implementing an enterprise system. On average, it takes three to five years to fully implement an enterprise system. And, the software is very expensive—very expensive. Keeping the firm on track and focused on the end result is more difficult than most firms anticipate. Data Management: It’s more important than ever before. Now that one database serves the entire organization, if data are mismanaged, it will affect every business function and process. Inflexibility: Making changes in one area of the business is much more difficult after implementing an enterprise system. The software is just too complex to easily change. Realizing Strategic Value: Businesses that rely on unique or cutting-edge processes to gain a competitive advantage may lose that edge with enterprise system software.
Next-Generation Enterprise Applications As companies get more comfortable with supply chain management and customer relationship management programs they realize the importance of branching out to enterprise solutions, enterprise suites, or e-business suites. Software manufacturers are creating these programs and ensuring firms can integrate data and information more easily with customers, suppliers, and business partners. We discussed open source software and cloud computing in earlier chapters. Even though they are still in the early stages of development, it shouldn’t surprise you to learn that they are being developed for enterprise applications. Small- and medium-size businesses are the ones most likely to follow this path because it’s much cheaper. Web 2.0 services that we described before are also becoming integral parts of enterprise software. DreamFace 2.0 is an open-source Web 2.0 Application Creation Platform for authoring, publishing, and sharing Web 2.0 applications. DreamFace combines Social Networking, Rich Internet Application, and Web 2.0 personalization and customization technologies in a disciplined approach to help businesses create a new class of Enterprise Social Applications. 9-13 ..
DreamFace is composed of a Widget Platform to create, use, and distribute dynamic content, a Social Networking Framework to manage and connect users, who consume and convey information through their social networks and Mobile Services for Broadcasting or Publishing information to mobile devices. (Copied Nov 2009, http://dreamfaceinteractive.com/) You can access a product demonstration at the web site URL above showing how widgets and mashups come together in an enterprise application. Social CRM and Business Intelligence Consumers check in on Foursquare. Your employees chat with customers on Facebook. Everyone tweets. Social media is everywhere, right? Not quite. The one place it isn’t is inside traditional CRM systems. While the marketing department and sales team are busy interacting with customers on social-networking sites, the potentially valuable information created by these exchanges remains largely isolated from core customer databases and analytics systems. CIOs want to bridge the gap between social media and enterprise CRM to give marketing and sales richer, more complete information about customers. Just as important: avoiding CRM silos, says Todd Michaud, vice president of IT at Focus Brands, the franchisor of specialty restaurants, including Cinnabon and Moe’s Southwest Grill. “I don’t want to worry about maintaining all these separate systems that really just talk about the same customers,” Michaud says. Advertising and communications firm McCann Worldgroup encourages employees to interact with clients on social media. But McCann has yet to integrate Twitter and Facebook with its CRM applications and databases, says Global CIO Greg Smith. “We’re relying on employees to use their best judgment in noting those interactions in client files,” Smith says. (“Integrating Social Media is Hard to Do,” CIO.com, Kim S. Nash, March 25, 2011) An explosion of social media channels such as Facebook, LinkedIn, and Twitter has occurred over the last few years, giving companies even more ways to reach out to customers. The problem now is to incorporate the new channels with all the data already stored in enterprise systems. Social CRM systems allow that to happen. The new technology provides a way for organizations to uncover sales leads and identify customer support issues.
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“Today, everyone’s contacts are in a whole bunch of different places,” Jon Ferrara, Nimble’s CEO explained. “We are getting messages from the different social media communities we belong to. It’s hard for a business to keep track of all these conversations.” Ferrara’s application brings in all communications into one tab. That way when I bring up a contact I get to see not only their e-mail history but also their history of what we discussed on Facebook, LinkedIn or Twitter. I can send messages from one place. I receive messages in one place. And most importantly, my entire company can see this history too. Nimble is a young company that lacks some of the more advanced functionality of a more mature CRM application. But if it’s a true social media integration you want, this is a product really worth looking at. I’m sure there are a few others like Nimble. Feel free to comment. But why aren’t the major CRM vendors offering the same? Ferrara says it’s because of their older, less flexible architecture. Whatever the reason, it’s an enormous feature that’s missing. And as our social media communications grow, one that will have to be addressed. (“Is Google Getting Into The Social CRM business?,” Marks, Gene, Forbes, Jan 20, 2014)
Business Intelligence in Enterprise Applications Being able to generate ad hoc analyses, use interactive dashboards, ask “what-if” questions, and take advantage of data visualization tools are becoming more important than ever to system users and executives. They don’t want to have to leave one system and move to another in order to use these business intelligence tools. Enterprise application vendors are incorporating these tools into their systems to provide a “one-stop shopping” experience for users. Bottom Line: All of the challenges of implementing a new enterprise system are directly related to people. Many organizations fail to understand this fact and pay more attention to the hardware and software elements of the new system. The real emphasis should be placed on the persware element of the new system instead.
Discussion Questions: 1. How does enterprise software enable a business to use industry-proven best practices? 2. Explain the bullwhip effect on a supply chain and how it can be avoided. 3. Describe the difference between push-based supply models and pull-based supply models. 9-15 ..
4. Describe the difference between operational customer relationship management systems and analytical customer relationship management systems. 5. Discuss the role of open source software and cloud computing in enterprise applications.
Answers to Discussion Questions: 1. Enterprise software uses predefined processes that require a business to adapt itself to the software. The processes have been created by the software manufacturer based on industry-proven best practices. The processes are difficult to modify because the software is so complex. Any changes to one area may disable or distort another process in a different area. 2. Information about the demand for a product may be distorted between suppliers and businesses. Each entity in the supply chain alters its decisions about product demand and could cause an over- or under-supply of products. By providing immediate and accurate information up and down the supply chain, all partners can adjust their sourcing, manufacturing, and distribution plans. 3. Push-based supply models depend on the forecasts or best guesses of demand for products and are pushed to the customer by the manufacturer. Pull-based supply models are customer-driven and depend on actual customer orders or purchases before the manufacturer commits to building the product or providing the service. See Figure 9.4 in the text. 4. Operational CRM are customer-facing applications, such as sales force automation, call center and customer service support, and marketing automation. Analytical CRM systems analyze customer data to provide information for improving business performance. Managers and executives use analytical CRM systems in conjunction with online analytical processing, data mining, and other data analysis techniques to create a total picture of the customer. 5. Next generation enterprise applications will incorporate aspects of open source software and cloud computing because this reduces the overall licensing fees. As software-as-a-service continues to expand, small- and medium-size businesses will find these types of solutions more feasible because the technology demands are less than internal-based enterprise applications.
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Management Information Systems, 15E Laudon & Laudon Lecture Files by Barbara J. Ellestad
Chapter 10 E-Commerce: Digital Markets, Digital Goods Twenty-four/seven—the mantra of the Internet. Whether it’s buying, selling, gathering information, managing, or communicating, the driving force behind the evolutionary and revolutionary business is the Internet and its technological advances.
10.1 What are the unique features of e-commerce, digital markets, and digital goods? Take a moment and reflect back on your shopping experiences over the last year. Did any of them involve not using the Internet in one way or another? Perhaps you simply used the Internet to research the cost of products without actually purchasing a product or service online. Perhaps you e-mailed a company to get an answer to a question you had about a product after you purchased it at a regular brick-and-mortar store. Or, maybe you compared prices between two businesses to get the best deal. If you did any of these you are among the growing legions that rely on the Internet as a new way of conducting business and commerce. E-Commerce Today The text provides useful statistics to demonstrate the solid growth in e-commerce. Many companies that failed during the “dot.com” bust did so because they didn’t have solid business plans, not because e-commerce as a whole wasn’t a good idea. The Internet has proved to be the perfect vehicle for e-commerce because of its open standards and structure. No other methodology or technology has proven to work as well as the Internet for distributing information and bringing people together. It’s cheap and relatively easy to use it as a conduit for connecting customers, suppliers, and employees of a firm. No other mechanism has been created that allows organizations to reach out to anyone and everyone like the Internet. The Internet allows big businesses to act like small ones and small businesses to act big. The challenge to businesses is to make transactions not just cheaper and easier for themselves but also easier and more convenient for customers and suppliers. It’s more than just posting a nice looking website with lots of cute animations and expecting customers and suppliers to figure it out from there. Web-based solutions must be easier to use and more convenient than traditional methods, not to mention competitors, if a company hopes to attract and keep customers. 10-1 ..
The New E-Commerce: Social, Mobile, Local Customers and suppliers are learning how to use all the new technologies to gather information about a firm’s products or services and compare them to the competition. For instance, mobile phones are quickly becoming the tool of choice for customers to access information and make purchases. It’s easier and faster than ever before. Therefore, any business wishing to stay ahead of the game needs to appreciate that fact and change their processes and methodologies. If they don’t, they may not be in business much longer. The new technologies allow companies to act local by displaying ads targeted directly at consumers almost on a one-on-one basis. Video ads rather than static print ads are becoming the favored way to connect with customers. Thanks to expanding broadbands of transmission media, it’s much easier to send the videos, even to mobile phones. From Eyeballs to Conversations: Conversational Commerce What most online marketers understand about the new digital markets is that it’s becoming more important to have a conversation with your customers rather than just shove an ad in front of them and hope they buy your product. Social marketing includes listening, discussing, interacting, empathizing, and engaging. It’s the savvy marketers with smart companies that find the conversations about their products and join in the discussion, helping to shape the dialogue. From the Desktop to the Smartphone Even though a majority of Internet users still access content from a traditional desktop computer, those using smartphones is increasing at a faster rate. With all the advances and improvements in smartphones, it won’t be long before that’s the most popular device with which to access the social-mobile-local Internet. Why E-Commerce Is Different Most of us have become so used to the Internet that we take it for granted. Let’s look at the factors that make e-commerce so different from anything we’ve seen before. Ubiquity: 24/7 365 days a year, anytime, anywhere. New marketspaces change the balance of power from being business-centric to customer-centric. Transactions costs for both businesses and customers are reduced. Global Reach: The Internet opens markets to new customers. If you live in New York City and yearn for fresh Montana-grown beef, you can order it from a website and receive it the next day. You benefit from new markets previously not available, and the Montana rancher benefits from new customers previously too expensive to reach. 10-2 ..
Universal Standards: One of the primary reasons e-commerce has grown so quickly and has become so widespread is due to the universal standards upon which the technology is built. Businesses don’t have to build proprietary hardware, software, or networks in order to reach customers thereby keeping market entry costs to a minimum. Customers can use the universally accepted Internet tools to find new products and services quickly and easily thereby keeping search costs to a minimum. It truly is a win-win situation for both sides. Richness: The richness of information available to customers, coupled with information that merchants are able to collect about them, is opening up new opportunities for both businesses and consumers. Consumers can access more information than was previously available and businesses collect more information than they were previously able to. Now, instead of trying to gather information about businesses or consumers from multiple sources, both parties can use the Internet to cobble together more information than ever. And do it much easier and faster than ever before. Interactivity: E-commerce originally presented simple, static websites to customers with limited possibilities of interactivity between the two. Now, most major retailers and even small shops, use a variety of ways to communicate back and forth with customers and create new relationships around the globe. Information Density: Although many people complain about having too much information pouring from the Internet, it provides information density like no other medium. Consumers enjoy price transparency allowing them to comparison shop quickly and easily. Cost transparency is another benefit consumers enjoy that they’ve never had available as readily as they can find on the Internet. On the other hand merchants gather much more information about customers and use it for price discrimination. Personalization/Customization: The neighborhood merchant probably knows most customers by name and remembers their personal preferences. That same cozy relationship can now be extended to the Internet through a variety of personalization and customization technologies. Interactivity, richness, information density, and universal standards help make it possible. Social Technology: User Content Generation and Social Networking: Social networks are no longer limited to those people living in your immediate, physical neighborhood or even the same town or city. Your social network can now extend to all four corners of the world. Users are generating their own content such as video, audio, graphics, and pictures. Key Concepts in E-Commerce: Digital Markets and Digital Goods in a Global Marketplace
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Let’s say you’re getting ready to buy a new car. You’ve already checked out the prices and information on the various websites and have managed to get a pretty good deal because of the information you gathered. But now you need a loan and insurance for the new car. Your bank will give you a loan with a 7.5 percent interest rate. You think that’s a little high. You call your insurance agent and she tells you the going rate is $1,500 a year. You get a sinking feeling that the excellent discount you were able to wrangle on the car itself will be quickly eaten up by the insurance and loan fees. But wait. You check out the websites offering loans and find out you can get 5 percent. You then discover you can get insurance for only $1,200 a year. Even if you don’t use the websites to procure the loan or insurance, you can still take the information to your bank and insurance agent and perhaps get them to renegotiate. Because you were able to gather information from the Internet rather than physically traveling from bank to bank, or insurance company to insurance company, your search costs were much lower. Because of the information you’ve gathered from the web, the bank and insurance company no longer have the advantage of information asymmetry. That is, the bank and insurance company thought they had more information about the transaction than you did, therefore they had the upper hand. But once you gained more information about the transaction than you previously had, you were able to get better rates. The demise of information asymmetry is a phenomenon that is occurring in many consumer and business transactions and is directly attributable to the Internet. On the other hand, the Internet allows insurance companies and banks to quickly and easily adjust the information provided to you thus lowering their menu costs. They can just as easily engage in dynamic pricing based on information they gather from and about you. Disintermediation, removing the middleman, has allowed many companies to improve their profits while reducing prices. In our example, insurance companies are using disintermediation to remove the local agent from the transaction between itself and the customer. Airlines have steadily removed the travel agent from transactions with customers thereby reducing their costs. Other industries are following in their footsteps slowly but surely. Figure 10.2 compares traditional distribution channels that include intermediaries with a more direct, Internet-based distribution channel that eliminates the middleman. You can see how the manufacturer is able to lower customer costs while increasing its profit margin.
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Figure 10.2 The Benefits of Disintermediation to the Consumer Digital Goods If products can be digitized, they can be sold and distributed on the Internet. Music and books have been the forerunner. Now we’re seeing movies and television shows taking the same path. Digital goods are much cheaper to produce in the long run with little or no distribution costs compared to traditional channels. Digital goods marketspaces also provide relatively cheap and efficient channels for merchants who otherwise could not afford to reach customers on a global scale. Independent musicians and moviemakers are finding tremendous opportunities for reaching new audiences through the Internet that they couldn’t reach before. This is especially true on social networking sites and through viral marketing. Advertising dollars are moving from traditional outlets to Internet-based outlets at alarming rates. That puts tremendous pressure on traditional mediums such as television channels and newspapers to get in on the paradigm shift. Businesses must now find new ways to chase the consumer instead of the consumer chasing the business. Table 10.4 shows how the Internet changes the costs of digital goods vs. traditional goods.
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Bottom Line: E-commerce firms now have more opportunities to reach customers, suppliers, and partners through Internet channels. The Internet has also given digital firms the opportunity to create new business models or reshape their current model by using one or more of the unique features of e-commerce: ubiquity, global reach, universal standards, richness, interactivity, information density, personalization/customization, and social technology.
10.2 What are the principal e-commerce business and revenue models? It’s been a fascinating time in our history to watch e-commerce blossom from the early days of a few websites offering a limited supply of goods to what we have now. The combination of good business sense and explosive technological advances promise an even more exciting future. Types of E-Commerce E-commerce is divided into three major categories to make it easier to distinguish among the types of transactions that take place. • • •
Business-to-consumer (B2C): Most visible Business-to-business (B2B): Greatest dollar amount of transactions Consumer-to-consumer (C2C): Greater geographic reach
As you know, there are many products and services offered through traditional websites. But as we continue to expand the reach of the Internet to wireless devices, businesses are figuring out how to offer more products and services through new channels dubbed mobile commerce or m-commerce. Not only can you purchase your airline ticket through a traditional website but you can also instantly find out about flight delays or cancellations through your cell phone or handheld computer as you travel to the airport. Using your handheld computer you can purchase and download an electronic book to 10-6 ..
read while you wait for the airplane to take off. Retailers are continually finding ways to expand m-commerce and find new ways to attract customers. Pizza chain Papa John’s is cementing its position in the mobile commerce arena with a new Android application that lets pizza lovers order their favorite meals on the go. In addition to its new Android app, Papa John’s also has an iPhone application that it rolled out last year. The Papa John’s Android app is available for free download in Google’s Android Market. Via the Papa John’s Android app, consumers can browse the entire menu, which consists of pizzas, sides, drinks, desserts and extras. Additionally, all of the online special offers and coupons are also available via the app. Consumers do not need an account to place their order—the app accepts orders with or without a PapaJohns.com account. (“Papa John’s Continues M-Commerce Push with Android App,” Mobile Commerce Daily, Rimma Kats, Dec. 30, 2011) E-Commerce Business Models Table 10.5 in the text shows some of the new business models the Internet has enabled digital firms to undertake. Many of these businesses simply would not be possible without the technologies offered by the Internet. So how do you create a viable business model on the Internet? Follow the path of one of these: •
• •
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Portal: Charge advertisers for ad placements, collect referral fees, or charge for premium services. These sites are much more than just simple search engines. They now include news headlines, calendars, digital downloads such as music and books, shopping, and maps. E-tailer: Provide a shopping channel 24/7 that’s convenient and easy to use. Your site could be rather small, offering a limited range of goods or it could be a huge conglomeration of goods. Content provider: Offer a wide range of intellectual property content that users can purchase for use on digital devices such as smartphones, iPods, or e-book readers. Your site can be a conduit for podcasting audio or video downloads. You can offer customers a streaming service that provides a way for them to enjoy music or videos without downloading the content to their computing device. Transaction broker: Process transactions for consumers, saving them time and money. Market creator: Provide a platform that conveniently connects sellers and buyers. Web sites such as Uber and Airbnb represent a so-called sharing economy concept that connects suppliers with buyers. Service provider: Offer services such as photo sharing, data backup and storage, or Web 2.0 applications.
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•
Community provider: Create an environment in which people can communicate with one another, share common interests, upload videos and pictures, or buy and sell products.
There are dozens of examples of each of these business models that you probably use all the time. Some of them overlap each other and that’s okay. The idea is that you have to create a site that gives people what they want, when they want it, and make it convenient and easy to use. The more difficult aspect of the business model you choose is how to generate revenue from it. E-Commerce Revenue Models You may have a really nice website that you’ve worked very hard to design and build. But if you’re in it as a business, somehow you have to create a viable revenue model that allows you to make money from your endeavor and keep it going. Here are a couple ways you can do that: •
• • •
• •
Advertising revenue: Charge advertisers the right to place ads on the site. It’s the most widely used method of generating revenue. You’ll be able to charge higher ad fees if you attract a large number of users or keep users on your site for any length of time. Sales revenue: Sell products, information, or services directly to users. You’ll need a viable, secure micropayment system that processes high volumes of very small monetary transactions. Subscription revenue: Charge an ongoing fee for content or services like magazines and newspapers already do offline. You’ll need to provide content that users perceive as worth the cost and not readily available elsewhere. Free/Freemium revenue: Provide basic content or services free but charge a premium for special features. The idea is to entice users to your site with freebies and then convert them to paying customers. Because so much content on the web has been free for so many years, it’s difficult to get people to pay for what they think they should get without charge. Transaction fee revenue: Charge a fee for enabling or executing a transaction. You don’t have to physically own the service or content. Rather, you act as the middleman. Affiliate revenue: Receive a referral fee or percentage of sales each time you steer customers to affiliated sites.
Bottom Line: The three categories of e-commerce, B2C, B2B, and C2C, offer businesses endless possibilities for expanding their products and services. The Internet opens up new e-commerce business models: portals, e-tailer, content provider, transaction broker, market creator, service provider, and community provider (social networks). It also creates new revenue models: advertising, sales, subscription, free/freemium, transaction fee, and affiliate.
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10.3 How has e-commerce transformed marketing? The business function that’s been most affected by e-commerce is advertising and marketing. The Internet has opened a whole new spectrum for identifying and communicating with millions of current and potential customers in a variety of ways that were simply not possible before. Table 10.6 provides a synopsis of the formats. And, it’s a whole lot cheaper online than it is offline. One of the best examples of the cost reduction invoked on the Internet is long tail marketing. Let’s say you had a line of Persian rugs that you purchased directly from the supplier at a significant cost savings. Rather than spend boatloads of money marketing the rugs to mass audiences, you can use the Internet to focus on a small group of people that may be interested in them. You save money, customers get what they want, and everyone wins. Behavioral Targeting It should come as no surprise that online businesses and merchants collect millions and millions of pieces of data about Internet users outlining exactly what they do and where they spend their time. E-commerce marketers use the data in the form of behavioral targeting. For example, you frequently read Golf Digest Online and peruse the sports pages of online newspapers looking for stories about golf tournaments. It stands to reason that you enjoy the game so why not have online marketers send you ads for golf vacations in North Carolina? Wouldn’t you rather receive those ads than ones about deep-sea diving expeditions? Behavioral targeting occurs on individual websites and also on the vast advertising networks that track your every move on the web. Just some of the data collected are: • The site from which you came • Where you go when you leave the current site • Each page you viewed on the current site • How long you viewed each page • Which images you may have clicked on • Whether you purchased anything • The operating system you use • The browser you use • Personal data you may have entered such as e-mail address, home address, and credit card data Who said the Internet was anonymous? Figure 10.3 shows you how e-commerce websites track visitors.
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Figure 10.3: Web Site Visitor Tracking Businesses and e-commerce marketers use the data to: • Determine how well their websites are working. • Create personalized web pages suited to individual users (think Amazon.com’s “What others are reading that purchased this book”). • Improve customer experiences. • Create additional value for each user. Often, data are collected by advertising networks rather than individual websites. It’s cheaper, easier, and less time-consuming that way. Figure 10.5 shows you how advertising networks operate.
Figure 10-5: How an Advertising Network Such as Doubleclick Works
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Native advertising involves placing ads in social network newsfeeds or within traditional editorial content so that it appears to be part of the story or the story itself. Social E-Commerce and Social Network Marketing A popular game with movie buffs, “Six Degrees of Kevin Bacon” illustrates the value of a digital social graph that maps significant online social relationships. Six Degrees of Kevin Bacon is a parlor game based on the “six degrees of separation” concept, which posits that any two people on Earth are, on average, about six acquaintance links apart. That idea eventually morphed into this parlor game, wherein movie buffs challenge each other to find the shortest path between an arbitrary actor and veteran Hollywood character actor Kevin Bacon. It rests on the assumption that any individual involved in the Hollywood, California film industry can be linked through his or her film roles to Kevin Bacon within six steps. The game requires a group of players to try to connect any such individual to Kevin Bacon as quickly as possible and in as few links as possible. It can also be described as a trivia game based on the concept of the small world phenomenon. In 2007, Bacon started a charitable organization named SixDegrees.org. (copied from Wikipedia.com, Dec 2012) One of the most fascinating features of Facebook and other social networks is the ability to share with and link to friends of your friends and increase the number of people you come into contact with on websites. You can continually increase the web of people you know through your social graph. Merchants and retailers want to tap into that social web as a way to market more goods and services. After all, if you like a product enough to purchase it, chances are you’ll tell your friends about it. Through the social web, your friends will pass that information along to their friends, who will then share it with their other friends, and so on. Table 10.7 defines four features of social commerce that retailers are taking advantage of. What differentiates social commerce from simply searching for products on a search engines is the ability to provide and receive recommendations and evaluations about products and services rather than getting plain information.
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Over the past decade, the Internet has made the world a smaller place. Now retailers the world wide hope social media will have the same shrinking effect, making them seem a little smaller to their customers. And more personable. And maybe even a little sassy. As thousands of U.S. and global retailers come together this week at the National Retail Federation conference in New York, one theme that keeps playing out is just how smart consumers have become. They are tech savvy, know what they want, and how to research it. Social media sites such as Facebook and Twitter provide forums for shoppers to share their knowledge with the friends and family. “Consumers have so much information—sometimes more information than the clerk waiting on her,” said Alison Paul, vice chairwoman and U.S. retail leader for researcher Deloitte Consulting. “Communication between consumers is viral and immediate,” said Jill Puleri, worldwide retail industry leader for IBM Global Business Services. “They discuss your brands, products and services and boy, does everybody look at it. Some are good. Some are not so good. Millions of people around the world are reading them and being influenced by what they say.” (“Social Networking—A Retail Game-Changer,” OregonLive.com, Laura Gunderson, Jan 10, 2011)
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People are very social beings so it’s not surprising to find they are using the Internet to fulfill their need to connect with other people socially and professionally. Social networking sites such as LinkedIn.com and Facebook.com let people make new friends, find new jobs, and exchange information easily and quickly with a larger circle of people than through any other medium. Other sites allow users to engage in social shopping—a twist on traditional trips to the mall with friends. While some of these sites pose a slight personal danger if misused, they fulfill the basic need people have to communicate with others. Rather than looking at social networking sites from a personal point of view, let’s see how they present business opportunities and how companies are using them to improve their operations. The move to attract sales through social-networking sites comes as people are spending more time online and less time at the mall. E-commerce has been one of the biggest drivers of retail sales in recent quarters, with online sales rising 28% in the first quarter, compared with an increase of 4% for bricks-and-mortar stores, according to surveys by the National Retail Federation. “Rather than simply bringing their existing web experiences to Facebook, we believe retailers who provide deeply social shopping experiences will see the most success,” said a Facebook spokeswoman in an e-mail. Facebook also makes it easy for customers to trumpet their purchases by sharing them with friends in their personal news feeds. Most customers are given the option to post purchases to their news feeds automatically. For retailers, selling on Facebook is also compelling as a market-research tool. Facebook offers retailers detailed information on customers, including “demographic information like age, sex, how popular people are and how much they share and ‘like,’” says Jason Taylor, vice president of platform strategy for Usablenet, which develops Facebook shopping tabs for retailers. (“Retailers Embrace Social Commerce,” Wall Street Journal, Dana Mattioli, May 19, 2011) Here are a few other ways businesses are using social networking sites such as Facebook and MySpace: • Interact with potential customers. • Listen to what customers are saying about their products. • Obtain feedback from customers. • Display video advertising (much more dynamic than printed ads). • Create channels to market products.
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The Wisdom of Crowds Businesses are also using the wisdom of crowds to help them make better decisions, create new ways to market and advertise their products, and to find out how customers really feel about products and services. Traditional methods of market research such as focus groups or widespread, blanket advertising haven’t always been the most reliable, or the cheapest, way to get customer feedback. Tapping into the minds of millions of people on the web can give a company much better information upon which they can act. Crowdsourcing is another way businesses are using the wisdom of crowds concept on social networking sites. Present a problem or opportunity on the site and let people provide suggestions, advice, or feedback free of charge
Interactive Session: Technology: Getting Social with Customers (see page 396 of the text) discusses how companies are using social media to attract and interact with customers. Social media marketing is all about two-way communication with customers.
Bottom Line: Customers have far more opportunities through customer-centered retailing and interactive marketing and personalization to gather information and make more economical and convenient purchases. Businesses adopt behavioral targeting to more efficiently use their marketing dollars. Social networks and the wisdom of crowds put a new face to current marketing efforts.
10.4 How has e-commerce affected business-to-business transactions? Before the Internet, transactions between businesses were based on long-term relationships and geographic restrictions. It wasn’t practical or cost efficient to search out buyers or suppliers nationwide. That’s all changed thanks to new technologies made available through the Internet. Electronic Data Interchange (EDI) Electronic data interchanges (EDI) processes allow companies to connect their information systems to one another and make transactions flow seamlessly between the systems. It’s faster, cheaper, and less error-prone. The Internet is slowly replacing EDI as the preferred method of procurement among businesses. EDI systems usually require proprietary systems while the Internet provides 10-14 ..
an open standard, universally accepted method of exchanging data for processes such as procurement and B2C commerce.
Figure 10.6 Electronic Data Interchange (EDI) New Ways of B2B Buying and Selling One of the cheapest and easiest ways for a buyer to find the best prices and a seller to find new customers is through online private industrial networks, also known as private exchanges. Neither buyers nor sellers are restricted to doing business with just one or two partners in a particular geographic area. Figure 10.7 shows the relationships between buyers and sellers in online exchanges.
Figure 10.7: A Private Industrial Network Businesses and both buyers and sellers are enjoying tremendous cost savings by using net marketplaces or e-hubs. B2B e-commerce is reducing the buyers’ costs by allowing them to shop around for the lowest prices. B2B e-commerce reduces sellers’ costs by allowing them to automate purchasing transactions and reach a greater number of potential buyers of direct goods used in production processes and indirect goods such as office supplies. 10-15 ..
The types of net marketplaces available for B2B e-commerce are divided between vertical markets that serve specific industries and horizontal markets that provide goods and services for various functions across all industries. Some sell direct goods used in a production process. Other goods not directly involved in the production process are labeled indirect goods. Exchanges allow businesses to offer a broader range of services to other businesses. Staples, the office supply store, was restricted to offering in-store purchases of paper, pencils, and other supplies to other, mostly local, businesses. The buyer had to physically go to the store and wander through the aisles. Price comparison was limited to guessing whether Staples had the lowest price. Staples now offers an online exchange from which other businesses can not only order office supplies but also use business services such as payroll pricing, human resources management, legal and insurance services, and many others that weren’t profitable or possible in the past. Staples.com is able to provide these online services by partnering with others to create new efficiencies and relationships through the Internet. Although the burst in the dot-com bubble has caused some companies to slow their e-commerce efforts, hardly any of them are totally abandoning Internet integration altogether. The benefit from the dot-com fiasco is that companies are planning their e-commerce efforts better and making their systems more stable and secure. Bottom Line: Businesses have much better ways to connect with other businesses for e-commerce through the Internet. Private industrial networks net marketplaces, and exchanges provide more efficient methods to connect buyers and sellers.
10.5 What is the role of m-commerce in business, and what are the most important m-commerce applications? Cell phones aren’t just for making phone calls anymore. Now they take photographs, send text messages, are used as tracking devices, and to purchase goods and services. What was once a very simple device has now turned in to a personal, portable computing device that’s changing the very nature of commerce worldwide. Location-Based Services and Applications M-commerce extends the ubiquitous Internet and computing to new heights. No longer does a business have to wait for customers to find it. It can go out and find new customers quickly and easily. As you wander through downtown shops or the mall, a business will know you’re near and send a message to your mobile computing device detailing lunch specials. Although many of the services are currently not available in the
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United States, foreign countries are embracing the technology to provide the following benefits: Location-based services are perhaps one of the most interesting growth areas in m-commerce. There are several leaders in this technology, namely Foursquare, Gowalla, and Loopt. Users track their friends’ locations using geosocial services and earn points and badges for responding to special deals from businesses they “check-in” with through geoadvertising services. Businesses offer customers the special deals in an effort to boost sales from immediate promotions. Geoinformation services provide mobile users instant, on-the-spot updates on housing prices if they’re shopping for a new home, museum pieces if they’re in the Louvre Museum, or special sites along a hiking trail. Services including Gowalla, Loopt, and Where are being embraced by mobile-device owners to shop, communicate, socialize and play games. Their total number of members runs in the millions. Meantime, Google has aggressively pushed its mobile social network, Latitude, and Facebook is expected to unveil location features this year. Such services are part of a rising wave in mobile advertising, which is expected to soar in the U.S. to $3.1 billion in 2013 from $320 million in 2009, according to market researcher BIA/Kelsey. Analysts say the appeal of location-based services goes far beyond game playing and seeing where your friends are. “Location is such an important tool for local merchants and marketers to more deeply connect with customers,” says Michael Boland, an analyst at BIA/Kelsey. (“Location-based services like Foursquare lure users, money,” Swartz, Jon, USAToday.com, July 6, 2010)
Interactive Session: Organizations: Can Instacart Deliver? (see p 403 of the text) discusses how one business is capitalizing on social media features to engage with customers and increase its sales. As the Session points out, improving the technology is a never-ending task.
Other Mobile Commerce Services The growing popularity of m-commerce is causing businesses to develop new services and applications that extend the reach to customers. What if you could send money to that friend who loaned you $20 last week by using your mobile phone rather than having to go through the trouble of trekking to the ATM or mailing a check? All you’d need would be your buddy’s e-mail address or cell number—and presto. Folks in Japan and Europe can already do that. Soon Americans will, too. Studies show that U.S. consumers, particularly the younger set, have 10-17 ..
embraced the convenience of online shopping and e-banking and are now ready to move to the next frontier: person-to-person mobile payments. A recent poll by Mercatus, a financial consulting firm, showed that the proportion of people ages 26 to 34 who had used a cell phone to buy goods or pay for a product or service had doubled, to 14%, in the past year. “We are at the tipping point,” says Mercatus managing partner Robert Hedges. That’s why a host of banks and financial companies are gearing up to add person-to-person payments to their existing mobile and online banking platforms. What about security, you ask? “Banking on the mobile phone is relatively safe,” says Robert Vamosi, an analyst on security, risk, and fraud at Javelin Strategy & Research. In fact, says Vamosi, mobile banking is currently more secure than online banking because cellular networks are tough to hack into. (“Buddy, Can You E-Mail Me 100 Bucks?” Feldman, Amy, BusinessWeek, Nov 23, 2009)
Bottom Line: Although mobile commerce is still in its infancy in the United States, other countries are embracing the products and services available through the technology. The challenges of expanding m-commerce in America are being addressed collectively by businesses, industries, and customers.
10.6 What issues must be addressed when building an e-commerce presence? All of us have probably used dozens of websites through time, ranging from portals to e-tailers to content providers. Some of them are easy to use and others are a nightmare. Have you ever thought about what goes into making a successful e-commerce website? There’s a lot more to it than just pounding the keyboard. First you must have a very clear understanding of your business objectives and then you must choose the appropriate technology that will help you achieve those objectives. Develop an E-Commerce Presence Map All too often businesses just jump in and start designing a website without understanding all the decisions they must make throughout the journey. They pick the background color, the photos or graphics they want on the home page, and maybe they think about an online payment system they might need. Wrong! All wrong! Don’t start pounding the keyboard just yet. Your first step must be to think the whole process through and understand all the decisions you need to make about the site. If your business is large enough, develop a team of people from around the organization who can make key decisions about the technology you’ll need, the site design, and policies you’ll 10-18 ..
apply to guide users. What kind of hardware will you need? Will you need to purchase web design software to help the team? If so, what kind will work best for meeting your objectives? Do you have the necessary telecommunications infrastructure to meet the demands of your customers, employees, and other users? Will you build the entire site inhouse, including payment systems, or will you outsource some or all of the work? Will you host the site on your company’s servers—with all the security implications that go along with that—or will you outsource it? Who will be responsible for maintaining, updating, and monitoring the site? Once you identify all these decisions, you develop a plan that helps act as a roadmap for the team and the business to follow through the rest of the process. You must also decide the type of e-commerce presence you’ll have on the web. Figure 10.10 shows four alternatives you can choose from.
Figure 10.10: E-commerce Presence Map See? There’s a lot of work that needs to be done before you ever hit a single key on the keyboard. Develop a Timeline: Milestones Adequately planning your e-commerce activities and making the right decisions before you jump headlong into the project will save you time, headaches, and money. At the very minimum, you should develop a timeline with specific milestones throughout the plan. That way you’ll know if you’re on track or need to restructure your plan.
Bottom Line: Developing a successful e-commerce site requires managers to develop a clear understanding of their business objects and choose the right technology to achieve those objectives. Decisions need to be made about the site design and social 10-19 ..
and information policies. Most of all, the company must adequately budget for all the necessary components of an e-commerce site.
Discussion Questions: 1. Discuss how the features of ubiquity, universal standards, and information richness make e-commerce different from traditional retailing efforts. 2. Describe how the Internet changes information asymmetry in favor of consumers versus sellers. 3. Discuss how businesses can use the “wisdom of crowds” to improve their products or services. 4. Describe m-commerce services and applications that either you have already used or would like to have available. 5. Discuss the challenges managers face when building a successful e-commerce website.
Answers to Discussion Questions: 1. Ubiquity refers to the constant availability of e-commerce 24/7, 365 days a year anywhere a computing device is available. Traditional retailing efforts are limited in hours and to a specific geographical location. E-commerce is conducted using open, standard, and universally accepted technologies, making it easy to learn and use for both sellers and buyers. Information richness refers to the complexity and content on a website. E-commerce enjoys information richness not available in traditional markets. 2. The Internet shrinks information asymmetry and tips the balance of scale in favor of consumers. Access to information about products and services is faster and easier to obtain, especially regarding pricing that favors consumers. Sellers can no longer restrict access to basic pricing information. Consumers can compare sellers and obtain lower prices through e-commerce. 3. Businesses use the wisdom of crowds to help them make better decisions, create new ways to market and advertise their products, and to find out how customers really feel about products and services. Tapping into the minds of millions of people on the web can give a company much better information upon which they can act. Crowdsourcing is another way businesses are using the wisdom of crowds concept on social networking sites. Present a problem or opportunity on the site and let people provide suggestions, advice, or feedback free of charge. Prediction markets also let 10-20 ..
businesses gain insight into what customers are really thinking. This concept lets people bet on specific outcomes of, let’s say, a new marketing campaign or the next congressional election. 4. Answers rely on the particular m-commerce service available or desired. Students should reference these services: location-based services, banking and financial services, wireless advertising, games and entertainment, mobile shopping, social networking-based activities. 5. The two most important challenges are understanding the organization’s business objectives and choosing the right technology to achieve those objectives. Managers must understand all the decisions they need to make. Managers must form a team of people that possess the skill sets needed to build and manage a successful site. Hardware, software, and telecommunications infrastructure must be adequate to support the site. Customer demands must drive the technology choices. Managers must decide on the site’s design. The team and managers must develop a plan that will outline all these decisions. Managers must decide whether the site will be built and hosted in-house or outsourced. Finally, adequate money must be set aside to meet all the expenses of developing a successful e-commerce website.
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Management Information Systems, 15E Laudon & Laudon Lecture Files, Barbara J. Ellestad
Chapter 11 Managing Knowledge “When people leave organizations today, they are potentially taking with them knowledge that’s critical to the future of the business,” says David DeLong, a business consultant and author of Lost Knowledge: Confronting the Threat of an Aging Workforce. Whether it’s a key client relationship, mastery of an outdated computer language, or simply knowledge about where certain files are saved on a company server, every business has stored up bits of information and knowhow that isn’t written in a manual or recorded in a training video.” (BusinessWeek.com, “The Knowledge Handoff,” Douglas McMillian, Aug 26, 2008) As we’ve mentioned in other chapters, information, therefore knowledge, is becoming an important corporate resource that must be captured, protected, preserved, and grown. How you do that is the focus of this chapter.
11.1 What is the role of knowledge management systems in business? Creating and using knowledge is not limited to information-based companies; it is necessary for all organizations, regardless of industry sector. It’s not enough to make good products. Companies must make products that are better, less expensive to produce, and more desirable than those of competitors. Using corporate and individual knowledge assets wisely will help companies do that. They must harness as much knowledge as they can and make it easy to share with others. Important Dimensions of Knowledge We discussed the difference between data and information in previous chapters. The next step up from information literacy is knowledge. An organization must transform the information it gathers and put it into meaningful concepts that give it insight into ways of improving the environment for its employees, suppliers, and customers. Wisdom then is using information to solve problems and knowing when, where, and how to apply knowledge. You may have associated with the long-time employee that seems to know how to fix the intricate piece of machinery in his sleep. He’s been doing it for years, he would tell you. All of the knowledge he retains in his mind is tacit knowledge. On the other hand, you 11-1 ..
may have dealt with an employee who seems to grab the operating manual every time he turns around. The manual is an example of explicit knowledge—that which is documented. Table 11.1 below shows that every organization has four dimensions of knowledge: • Knowledge is a firm asset. • Knowledge has different forms. • Knowledge has a location. • Knowledge is situational. How it handles them is what can make the organization a successful one that seems to outrun the competition, or one that seems to muddle through the best it can. Examine your organization and determine how well it values its knowledge.
Organizational Learning and Knowledge Management In the last few years, companies have downsized and flattened their organizations. Many employees who were laid off had been with these companies for years. When they walked out the door, they took experience, education, contacts, and information with 11-2 ..
them. Companies are finding out how important human resources are to their success and are establishing organizational learning mechanisms to capture and use this corporate knowledge. That is, organizations gain experience by: • Collecting data • Measuring planned activities • Experimenting through trial and error • Gathering feedback from customers and the environment Successful organizations then incorporate what they’ve learned into new business processes and new management decision-making skills. The Knowledge Management Value Chain To understand the concept of knowledge management, think of knowledge as a resource, just like buildings, production equipment, product designs, and money. All these resources need to be systematically and actively managed.
Figure 11.1: The Knowledge Management Value Chain Figure 11.1 shows you the activities that go into successfully managing knowledge from acquiring it to applying it throughout the firm. It’s not just technology related to the activities that’s important to recognize. In fact, as the text points out, technology applications of managing knowledge account for only about 20 percent. The other 80 percent deals with organizing and managing the knowledge assets.
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Knowledge Acquisition
Figure 11.1a: Acquiring Knowledge Knowledge comes from a variety of sources. Early attempts of gathering knowledge were a hodgepodge of documents, reports, and employee input. Now companies are using more sophisticated technologies to gather information and knowledge from e-mails, transaction-processing systems, and outside sources such as news reports and government statistical data. It’s important to remember that a great deal of knowledge should come from external sources because no organization exists in a vacuum. Knowledge Storage
Figure 11.1b: Storing Knowledge Remember, knowledge management is a continual process, not an event. As you gather knowledge you must store it efficiently and effectively. Document management systems are an easy way to digitize, index, and tag documents so that employees can retrieve them without much difficulty. Probably the most important element of any knowledge system is the people that feed the machine. One of the biggest reasons knowledge systems have failed in the past is because the employees and management either didn’t place enough importance on the system or felt threatened by it. All the people in the digital firm need to realize how important a resource knowledge is and help take care of the system.
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Knowledge Dissemination
Figure 11.1c: Disseminating Knowledge Once you’ve built the system, acquired and stored the knowledge, you need to make it easy and efficient for employees to access the knowledge. Portals, wikis, social networks, IM, and e-mail are just some of the tools you can use to disseminate information easily and cheaply. Everyone complains nowadays of having too much information. The organization needs to make knowledge dissemination unobtrusive and easy to master or the employees and managers will ignore it or underutilize it. Knowledge Application
Figure 11.1d: Applying Knowledge You can have all the information and knowledge you need to master any task, but if you don’t build knowledge application into every functional area and every system used throughout the organization you are doing a disservice to both the knowledge and the company. As old systems are revamped and revised or new ones built, pay attention to how you can draw knowledge into them. The digital firm also needs to explore how it can use the knowledge system to build new processes for its employees and suppliers, or new products for its customers. Once it masters that, it can outrun the competition and build a stronger organization. Building Organizational and Management Capital: Collaboration, Communities of Practice, and Office Environments As knowledge becomes a central productive and strategic asset, the success of the organization increasingly depends on its ability to gather, produce, maintain, and disseminate knowledge. One way companies are responding to the challenge is by appointing a chief knowledge officer. His/her responsibilities involve designing new programs, systems, and methods for capturing and managing knowledge. In some cases, the hardest part of the CKO’s job may be convincing the organization that it needs to capture, organize, and use its corporate knowledge to remain competitive.
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Basically, the CKO concept is rooted in the realization that companies can no longer expect that the products and services that made them successful in the past will keep them viable in the future. Instead, companies will differentiate themselves on the basis of what they know and their ability to know how to do new things well and quickly. (copied from Business.com website, Nov 2008) No one person has all the knowledge a digital firm needs. For that you must rely on many different people from many different locations. Communities of practice (COP) are built on the idea of combining ideas and knowledge from various sources and making it available to people inside and outside the organization. Professional conferences, newsletters, journals, and online newsgroups are excellent sources of information that center on the communities of practice concept. Four areas where COP can make a difference are: • • • •
Reuse knowledge Facilitate gathering new information Reduce learning curves Act as a spawning ground for new knowledge
Types of Knowledge Management Systems Let’s look at three major types of knowledge management systems as shown in Figure 11.2.
Figure 11.2: Major Types of Knowledge Management Systems Enterprise-wide knowledge management systems are spread across the organization and offer a way to systematically complete the information system activities we just reviewed: acquiring, storing, disseminating, and applying knowledge.
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Knowledge work systems use powerful workstations that can process the huge graphics files some professionals need or to perform the massive calculations other types of professionals require. We’re not talking clip art or simple addition or subtraction. We’re talking huge amounts of data that must be processed quickly and the necessary storage capacity for large files. The workstations must also have the necessary equipment and telecommunication connections that enable the knowledge workers to connect to external sources of information via extranets, intranets, or the Internet. These systems must have system and application software that is easy-to-use and manipulate, and intuitive to learn so the workers can “get right to it.” Intelligent techniques, which we’ll look at more closely at the end of this chapter, include expert systems, neural networks, and genetic algorithms, to name a few. Bottom Line: Knowledge is an important asset that must be managed throughout the enterprise. Knowledge must be acquired, stored, distributed, and applied effectively and efficiently. The chief knowledge officer is responsible for ensuring that the digital firm uses its knowledge assets wisely. Communities of practice help people reuse knowledge easily and cheaply.
11.2 What types of systems are used for enterprise-wide knowledge management, and how do they provide value for businesses? There are three primary types of knowledge in every organization: • Structured documents: stored in reports, letters, or presentations • Semistructured: stored in e-mails, videos, digital pictures, or brochures • Tacit knowledge: stored in the employees’ heads With so many sources of information and knowledge available, how does an organization go about collecting, storing, distributing, and applying all of it? That’s what we’ll investigate in this section. Enterprise Content Management Systems Traditionally, knowledge wasn’t considered a corporate resource. Many systems were built without the necessary infrastructure for gathering, storing, and retrieving knowledge. That began changing in the 1990s when companies started realizing how much knowledge was lying dormant in text documents and reports. The structured knowledge systems were the first attempts at capturing this type of knowledge and making it easily available to a wider range of people inside the organization. As people started using newer forms of communications such as e-mails, chat rooms, voice mail, and digital-based reports, graphics, and presentations, organizations had to adapt their systems to accommodate the semistructured knowledge. Enterprise content 11-7 ..
management systems are designed to piggyback on the more rigidly structured knowledge systems to incorporate a wider range of information. Centralized knowledge repositories include information from the structured and semistructured knowledge systems. The knowledge repository is then easily accessed by employees throughout the organization and can also be properly managed by the CKO. Before you get all the data, information, and knowledge into your enterprise content management system, you need to create a taxonomy that will help organize the information into meaningful categories. That makes it easy to find things later on. For example, you have lots of digital renderings of your company logo. Set up a taxonomy called “Logo.” Now, whenever you add another digital file of a logo, you tag it with the taxonomy. For those firms whose knowledge is contained in objects other than simple documents, digital asset management systems help them collect, store, and process knowledge contained in photographs, graphic images, videos, and audio files.
Interactive Session: Organizations: ECM in the Cloud Empowers New Zealand Department of Conservation (see page 426 of the text) describes how a government entity used an enterprise content management system to deploy web content, manage digital assets, and systematize documents, records, and library management on the cloud.
Locating and Sharing Expertise Because it’s simply too expensive and too time-consuming to continually reinvent the wheel, corporations are turning to enterprise content management systems and systems for collaboration and social business in an attempt to link those who hold the knowledge with those that need the knowledge. Employees who have the tacit knowledge about a product or project in their head are easily connected with employees who need to know the information through these kinds of networks. Corporations save time and money by placing data pertaining to the subject matter experts in a directory that all employees can access. Users are easily connected to the experts through these networks and can communicate and collaborate on a variety of subjects. Learning Management Systems If you thought that blogs, wikis, and social networking sites were only for kids or twentysomethings that want to gossip and share their innermost thoughts and feelings, you would be wrong. Companies are discovering the power of using these tools for collaboration among employees—especially teams, customers, suppliers, and business partners. They are easy to use and often don’t require any help from the IT staff to set up or support. And they sure are easier to search and organize than thousands and thousands of e-mails. 11-8 ..
Because business processes and work methods are constantly and continually changing, organizations must devise ways to make learning less expensive and easier to deliver. By using a learning management system to provide the necessary tools for delivering, tracking, and assessing employee learning, companies can reduce costs and ensure employees receive the right training at the right time. A company can make these systems even more productive if they are used in conjunction with web-based multimedia systems. Regardless of where the employee and educator are located, they can collaborate together whenever necessary. Massive open online courses (MOOCs) are available, usually for free, from a wide variety of public and private universities and other online sources. As technology advances, we have more access to information. One technology, Massive Open Online Courses (better known as MOOCs) is beginning to change the way we look at education. These online courses are free and filled with information on just about anything you want to learn—from project management skills to learning a new language. And because MOOCs are free, access is open to anyone with a computer. Just as learners have open access to MOOCs, instructors from schools and universities to a variety of education providers, and practically anyone with a skill to share can host a MOOC. The emergence of MOOCs has the potential to inevitably change the way we receive our education. Just how prevalent are MOOCs? There are hundreds of MOOCs globally, some from even established universities such as Harvard and Stanford. MOOCs fill a void for learners who lack the time—and/or dollars—to physically attend a course featuring high-quality content. Needless to say, MOOCs are regarded as a game-changer in online education. (“What’s Wrong with MOOCs, and Why Aren’t They Changing the Game in Education?” Wired.com, Singh, Harman, Aug. 7, 2014)
Bottom Line: Enterprise content management systems, knowledge network systems, and collaboration tools help organizations build knowledge repositories that employees, suppliers, customers, and business partners can access through knowledge networks. Learning management systems help the firm deliver, track, and assess employee learning.
11.3 What are the major types of knowledge work systems, and how do they provide value for firms?
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Many of the systems we’ve discussed centered on how to collect, store, distribute, and apply knowledge. Let’s talk about how to create knowledge in this section. Knowledge Workers and Knowledge Work Knowledge work systems (KWS) support the creation and integration of new knowledge that is beneficial to the organization. KWS are often used by and support professional employees such as engineers, researchers, analysts, and highly skilled technical workers. They are connected to knowledge systems that provide information others have discovered to be successful solutions or best practices. Knowledge workers have three key roles in helping an organization develop its knowledge base: • Bring external knowledge into the firm • Serve as internal consultants • Act as change agents Requirements of Knowledge Work Systems The first requirement of a KWS is that it provides knowledge workers with the following necessary tools: • • • • •
Graphics tools Analytical tools Communication tools Document management tools User friendly interface
Figure 11.4 shows the required elements of a KWS.
Figure 11.4: Requirements of Knowledge Work Systems 11-10 ..
Examples of Knowledge Work Systems Pick up any business or technology magazine or surf news channels and you’ll find numerous examples of how companies are using knowledge work systems to re-create their core processes, create new products or services, or improve old ones. Computer-aided design (CAD) applications are used by design engineers to build new products or improve old ones. It used to take 3 to 4 years and millions of dollars to design a new car. With improved CAD systems, automobile manufacturers have reduced the time to 18 to 24 months and cut the cost by millions of dollars. CAD systems supply data to 3D printing technologies that use machines to produce prototypes and small items on a computer. As manufacturers go through the design process, traditionally they have produced mock-ups of the real thing, using valuable time and resources to construct items they most likely will discard. With 3D printing, they can instead create the parts on a computer system, saving time and money. Virtual reality systems have sophisticated imagery that makes you feel like you’re “right there!” You may have seen this system on TV shows or in the movies. You’re usually required to wear special equipment that feeds your reactions back to the computer so that it can plan its responses to your input. The U.S. Air Force uses virtual reality systems to help train pilots. Augmented reality allows you to keep one foot in the real world and put one foot in an enhanced computer-generated imagery world. If you’ve ever watched a professional football game you’ve experienced augmented reality. You know, that yellow line across the field that shows you where the team has to get to for a first down. With every set of downs, the augmented reality line moves to a different location. It’s so real some people are surprised that it appears only on televised broadcasts of football games. Marketers are especially enamored with the idea of interacting with customers in new and different ways. The technology has a bright future as people become more used to the idea that they can experience a myriad of services in new, more fun, and better ways. VRML (Virtual Reality Modeling Language) is a set of specifications for interactive 3D modeling on the web. Many companies are putting their training systems right on the Internet so that people can have access to the latest information and can use it when they need it. Some websites use Java applets to help process the programs on a local workstation. How would you like to make investment decisions based on information that is 90 days old or older? Would you have very much faith in a system that told you only how the company did financially last year, or would you also like to know how the company performed yesterday? That’s the idea behind investment workstations. They combine information about companies that is internal and external, new and old, in order to advise clients on the best use of their investment dollars. The amount of data is massive and
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must be processed quickly in order to keep up with the changing market conditions and the changing nature of the industries themselves. Bottom Line: Information and knowledge are key business assets that must be nurtured, protected, grown, and managed for the benefit of the entire organization. Knowledge work systems create and manage knowledge using computer-aided design systems, virtual reality systems, augmented reality, and VRML.
11.4 What are the business benefits of using intelligent techniques for knowledge management? There are quite a few ways organizations can capture knowledge using technology. Knowledge discovery tools and techniques help people find patterns, categories, and behaviors in massive amounts of data. Artificial intelligence (AI) is not all about computers taking over the world and turning on their human inventors. Rather, many of the systems under the AI umbrella are useful tools for capturing, storing, and disseminating human knowledge and intelligence. Still other intelligent techniques help generate solutions to problems that can’t be solved by humans alone. Interactive Session: Technology: Will Robots Replace People in Manufacturing? (see page 433 of the text) discusses the pros and cons of using robots to replace humans. In some cases it works well and in others it doesn’t. Capturing Knowledge: Expert Systems Expert systems are a common form of intelligent techniques. They are used to assist humans in the decision-making process, but they don’t replace humans. Many of the decisions we make are based on past experience, but we have the added benefit of reasoning and intuition. Expert systems ask questions, then give you advice and reasons why you should take a certain course of action based on hard data, not on hunches. Again, they don’t make the final decision. Most of the problems an expert system helps resolve can, in fact, be solved by a human. But because the computer is faster or safer, businesses choose to use them instead of a person. How Expert Systems Work Expert systems rely on a knowledge base built by humans based on their experiences and knowledge. The base requires rules and knowledge frames in which it can process data. When you think about it, humans work the same way. You look out the window to see if
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it’s raining. If it is, then you grab your umbrella. If it’s not raining, then you don’t. There you have it, a rule base. Yes, we used a very simplified example. Most expert systems require thousands of rules and frames in which to operate in a rule-based expert system. The knowledge must be specific. In the example above, you wouldn’t take any action if the only information you had were “It rains 350 days a year in the Amazon rain forest.” Neither would an expert system. The programming environment of an expert system uses rules, frames, and an inference engine to accomplish its tasks. The inference engine uses forward chaining or backward chaining to move through the rules and the frames. In our example, using a forward chaining inference engine, you would start with the idea that it’s raining. You’d move through a series of decisions until you reached a conclusion and acted on it. You would determine that it’s raining, then you’d decide how much, then you’d decide how wet you don’t want to be, then you’d decide to take an umbrella. As long as the answer continues to be yes, you keep moving forward. In a backward chaining inference engine, you’d start with a hypothesis and work backward until your hypothesis is proved or disproved. You got wet because it was raining; using an umbrella would prevent that. You build an expert system in a similar fashion as other information systems in terms of hardware and software. However, it’s even more important to continually maintain and update an expert system: You never want to make decisions based on outdated or incorrect information. You can build a transaction processing system and perhaps not update it for six months to a year. With an expert system, you have to update the data and the processing software almost immediately and continually so that it’s never out of date. Examples of Successful Expert Systems You measure the success of an expert system by the following criteria: • • • • •
Reduced errors Reduced cost, reduced training time Improved decisions Improved quality and services Happy users and happy customers
Most problems solved by expert systems are mundane situations. “If it’s raining, then take an umbrella.” But what happens if it’s cloudy and only “looks” like it will rain? Expert systems only do well in situations in which there are definitive outcomes. They aren’t good at making decisions based on guesses or hunches. The expert system might advise to take the umbrella along or to leave it home based on the input. The human makes the final decision to take or leave the umbrella. 11-13 ..
If you understand that expert systems can only do so much, you’ll be just fine. If you understand that they aren’t people with the powers of reasoning and intuition, and therefore they can’t make every decision, you’ll know when to override the system and when to go with its output. Remember that everything in an expert system is based on IF this, THEN that. We know not everything is black and white and there are many gray areas. Expert systems should not replace managers. They can aid managers in the decisionmaking process, but managers have to make the final call. For instance, you suggest to your boss that you should receive a pay raise. You have many subjective reasons why you should receive the raise; you arrive early and stay late, your work is always (well, almost always) turned in on time, you filled in for Sam while he was on vacation, and you’re a good worker. What happens if your boss relies on an expert system that uses only facts? You submitted the last two projects late (because the boss made last minute changes), you took an extra week’s vacation (when your child was in the hospital), and you were late to work three times in one month (because the subway broke down). You may or may not get the raise. Your boss still needs to use intuition, reasoning, and gut reaction to make the final decision. Organizational Intelligence: Case-Based Reasoning So far, we’ve concentrated on capturing the individual knowledge in an expert system. Through practical experience, you’ve realized that “two heads are better than one.” Very seldom will only one individual work on a project. Or perhaps one individual works on the candy bar ad campaign while another works on the breakfast cereal campaign. They have different and yet similar experiences. What if you could tap into each person’s experience and knowledge on a collective basis? Take the best of the best from each one and apply it to your needs. Then you give your knowledge to someone else who will combine it with knowledge from others and continue building on “the best of the best.” That’s what a case-based reasoning (CBR) system does best. The Help files you find in most desktop software applications are built on a case-based reasoning model. The technical support staff combines thousands of customer queries into a single database of problems and solutions and refines that information into a series of IF this is the problem, THEN try this. Access the Help files in your desktop software and try it.
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Figure 11.7: How Case-Based Reasoning Works Figure 11.7 gives you an excellent overview of how a case-based reasoning system works. Fuzzy Logic Systems Okay, one more time, back to our umbrella. If it’s only cloudy outside, how do you know whether to take the umbrella? “It depends on how cloudy it is,” you say. If it looks like rain, you know to take the umbrella; there is a strong possibility that it will pour buckets. If it’s only a little cloudy and doesn’t look like rain, you’ll take the chance that you won’t get wet and leave the umbrella at home. That’s fuzzy logic! Fuzzy logic is based on approximate values and ambiguous data. A fuzzy logic system will combine various data into a range of possibilities and then help solve problems that we couldn’t solve before with computers. Machine Learning If you’ve made a purchase on Amazon.com or a clothing website such as JCPenney, you’ve probably seen a feature displaying suggestions about what other people purchased when they purchased your item. How does the website know that? Because as people 11-15 ..
make purchases and view similar items, the computer running the website captures all that data and feeds it into an algorithm. The machine running the website “learns” about the preferences. As thousands and millions of people make purchases and view other items the machine learning capabilities of the knowledge management system used by Amazon.com and JCPenney’s are altered for future use. Machine learning allows computer systems to recognize patterns in data and change their behavior based on their recognition of patterns, experience, or prior knowledge. The use of machine learning has greatly expanded over the past few years because of improvements in algorithm design, growth of databases including “Big Data,” and the increase in raw computing power available in today’s computer systems. Neural Networks This type of knowledge system is as close to emulating the human ability to learn as we’ve been able to come. Let’s return to our umbrella example. How do you know to take an umbrella when it’s raining? You probably got wet a few times without one. Then you tried using one when it rained and discovered that you didn’t get wet. You learned that when it rains, an umbrella will keep you dry. That’s basically how neural networks work. You give a neural network data for which you already know the output, so that it has a base of correct information upon which it can build. When you give it new, different data, the computer will compare it with the previous data to determine what the correct outcome of the situation should be. If the data don’t fit, it figures out why. It adds that information to its current database of knowledge and then keeps taking in more data. It eventually learns the right outcome. The more data it takes in, and the more situations it gets right, the better it becomes at knowing the right answer to the next set of decisions. The Difference between Neural Networks and Expert Systems • •
Expert systems emulate human decision making. Neural networks learn human thought processes and reasoning patterns.
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Expert systems use rules and frames in which to make their decisions. Neural networks adjust to inputs and outputs.
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Expert systems provide explanations for solutions. Neural networks cannot explain why they arrived at a particular solution.
• •
Expert systems require humans to update their database of information. Neural networks continue to expand their own base of information.
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Genetic Algorithms We’ve evolved as a human race through genetics. We are made up of many combinations of generations of humans. That’s how genetic algorithms work. Solutions to problems are examined by the system. The best solution is retained for future use, while the worst solutions are discarded. The solutions that are retained are used to help provide better solutions to future problems. They are combined and changed the next time they are used. Businesses often need to solve problems that are dynamic, complex, and have many variables. Very few problems are clear-cut, black-and-white. Genetic algorithms are good systems for businesses to use because it’s almost like having millions of people coming at a problem from all directions. Intelligent Agents Jump on the web and find the best price for computer printer supplies. Simply typing the words “computer printer supplies” into your favorite search engine will result in thousands of pages with more than just price information. You can find specific information on prices much faster using an intelligent agent. These software programs learn your personal preferences for accomplishing simple tasks and can take the drudgery out of repetitive, specific work. Figure 11.11 in the text demonstrates intelligent agent technology at work. Businesses can use intelligent agents to help train users on new systems, schedule appointments, or monitor work in progress. By far though, the most popular use of this nifty little software program is as a “shopping agent” that surfs the web for you looking for specific items to purchase or the lowest prices on a particular item. If you’d like to try a shopping bot yourself, try www.mysimon.com. The website explains its service this way “Our secret is a team of helpers built with patent-pending software. The Virtual Learning Agent technology creates ‘intelligent agents’ trained by our own team of shopping experts to collect information from any online store.” It’s fun and fast. Chatbots are becoming more commonplace and provide an easy way to issue instructions to hardware devices or software programs. For instance, cars equipped with hands-free telephoning may use a chatbot that lets you speak to the device by saying “call Dave Smith” and it will dial the phone for you. Another way companies are using intelligent agent technology is by developing agents that mimic real entities—customers, supply chains, and stock markets. Agent-based modeling uses the agents to model behavior and help managers make decisions. For example, it seems reasonable to assume that it’s better to wait until you have a full truckload of supplies before you dispatch the truck. But P&G discovered through agentbased modeling that the amount of lost sales because of out-of-stock conditions actually cost the company more than the transportation expenses associated with partial truckloads of supplies. 11-17 ..
Hybrid AI Systems We’ve mentioned before about taking the best of the best and that’s just what hybrid AI systems do. They take the best parts of expert systems and the best parts of fuzzy logic, and the best parts of neural networks, and combine them into one system that solves a problem. You can look forward to more of this hybridization as we continue to expand our knowledge of technology and of human behavior.
Bottom Line: Businesses are interested in artificial intelligence to preserve the intelligence and knowledge of their employees and use it to their competitive advantage. Expert systems emulate humans in the decision-making process but cannot replicate the intuition and reasoning that still require the human touch. Many new technologies can help humans solve difficult problems or take advantage of new opportunities. Neural networks learn how to make decisions. Fuzzy logic uses “ranges of possibilities” instead of giving black-and-white, yes–no answers. Intelligent agents take much of the drudgery out of repetitive and predictable tasks.
Discussion Questions 1. Discuss the difference between tacit knowledge and explicit knowledge and give some examples of each. 2. Discuss management and organization activities necessary to enable information system activities in a knowledge management system. Refer to Figure 11.1 in the text. 3. Describe how an organization can use Web 2.0 collaboration tools to enhance enterprise content management systems. 4. How is an expert system different from a neural network? 5. Discuss some potential business uses for augmented reality technology.
Answers to Discussion Questions 1. Tacit knowledge is undocumented experience and expertise employees keep in their heads. Explicit knowledge is documented usually through reports, e-mails, voice mail, graphics, and video files.
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2. There are four information system activities in a knowledge management system: acquire, store, disseminate, and apply. Each has multiple management and organization activities that must take place to ensure as much knowledge as possible is included in the knowledge business value chain. Figure 11.2 aligns the two sets of activities. 3. Organizations can use consumer Web 2.0 technologies, including portals, blogs, wikis, and social bookmarking, to collaborate with other employees, customers, suppliers, and business partners. The common tools help capture, consolidate, and centralize the knowledge and make it easy to share. Social bookmarking, along with folksonomies, allows users to share information of interest with others. 4. Expert systems require people to input all decision-making rules into the rule base. A knowledge engineer pulls information from various sources and fits it into the expert system. A neural network builds upon a base of information and continually learns by itself. Very little human intervention is required for the neural network’s knowledge base to grow. 5. Augmented reality combines the real world with computer-generated graphics or other effects that enhance users’ experiences. Some potential uses include: • Landscape architects could enhance a photo of your front yard with potential changes. • Geologists could use an aerial photo to demonstrate potential flood plains and the effects a flood would have on the area. • City planners could project how changing a street’s traffic flow pattern would look before they began construction. • Automobile manufacturers could use the technology to show potential customers what a car would like look with various changes in upholstery, colors, or more dashboard features.
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Management Information Systems, 15E Laudon & Laudon Lecture Files, Barbara J. Ellestad
Chapter 12 Enhancing Decision Making “Companies have been able to use technology to do some very cool stuff to reach customers in new ways, to automate operations. But one thing many businesses haven’t been able to do easily is use the data they’ve collected to find and stamp out waste across operations. Sifting through corporate data was supposed to make executives more efficient. Much of the time, though, it’s just made them more confused.” (Fortune, March 3, 2002) Even though this quote is ten years old, it’s still pertinent in many companies. We’re getting better though about turning raw data into useful information that helps improve decision making.
12.1 What are the different types of decisions and how does the decision-making process work? Each of us makes hundreds of decisions every day. If just a fraction of those decisions could be improved through better and more information and better processes, we’d all be delighted. Businesses feel the same way. Customers would be happier, employees would be more motivated, and managers would have an easier job. Most of all, businesses could improve their profitability to the benefit of all. Business Value of Improved Decision Making Table 12.1 provides a few examples of the dollar value that enhanced decision making would give to firms.
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Don’t be misled into thinking that the dollar value of improving decision-making processes is limited to managers. As more business flatten their organizational structures and push decision making to lower levels, better decisions at all levels can lead to increased business value. Types of Decisions There are generally three classifications of decisions: • • •
Unstructured: Requires judgment, evaluation, and insight into nonroutine situations. Usually made at senior levels of management. Structured: Repetitive, routine, with definite procedures for making the decision. Usually made at the lowest organizational levels. Semistructured: A combination of the two. Usually made by middle managers.
Figure 12.1 couples these three types of decisions with the appropriate management level.
Figure 12.1 Information Requirements of Key Decision-Making Groups in a Firm 12-2 ..
• • • •
Senior management: Makes decisions based on internal business information but also external industry and society changes; decisions affect long-term, strategic goals and the firm’s objectives. Middle management and project teams: Decisions affect resource allocation, shortrange plans, and performance of specific departments, task forces, teams, and special project groups. Operational management and project teams: Decisions affect subunits and individual employees regarding the resources, schedules, and personnel decisions for specific projects. Individual employees: Decisions affect specific vendors, other employees, and most importantly, the customer.
The Decision-Making Process Making decisions requires four steps: • • • •
Intelligence: Discovering, identifying, and understanding problems. Design: Identifying and exploring solutions to problems. Choice: Choosing among solution alternatives. Implementation: Making the chosen alternative work and monitoring how well the solution is working.
These four steps are not always consecutive and may well be concurrent or repetitive.
Bottom Line: Everyone makes decisions at all levels of an organization. The goal is to match the four decision-making organizational levels along with the three types of decisions to the appropriate kind of decision support system. It’s important to understand the roles and activities associated with management decision making and that information systems can only assist in the process.
12.2 How do information systems support the activities of managers and management decision making? Although information systems have gone a long way toward improving the decisionmaking process, they are not the Holy Grail. They should be viewed as a way to assist managers in making decisions, but not as the final answer. Managerial Roles Let’s compare the classical model of management with the behavioral model. The former describes the five classical functions of managers as: • Planning 12-3 ..
• • • •
Organizing Coordinating Deciding Controlling
Behavioral models of managers dissect the many activities involved in the five functions of management. That is, managers: • Perform a great deal of work at an unrelenting pace. • Activities are fragmented. • Prefer current, specific, and ad hoc information. • Prefer oral communications rather than written documentation. • Maintain a diverse and complex web of contacts. Now, let’s take all of these activities and categorize them into three managerial roles: • Interpersonal: Act as figureheads, leaders, and liaisons. • Informational: Act as nerve centers, disseminators, and spokespersons. • Decisional: Act as entrepreneurs, handle disturbances, allocate resources, negotiate and mediate conflicts. Table 12.2 shows that supporting information systems exist for only some of the managerial behaviors but not all of them.
Table 12.2 Managerial Roles and Supporting Information Systems
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Real World Decision Making Because you have no doubt had to make decisions in the real world, you know for a fact that the process is not as cut-and-dried as what we’ve reviewed so far. Three reasons why the whole process can blow up without a moment’s notice: •
Information Quality: Was the information used to make the decision accurate, consistent, complete, valid, timely, accessible, and of high integrity? What if you were making a decision about purchasing a house and found out that there were errors in your credit record that prevented you from obtaining the necessary financing? Perhaps the data was out of date or contained mistakes.
•
Management Filters: Everyone processes information through personal filters and biases. Managers are no different. For instance, you may suggest to your manager that the department purchase a piece of equipment from a certain manufacturer. Your manager disapproves the suggestion because he had a bad experience with that company ten years ago. The manager’s bias negates the fact that the company has since improved and is the best and cheapest choice.
•
Organizational Inertia and Politics: People hate change and will sometimes do whatever they can to keep the status quo. Decision makers are no different especially if they stand to lose. What if your department will benefit from improving its business processes to the benefit of all concerned except that the manager will lose her job? It’s likely the manager will not make decisions that will cause her to lose her job. Therefore, nothing gets done regarding improving processes.
High-Velocity Automated Decision Making What if your friend asked you to find a copy of the lyrics to the Beatles hit song “Hey Jude?” How long do you think it would take you if Internet-based search processes were not available? Days? Weeks? A Google search for the information takes less than five seconds. That’s the power of high-velocity automated decision making in today’s world. Humans simply can’t match a computer’s speed and accuracy for making some decisions. Computer programmers use the same four step decision-making process we’ve discussed before when they create algorithms that help make these kinds of lightning-fast decisions: identify the problem, design a method for finding a solution, define a range of acceptable solutions, and implement the solution. They just have to be careful that the algorithms are written correctly to ensure proper decisions are made by computers or you may end up getting a profile of Jude Law, the actor. Earlier we mentioned a class of decisions that are routine, very structured, and have definite procedures for determining the solution. In these situations, why not automate the process and have a computer make the decision much faster than a human can?
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Computers have these positive characteristics that make them ideal for high-velocity automated decision making: • Computer algorithms that precisely define the steps to be followed • Very large databases • Very high-speed processors • Software optimized to the task The algorithms are structured to follow the intelligence, design, choice, and implementation steps we discussed as part of the decision-making process. But, just in case, the information systems used to process these kinds of decisions should be monitored and regulated by humans.
Bottom Line: There are two types of managers: classical and behavioral. Three managerial roles that each must fulfill include interpersonal, informational and decisional. Information systems must support all of them.
12.3 How do business intelligence and business analytics support decision making? Business intelligence and business analytics provide managers with a systematic way of making sense of the vast amounts of data collected on customers, suppliers, employees, business partners, and the external business environment. What Is Business Intelligence? All of us collect information from our surroundings, try to understand it, and then act on it in an intelligent way. Businesses are no different other than the fact that they have much more data to collect, process, store, and disseminate. A whole new industry has sprung up that helps businesses create an infrastructure to warehouse, integrate, report, and analyze data. This is where the databases, data warehouses, data marts, analytic platforms, and Hadoop that we discussed in previous chapters come back into the picture. Business intelligence describes how businesses collect, store, clean, and disseminate useful information to executives, managers, and employees. Business analytics, on the other hand, are the tools and techniques businesses use to analyze and understand the data in a meaningful way. It’s one thing to read a report that says sales are 10 percent ahead of last year. Business analytic tools, such as data mining, statistics, online analytical processing, and models help managers understand that part of the cause is an increased focus on marketing to middle-aged women with two children.
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Business Intelligence Vendors The top five vendors of BI and BA hardware and software include well-known technology companies: Oracle, SAP, IBM, Microsoft, and SAS. These vendors are primarily the same ones that we’ve discussed before when we reviewed enterprise systems. Perhaps the most interesting aspect of BI and BA hardware and software suites is that it’s the fastest-growing and largest segments in the U.S. software market. That demonstrates just how hungry businesses are to make sense of all the data they have available to them. The Business Intelligence Environment Let’s review six hardware, software, and management capabilities that are included in the business intelligence environment: • Data from the business environment: Integrating and organizing structured and unstructured data from different sources that people can analyze and use. • Business intelligence infrastructure: Database systems that process relevant data stored in transactional databases, data warehouses, or data marts. • Business analytics toolset: Software tools that managers use to analyze data, produce reports, respond to questions, and track their progress using key performance indicators (KPI). • Managerial users and methods: Business performance management and balanced scorecard methods that help managers focus on key performance indicators and industry strategic analyses. Requires strong executive oversight to ensure managers are focusing on the right issues and not just producing reports and dashboard screens because they can. • Delivery platform—MIS, DSS, and ESS: All the information from MIS, DSS, and ESS are integrated and delivered to the appropriate level of management. • User interface: BI and BA systems make it easy to visually display data, thereby making it easy to quickly understand information on a variety of computing devices. Figure 12.3 helps you understand how these six elements work together in business intelligence and business analytics systems.
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Figure 12.3 Business Intelligence and Analytics for Decision Support Business Intelligence and Analytics Capabilities The days of receiving static reports that are out of date—meaning more than 30 days or even 30 minutes old—containing data that are meaningless are over. Business intelligence systems help correct that situation in five different ways: • • • • • •
Production reports: Predefined reports based on industry specific requirements. Parameterized reports: Pivot tables help users filter data and isolate impacts of parameters chosen by users. Dashboards/scorecards: Visual reports that present performance data chosen by users. Ad hoc query/search/report creation: Users create their own reports based on data they choose. Drill down: Users initially receive high-level data summaries and then drill down to more specific data. Forecasts, scenarios, models: User can perform linear forecasting, what-if scenario analysis, and analyze data using standard statistical tools.
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Table 12.4 Examples of Business Intelligence Predefined Production Reports Predictive Analytics Most times, customer behavior is very predictable if you’re looking at and understanding the right data. Companies use business analytic software to figure out ahead of time how reliable certain customers are regarding credit extensions, how customers will respond to changes in prices or services, or how successful new sales locations will be. Those are the kinds of questions predictive analytics can answer more quickly and more easily than humans. Predictive analytics helps managers ask and answer the right questions to make their company more successful. Over the last few years, many retailers have drastically reduced the number of catalogs they send in snail mail to potential customers. With rising postal fees and many people using the Internet to make purchases, fewer and fewer of them are waiting for the catalog in the mail. By using predictive analytics, companies can weed out people who are unlikely to make catalog purchases and concentrate on those who will. That decreases marketing costs while increasing the ratio of catalogs to purchasing customers. Big Data Analytics You’re shopping on a major retailer’s Web site when, all of a sudden, you see a sweater that you simply can’t live without. Alongside the sweater’s display are pictures of a pair of pants or skirt that, combined, will make the perfect outfit. The pants and skirt are labeled, “You might also like…” or “What other customers purchased when they purchased this sweater….” Those extra items weren’t put there by chance but more as a result of big data analytics that we discussed in earlier chapters. Rather than requiring you to thumb through pages 12-9 ..
and pages of skirts and pants, the retailer will do it for you and, in the meantime, increase the chances of making an extra sale. Those recommendations likely are a result of what other customers purchased. The retailer captures all of its sales data, analyzes it, and includes data from social media streams to create the customized recommendations. Operational Intelligence and Analytics Businesses are collecting millions of pieces of data on a constant basis from sensors, gauges, monitoring devices, and other technologies. The trick is to make good use of the data and turn it into information that employees and managers can use to make better decisions at the operational level of an organization. Operational intelligence and analytics software gives organizations the ability to analyze all of the big data as they are generated in real time. The data can feed dashboards for employees or managers and give them a heads-up about ongoing, real time operations. Interactive Session: Technology: The Tension Between Technology and Human Decision Makers (see page 467 of the text) describes how Team USA used big data in real-time operation intelligence mode to win the 2013 America’s Cup sailboat race. Ultimately, it was a balancing act between technology-driven decisions and human decision makers.
Location Analytics and Geographic Information Systems (GIS) Many executive decisions depend on the availability of information, internal and external. For instance, a company that ships most of its products on trucks needs data about interstate highway access and traffic patterns to help control shipping costs and make it easier for drivers to access its warehouses. Some company policies limit business locations to high-traffic areas such as malls and similar densely populated areas. Other executive decisions revolve around data about current and potential customers and their geographic location. Location analytics enable companies to gain insight from the location component of data, including data from mobile phones, wireless sensors, scanning devices, locationbased cameras, and maps. The data may help businesses solve problems, attract more customers, or improve services. Geographic information systems (GIS) rely heavily on demographic data from the U.S. Census Bureau. This type of decision-support system helps managers visualize geographic information more easily and make better decisions based on digitized maps. GIS data can be coupled with an organization’s internal data to better allocate resources, money, people, time, and material.
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Interactive Session: Management: Data Drive Starbucks Location Decisions (see page 470 of the text) describes how a major retail restaurant uses geographic information systems to select sites for its outlets and product placement.
Management Strategies for Developing BI and BA Capabilities Is it better to select a one-stop integrated solution for your organization’s business intelligence and business analytics systems or should you adopt a multiple best-of-breed vendor solution? Be aware that your decision carries risks and rewards either way. Single vendor: The risk is that your company becomes dependent on the vendor’s pricing power. The reward is that a single vendor promises hardware and software that will work together “out of the box.” Multiple vendors: The reward is that you’ll have greater flexibility and independence in selecting your hardware and software. The risk is that you’ll suffer compatibility issues, not just between the BI hardware and software but with your other systems as well. You are locked into your decision and the switching costs are extremely high regardless of which way you decide to go. As a manager you must: • Critically evaluate vendor claims • Understand exactly how the systems will improve your business • Determine if the expenditures are worth the benefits.
Bottom Line: Business intelligence and business analytics hardware and software systems help businesses warehouse, integrate, report, and analyze data from the firm’s internal and external environment. BI and BA systems provide employees, managers, and executives with a wide variety of tools and techniques that help them make sense of all the data and ultimately make better decisions. Each business must decide whether a single vendor or multiple vendors will provide the better system.
12.4 How do difference decision-making constituencies in an organization use business intelligence and what is the role of information systems in helping people working in a group make decisions more efficiently? At the beginning of this chapter we outlined the types of decisions made at each managerial level—structured, semistructured, and unstructured. We also mentioned that each management level has different information needs that match the type of decisions
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made at that level. Let’s look at the types of information systems that match the information needs. Decision Support for Operational and Middle Management For the most part, operational managers get their information from transaction processing systems. But, more and more, they are accessing management information systems (MIS) for a broader look at their company’s performance. Middle management also relies on MIS systems for the bulk of their information. Here are the characteristics of a typical MIS system: • Used for structured and semistructured decisions • Reports based on routine flows of data • Provide general control of the organization • Routine production reports are the primary output • Exception reports are available Support for Semistructured Decisions Decision support systems help executives make better decisions by using historical and current data from internal information systems and external sources of data. By combining massive amounts of data with sophisticated analytical models and tools, and by making the system easy-to-use, they provide a much better source of information to use in the decision-making process. Because of the limitations of hardware and software, early DSS systems provided executives only limited help. With the increased power of computer hardware, and the sophisticated software available today, DSS can crunch lots more data, in less time, in greater detail, with easy-to-use interfaces. The more detailed data and information executives have to work with, the better their decisions can be. The “what-if” decisions most commonly made by executives use sensitivity analysis models to help them predict what effect the decisions will have on the organization. Executives don’t make decisions based solely on intuition. The more information they have, the more they experiment with different outcomes in a safe mode, the better their decisions. That’s the benefit of the models used in the software tools. Common spreadsheet software such as Microsoft’s Excel helps managers review data in two dimensions rather than just one by using pivot tables. They can decipher patterns in information and help them allocate resources better. Managers using pivot tables can develop better strategies because they’ll gain a better sense of correlating data points. Figure 12.6 shows you a typical screen used in a Microsoft Excel pivot table.
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Figure 12.6 A Pivot Table That Examines Customer Regional Distribution and Advertising Source Decision Support for Senior Management: Balanced Scorecard and Enterprise Performance Management Methods Executive support systems (ESS) are used primarily by senior management whose decisions are usually never structured and could be described as “educated guesses.” Executives rely as much, if not more, on external data than they do on data internal to their organization. Decisions must be made in the context of the world outside the organization. The problems and situations senior executives face are very fluid, so the system must be flexible and easy to manipulate. Executive support systems don’t provide executives with ready-made decisions. They provide the information that helps them make their decisions. Executives use that information, along with their experience, knowledge, education, and understanding of the corporation and the business environment as a whole, to make their decisions. Using a balanced scorecard method, executives combine their company’s internal financial information with additional perspectives such as customers, internal business processes, and learning and growth. By focusing on key performance indicators (KPIs) in each of these areas, executives gain a better understanding of how the organization is performing overall. After senior management establishes KPIs for each area, then and only then can the flow of information be established. Figure 12.7 depicts the framework for a balanced scorecard. 12-13 ..
Figure 12.7 The Balanced Scorecard Framework Business performance management (BPM) is yet another tool for executives to systematically translate the strategy they’ve developed for their company into operational targets. BPM methods use KPIs to help users measure the organization’s progress toward the targets. BPM is similar to the balanced scorecard approach but with a stronger strategic viewpoint than an operational viewpoint. Executives often face information overload and must be able to separate the chaff from the wheat in order to make the right decision. On the other hand, if the information they have is not detailed enough, they may not be able to make the best decision. An ESS can supply the summarized information executives need and yet provide the opportunity to drill down to more detail if necessary. As technology advances, ESS are able to link data from various sources, both internal and external, to provide the amount and kind of information executives find useful. As common software programs include more options and executives gain experience using these programs, they’re turning to them as an easy way to manipulate information. Because of the trend toward flatter organizations with fewer layers of management, companies are employing ESS at lower levels of the organization. Flatter organizations also require managers to access more information about a wider range of activities than in the past. This requirement can be accomplished with the aid of a good ESS. Executives can also monitor the performance of their own areas and of the company as a whole. Group Decision-Support Systems (GDSS)
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More and more, companies are turning to groups and teams to get work done. Hours upon hours are spent in meetings, in group collaboration, in communicating with many people. To help groups make decisions, a new category of systems was developed: the group decision-support system (GDSS). You’ve been there—a meeting where nothing seems to get done, where some people dominate the agenda and others never say a word, and it dragged on for hours. When it was all over no one was sure what was accomplished, if anything. But the doughnuts and coffee were good! Organizations have been struggling with this problem for years. They are now using GDSS as a way to increase the efficiency and effectiveness of meetings. In GDSS, the hardware includes more than just computers and peripheral equipment. It also includes the conference facilities, audiovisual equipment, and networking equipment that connect everyone. More sophisticated GDSS require meeting facilitators and other staff that keep the hardware operating correctly. Many companies are bypassing specially equipped rooms in favor of having group participants “attend” the meeting through their individual desktop computers. Now instead of wasting time in meetings, people will know ahead of time what is on the agenda. All of the information generated during the meeting is maintained for future use and reference. Because input is anonymous, ideas are evaluated on their own merit. And for geographically separated attendees, travel time and dollars are saved. GDSS are best used for tasks involving: • Idea generation • Complex problems • Large groups Bottom Line: Executive support systems meet the needs of corporate executives by providing them with vast amounts of information quickly and in graphic form to help them make effective decisions. ESS must be flexible, easy-to-use, and contain both internal and external sources of information. The balanced scorecard method expands the view of the organization to include four dimensions: financial, business process, customer, and learning and growth. Group decision-support systems, comprised of hardware, software, and people, help streamline group meetings and communications by removing obstacles and using technology to increase the effectiveness of decisions.
Discussion Questions 1. Discuss the difference between the classical model of management and the behavioral model of management and how they affect information systems and decision support systems.
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2. Compare the characteristics of an MIS and a DSS. Why are decision-support systems more suited for executive decision making? 3. Discuss the managerial users and methods included in the business intelligence environment. 4. Discuss the pros and cons of two different management strategies for developing business intelligence and business analytics capabilities. 5. What benefits do group decision-support systems provide organizations?
Answers to Discussion Questions 1. The classical model of management describes the five functions of managers: planning, organizing, coordinating, deciding, and controlling. Behavioral models show the actual behavior of managers is less systematic, more informal, less reflective, more reactive, and less well organized. Managers perform a great deal of work at an unrelenting pace; their activities are fragmented; managers prefer current, specific, and ad hoc information; they prefer oral forms of communication, not written documentation; they maintain a diverse and complex web of contacts. Information systems and decision-support systems must accommodate these behaviors in order to be effective. 2. MIS are used for structured decisions with reports based on routine flows of data. DSS are used for semistructured or unstructured decisions and focus on specific decisions or classes of decisions. DSS are better for executive decision making because executives’ questions and problems are unstructured and rely on external environmental information as well as internal data. 3. Business intelligence hardware and software are only as intelligent as the human beings who use them. Managers define strategic business goals and determine progress measurements using business performance management and balanced scorecards that focus on key performance indicators. Industry strategic analyses focus on changes in the general business environment with special attention paid to competitors. Strong executive oversight ensures that the organization focuses on the right issues rather than producing information, reports, and online screens that divert attention to the wrong issues. 4. There are two strategies for developing BI and BA capabilities in an organization. The one-stop integrated solution uses a single vendor to provide a total hardware and software solution. That runs the risk of making the organization dependent on the vendor’s pricing power. It offers the advantage of dealing with only one vendor and ensuring that all the hardware and software is compatible. The second strategy of using multiple best-of-breed vendors gives a company greater flexibility and 12-16 ..
independence in choosing hardware and software but runs the risk of incompatibility between the components. Either solution locks an organization into its decision and creates tremendous switching costs. 5. Group decision-support systems make it possible to increase meeting size while still providing a level of productivity. Individuals contribute simultaneously to the discussion rather than one at a time. Contributors remain anonymous which lets attendees focus on evaluating ideas rather than individuals. GDSS software provides a structured method for organizing and evaluating ideas. The information gathered during the meeting is preserved for later use and for those who were unable to attend.
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Management Information Systems, 15E Laudon & Laudon Lecture Notes by Barbara J. Ellestad
Chapter 13 Building Information Systems “What do you mean we have to change the way we make our candy bars? They are the number one selling product we have. Everyone loves them. Why can’t we just keep doing things the way we’ve always done them? It’s worked fine this long.” It’s not unusual to hear this type of dialog in companies, large and small, all across the world. Change is hard on people and organizations. But it’s one of those necessary evils that keeps companies in the lead or helps destroy them. In this chapter, we’re going to focus on using information systems as a way to successfully help redesign organizations so they can improve their current processes or establish new ones.
13.1 How does building new systems produce organizational change? It would be nice if we could give you a precise checklist of how to smoothly introduce a new information system, but we can’t. No one can. What we provide in this chapter is information you can use to help plan and analyze organizational changes associated with new systems development. The triangle that we’ve used before is back.
All three elements will pose their own unique challenges to managers, but you may be surprised to learn that the hardware and software will probably be the easiest of the three to manage. Successfully reorganizing the company relies on more than just bringing in new equipment and new programs. Understanding and incorporating changes in the 13-1 ..
social and political climate in any organization is one of the most important aspects managers will have to deal with. Systems Development and Organizational Change Change is disruptive. Change is dangerous. Change is good. Change is necessary. Change is constant.
Figure 13.1: Organizational Change Carries Risks and Rewards This figure shows the four degrees of organizational change. Automation is the easiest (except for those people losing their jobs), and the most common form of change. But that doesn’t mean you don’t have to plan for the change first. Rationalization of procedures causes the organization to examine its standard operating procedures, change the ones that don’t work well anymore, eliminate those no longer needed, and make the organization more efficient. It’s a good thing, as Martha Stewart would say! Both of these types of change cause some disruption, but it’s usually manageable and relatively accepted by the people. Total quality management, making quality control everyone’s responsibility, relies on an excellent information system that supplies workers and management with the data necessary to improve products and drive down costs. The lack of good, useful information may not be apparent until the organization can’t figure out what it’s doing wrong, or doing right. Data from all the types of information systems we discussed can be fed into quality management and make it easier to develop and improve products that blow away the competition. Six Sigma is another initiative companies use to spot problems and correct them before they are too deeply embedded in the company’s processes. It just stands to reason that the 13-2 ..
longer a flaw is allowed to fester in the system, the more problems it may cause. And the more problems, the higher the costs. So if you can identify the defects early on and eliminate them, you can achieve more efficient production at lower costs. That’s the premise behind Six Sigma. Business process redesign, on the other hand, can cause radical disruption. The mere mention of the term nowadays strikes fear in the hearts of workers and managers at all levels. Why? Because many companies use it as a guise for downsizing the organization and laying off workers. Business process reengineering causes planners to completely rethink the flow of work, how the work will be accomplished, and how costs can be reduced by eliminating unnecessary work and workers. But if you want to talk radical change, take a look at paradigm shifts. Now we’re talking about changing the very nature of the business and the structure of the organization itself. We’re talking whole new products or services that didn’t even exist before. We’re talking major disruption and extreme change! The Internet is causing all kinds of industries and businesses to alter their products, their services, and their processes in radical ways. Entire organizations are being created to handle the paradigm shifts caused by the Web and other Internet applications. Look at the automobile industry as an example of this type of change: Traditional dealerships are being disrupted by automalls and online buying opportunities. How can a local dealer compete on price with these two environmental challenges? What is the dealers’ role in the revolutionary changes taking place all around them? If business process reengineering and paradigm shifting are so disruptive and so dangerous, why even try to do them? Because companies realize they have to take on the challenges in order to stay competitive. They have had to cut costs and streamline their operations because of global economic pressures, in addition to meeting the demands of their shareholders. And done well, the rewards can be tremendous. Business Process Redesign Take a seemingly simple task such as sending out customer invoices and really analyze how many steps are involved in the process. Even in a small business, you may be surprised how many steps there are. Business process management (BPM) is the art and science of analyzing every task in a business and helping firms continually optimize them. BPM includes work flow management, business process modeling, quality management, change management, and standardizing processes throughout the organization. Every business, from the smallest to the largest should continually analyze how they accomplish every task and look for ways to improve everything. The business doesn’t have to accomplish this with the idea that every process should be automated even though many can. The business simply has to continually look for better methods of performing the work.
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BPR attempts fail 70 percent of the time. That’s an astonishing figure when you think about it. What if your car failed to start 70 percent of the time? Some of the reasons for the high failure rate are lack of planning, management’s inability to fully comprehend the enormity and complexity of the effort, and the fact that BPR usually takes much longer than expected. Here are a few guidelines that organizations, their managers, and workers can follow to help make BPR a success. First, decide which business processes you need to focus on. Sometimes it’s not the information system that’s the real problem but rather the process itself. Understanding the difference can help prevent fixing the wrong thing. By determining what business processes are most important to the organization and improving them, you can improve the overall business performance. Second, make a diagram of how your processes work now, including inputs, outputs, resources, and the sequence of activities. Figure 13-2 in the text shows an example of the proper way to diagram an existing business process. Try just a few processes to get your feet wet and then expand it to other units or processes within the organization. Document how much your current processes cost. You’ll be able to measure costs savings (or costs increases) better if you have a baseline for comparison. The third step is to design and document the new process. Does the new process save time and money or improve customer service? Sometimes you can accomplish all three objectives. For instance, instead of ten people handling a single bank loan application, you can install software that will speed up the process, allow several people to work on the document at the same time, and decrease the total number of people who handle it. Or, you can migrate the application process to the Web and make it even more efficient and customer-friendly. Wells Fargo Bank allows customers to complete an online application and receive a preliminary approval or disapproval within minutes. Wells Fargo’s computer system is connected to the credit reporting agencies’ computers for quick access of customer credit data. If customers have questions about the application or the types of loans available, they can initiate an instant messaging session with a bank employee and get all their questions answered on the spot. After the application has been submitted, the customer can check its progress online. Once the loan is approved, the money is allocated to the customer through an online account. Wells Fargo processes more bank loans faster and more efficiently. The customer is happier with less effort. And all of this can take place 24/7. The fourth step in business process redesign is to translate the (hopefully) improved process into new procedures and work rules. You may encounter new problems or determine that portions of the new process must be improved or changed, but that’s okay. Work through them and continually improve what you do.
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Last, you need to understand that every process requires continuous measurement to ensure you keep up with changes and technological improvements. That’s where the documentation you created in the second step can help. Tools for Business Process Management Fortunately, you have a lot of tools that will help you manage these aspects of the BPM process: • Identifying and documenting processes • Creating models of improved processes • Capturing and enforcing business rules for performing processes • Integrating existing systems to support new or redesigned process • Providing analytics for verifying improvements in process performance • Measuring the impact of process changes The tools for BPM generally fall into one of three categories: • Documenting and monitoring business processes to help identify inefficiencies and identifying trouble spots • Automating some parts of a business process and enforcing business rules • Integrating existing systems to support process improvements
Bottom Line: Continual change is a necessary part of corporate life. Four types of organizational change each carry their own level of risk and reward: automation, rationalization, redesign/reengineering, and paradigm shifts. The quality of a company and a product can be improved through business process redesign.
13.2 What are the core activities in the systems development process? Systems development includes every resource and every step that goes into producing an information system that solves a problem or helps the organization take advantage of new opportunities.
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Figure 13.4: The Systems Development Process Don’t start by thinking, “Oh, we’re going to develop a new computer system? Well, that problem belongs to the IT (information technology) department.” Nowadays, system development belongs to you as much as it belongs to the techies. You have to work handin-hand from start to finish within the entire organization to develop a usable system that will serve everyone. The arrow in Figure 13.4 goes in only one direction. Remember that just because you apparently completed one step doesn’t mean you can never go back to it at some point in the development process. In fact, many of the steps should be revisited several times, especially if you are using the prototype method of development. Systems Analysis So what’s the problem? Answering that question is harder than you might think. You have to analyze the current situation to determine the real cause of the problem. Make sure you’re addressing the real problem and not just the symptoms. Effective systems analysis, adequately determining the real problem, is the key. Write down everything you do in this stage, especially when it comes to what the real problem or opportunity is. Constantly review it throughout the rest of the system development process to remind you and others of what you’re trying to do and where you’re trying to go. It’s natural to stray from the path! Most of all, determine how your objective fits in with the rest of the current information systems and the business plan itself.
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Is your idea even feasible? You might be surprised how often organizations fail to ask this question. A feasibility study helps you determine if your proposed solution is achievable before you spend thousands of dollars. The study will review the technical, financial, and organizational feasibility of hardware, software, and persware and help you decide whether your proposed answer is the right one. Too often organizations underestimate the cost of a new system, especially in the persware area: training, downtime, lost productivity, and employee disruption. Establishing Information Requirements Figuring out who needs what information, where, when, and how will challenge the political dynamics of any organization. No system can answer every need, so you’re going to have to decide who gets what. That’s why you must write down the problem and then keep referring to your notes throughout the development process. It is too easy to get sidetracked by politics. You must think and then rethink the proposed solution. Make sure you thoroughly investigate the information requirements—you’re going to live or die by the outcome. Whatever happens at this stage will carry through to all the other stages. A significant cause of system failure in development projects is because organizations failed to properly analyze and understand their information requirements. The final dilemma is whether a new information system is really the answer. Would it be better to address the problem through management changes, more training, or changing existing organizational processes? Systems Design Congratulations! If you get to the systems design stage, it means you managed to live through the analysis phase. Now you can get down to figuring out how the system will actually solve the problem or help you take advantage of new opportunities. Remember, your goal is to fit the system into the organization and not make the organization fit the new system. Or at least you want to keep them in tandem; that is, the organization should decide what technology is necessary, while the system capabilities can help reshape the organization. When we discussed database management systems, we distinguished between two methods of viewing data: the physical design (how the data would actually be stored in the system) and the logical design (how the data would look to the user). Use the same definitions when you are designing your system, and concentrate on the logical design. In addition to elements that the authors point out in the text, the physical design should determine how the new system will support the current organizational structure, or spell out the changes in that structure that will successfully integrate the new system. Table 13.1 in the text categorizes all of the design specifications that you’ll need to develop for a new system.
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The Role of End Users Unfortunately, the physical design sometimes overrides the logical design. Why? Because the nontechies give up too much control to the techies. This is a reminder that both sides have to work together, keeping the goals of the organization as the number one priority, and remembering that the best system is one that meets the users’ needs. Don’t forget that people are the most important component of any system. As soon as users begin to feel they have little input into the development process, you are courting disaster. Keeping the end user involved will produce a better system. The number one reason so many system development projects fail is due to insufficient user involvement. Completing the Systems Development Process Now that you’re through the analysis and design phases, you can move on to the remaining steps in the process. Just remember, you can always go back to those two steps and probably should at some point. Programming The actual programming phase will in all likelihood be carried out by the IT department. If you’re using a fourth-generation language, the programming could very well be done by the end user. Either way, make sure that the programming supports the analysis and design phases. If not, go back and work through them again. It could very well be that what was designed simply can’t be programmed. The usual impulse is to program around the design flaws. Don’t! Redesign instead. Testing “Hey, it works!” But does it really work as it was designed for a real-world situation? Was every aspect thoroughly tested by independent testers in an actual setting? Several things that go wrong in the testing phase of the development process can severely hamper the projects success. For one thing, this step is glossed over by both techies and nontechies. People assume that because something was designed and programmed according to the specifications in the analysis stage, it is right. So they just fly right through the testing process. Or they run one or two tests, usually by the very people who designed and programmed the system. “Hey, I know it works ’cause I programmed it.” Uh, oh! Wrong! You should never have the people who were involved with the design and programming stages do all the testing. Get a fresh pair of eyes to look at the system according to the test plan that was developed by the programmers and the users. Most of all, if you do find a flaw in the testing, do not give into the temptation to ignore it or explain it away. Go back to the analysis, design, and programming stages. Get rid of the flaw the right way. 13-8 ..
Of the three types of testing explained in the book, unit, system, and acceptance, the last is the one that is most important and yet the most underrated. Managers and users must be adamant about testing the system, measuring it against the analysis and design requirements, and then accepting the system only when it does in fact measure up. Conversion You’re getting close to the end. You’ve been through the agony of analyzing, designing, programming, and testing. The system meets the requirements, works right, the end users love it, and the bosses are clamoring to see some results. Now you need to figure out which conversion process will work best for you. There is no right way or wrong way to implement the system; you have to look at it in the context of your particular organization. •
You can use the parallel strategy, but it’s expensive to run two separate systems at one time. If you don’t have a lot of confidence in your new system, you might want to go with this one.
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If you’re really confident in your development process or, if the old system simply doesn’t work anymore, you can use the direct cutover strategy. For instance, Friday you’re using the old system; come Monday you’re using the new one.
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If neither of the above describes your organization or your new information system, you might want to consider the pilot study strategy. You can introduce the new system into a single area of the organization. If all goes well there, you can install the new system in other areas. You’re still going to have to figure out how to run two systems at once and also figure out how to integrate the new system with the old system.
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The phased approach is similar to the pilot strategy, but now you install parts of the new system slowly into specific areas of the organization. Again, two systems, two methods, integration problems, support problems, and so on.
However you convert, make sure everyone knows what’s going on. Tell them through documentation of a formal conversion plan and not the grapevine. Use the information you gathered in the earlier stages of the development process to help guide the implementation plan. Make sure you figure out how to convert the data and train the users. User resistance through fear of the unknown can destroy all your hard work and planning. Production and Maintenance
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You buy a new car and think your problems with the old junker are over. Only for a while. Eventually, you’re going to have to change the oil, buy new tires, get a new air filter. Sooner or later, the new car will become an old car. The same is true with an information system. After you install the new system and it’s in production, you want to go back one more time and make sure it’s meeting your needs through a postimplementation audit. Eventually you’re going to have to perform maintenance on the system no matter how well you designed and built it. And someday you’ll have to make major changes or replace it altogether. It’s interesting to note the statistical breakdown of system maintenance that Laudon and Laudon include in the text: • 20 percent—debugging or correcting emergency production problems • 20 percent—changes in data, files, reports, hardware, or system software • 60 percent—making user enhancements, improving documentation, recoding system components for greater processing efficiency You can easily reduce the largest proportion of maintenance by using better systems analysis and design practices that we’ve discussed. Try it, you might like it.
Bottom Line: The system development process is a straightforward one with distinct activities that bring order to the chaos of building new systems. The most important piece of the puzzle in systems development is the user. Managing organizational information requirements through planned analyses and structured system development rather than a haphazard approach will help you succeed.
13.3 What are the principal methodologies for modeling and designing systems? There’s always more than one way to accomplish a task. The trick is to use the one that works best for the job you’re trying to accomplish. Structured Methodologies Traditionally, systems have been structured in a very orderly manner. The methods used to build the systems begin at the top and progress to the lowest detail always with an eye toward keeping the processes separated from the data. The designers sketch out how the data moves through the system by using data flow diagrams. That way the designers can easily track all the processes and their interrelationships. The DFDs can be used to help spot trouble areas before the system is actually built. Figure 13.6 shows a typical data flow diagram.
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Figure 13.6: Data Flow Diagram The advantage of using data flow diagrams is that they can be used to show a very general, high-level process or very minute detail using the same tools. Anyone can view the overall system and then easily drill down through the diagrams to lower levels of the system. Couple the DFDs with a data dictionary and you can develop process specifications that describe how the data is transformed into useable information. Hierarchical structure charts complete the structured methodology by providing topdown charts that show each level and how they interrelate. Object-Oriented Development The structured development method keeps data and processes separate. Object-oriented development combines the two and treats them as one object. More importantly, the objects are created once and, if they are done right, can be used many times over. That reduces the cost of creating new objects once you have built up a library of them. It also makes it easier to create new software, because you aren’t continually starting from scratch. The terms used in this section, class and inheritance, describe how object-oriented modeling uses objects to develop a program. It may sound complicated, but it really isn’t. Figure 13.8 shows you how classes inherit the common features of their superclass. Take a few minutes to study it.
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Figure 13.8: Class and Inheritance Object-oriented development is an iterative and incremental way of building programs. The steps in the analysis phase are: • Document functional requirements. • Specify the most important properties. • Decide what the proposed system must do. • Analyze interactions between the system and users to identify objects. Steps in the design phase are: • Describe how the objects will behave. • Describe how objects will interact with one another. • Group similar objects together to form a class. • Group classes into hierarchies. Computer-Aided Software Engineering If we’ve automated just about everything else with software, it shouldn’t be a surprise that we’re also automating software design and development. Computer-aided software engineering (CASE) provides developers with an easy to use method of developing software code that is well-documented, well-designed, and easily reused. Because software programs are becoming so complex it’s not unusual to have teams of programmers develop the code. CASE tools provide an element of coordination and management for the programming teams. CASE tools also help keep programming elements such as data flow diagrams and data dictionaries synchronized. CASE tools bring discipline and structure to the program design and development process that may otherwise be lacking.
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Bottom Line: Structured methodologies are useful for modeling processes but do not handle the modeling of data well. Object-oriented development combines data and processes into one object rather keeping them separate. Computer-aided software engineering automates many methodologies to reduce the amount of repetitive work developers may need to do.
13.4 What are alternative methods for building information systems? If you’ve ever watched a house being built, you know everything starts with the blueprints. One page of the blueprint set has an overall picture of how the house will look when it’s done. Another page gives a front view, a side view, and a back view. There are several pages with extremely detailed drawings showing where and how everything fits together. You wouldn’t dream of building a house without all of this documentation—at least we hope not. Traditional Systems Life Cycle The systems life cycle is primarily used for large systems projects. It has existed for years and uses tried-and-true methods that help ensure the success of the system from its humble beginnings as an idea to an old relic that eventually needs replacing. The traditional life cycle may seem rigid today. This approach works well for major systems but doesn’t fit the bill for smaller ones. It’s expensive, time-consuming, and sometimes doesn’t allow techies and nontechies to work together as they should. In fact, the user is left out of the loop on a lot of the development and implementation. Even though end users or managers have to sign off and accept the system at the end of each stage, they are not as involved in this method as some of the others we’ll look at later. Prototyping Fast, cheap, user-centered. Prototyping may be the best way to develop a new system if end users don’t have a clue about what they really want the system to look like. Even if they have a few clues, prototypes work well because the user can guide the process based on what they see as the system is built. Have you ever watched a television show where a police artist draws a picture of a criminal as the victim looks on? The artist draws the eyes and gets approval from the onlooker. Then the mouth is sketched in and approved. Pretty soon a composite drawing is completed, and the cops are off and running. That pretty much describes the iterative process used in building a prototype system. Generally, you use prototyping for very small systems or small parts of a larger system. You wouldn’t want to use this method to build a company-wide information system. It 13-13 ..
can be too unstructured, making it harder to manage large development projects. Prototyping works well when you’re developing user interfaces and output reports—areas the users will see the most. Steps in Prototyping The text outlines the four steps you use when developing a prototype. The important thing to keep in mind is that these steps should be repeated many times over. If you work through them just once, you might be in trouble. Some additional tips: Step 1: Ask lots of questions. Step 2: Sketch an informal flowchart with a pencil and paper. Pay attention to the decision trees. Step 3: Have users try every part of the new system. Step 4: Repeat, repeat, repeat. If you are the developer, make sure the user signs off on every step of the process. Verify that the prototype does in fact meet the user’s needs. If you’re the user, are you happy with the new system and does it work well for you? If not, why not? If not, use Step 4 frequently. Advantages and Disadvantages of Prototyping Prototyping can be less costly than the traditional systems approach, but if you fail to follow some of the basic principles of systems development, it can be more costly. For instance, if you ignore the basic principle of how the prototype fits into the other information systems in the organization, or how it supports the business plan in general, you may be costing the organization more money than you realize. Did you just create an island of information that is incompatible with other systems, or is it fully supportive and easy utilized in other areas? The greatest advantage of the prototyping method of developing end-user interfaces is that users see the product, or at least a pretty good replica of it, right away. If they like it, you press on. If they don’t like it, changes can be made immediately. There’s less red tape and bureaucracy (perceived or otherwise) to work through in this method. But be careful if you use the prototype as the actual production version. Is it the best it can be, or are you just tired of fiddling around with it? End-User Development Taking matters into their own hands. This method of system development is a bit like prototyping, but the end user designs and develops a new system using query languages, Web site development, graphics, and PC software tools. It’s convenient for small applications, and the user has complete ownership of the system. 13-14 ..
The tools available to the end user are getting easier to use all the time and increase the likelihood that the system will meet the user’s specifications, because the user is building it. There’s no one else to blame if the system doesn’t do what the user wants it to do. But don’t attempt to build larger and more complex systems using this method: The capabilities of the tools are limited. Managers should be aware of some inherent dangers with end-user development processes. Standardization can be a tough issue when you use it. You’re almost begging for conflicts in data processing and storage, because each user will have his own method of creating, defining, and developing data using query languages. The most frequent risks of end-user development methods are: • Testing and documentation may be inadequate. • Control over data may be lost. • Costs may exceed benefits. • Hardware, software, and quality standards may be violated. We’re not trying to discourage this type of system development. The advantages of having users develop their own mini-systems are tremendous. You just need to be aware of the risks. Application Software Packages, Software Services, and Outsourcing We mentioned earlier that software programs are becoming extremely complex to design, develop, and build. Many companies either don’t have the in-house staff to accomplish the task or they decide to focus on their core competencies and have someone else develop the software they need. Application Software Packages and Cloud Software Services Fast, easy, convenient, user-driven. Many software packages are extremely convenient for nontechies to use to develop their information products. Commonly called “off-theshelf” software, these packages can be the best method of creating an information system if that system is fairly standard across different types of businesses. You don’t have to worry about system documentation, because that usually comes with the software. You still have to write local procedures for using the program, but you don’t have to start from scratch. Training is easier because once you learn how to use the menus and toolbars in one program, the same skills can be carried over to other programs. Training manuals often come with the program or are available through online help functions. Application software packages also provide an easier method of obtaining code corrections, updates, and enhancements: Simply go to the Web site of the company that 13-15 ..
wrote the software and download the latest version. Need technical support for the program? Log on to the Web and you’re there. No telephone calls, no waiting on hold for hours, no begging the IT staff to fix your problem. In fact, you’ll probably find answers to questions you didn’t even know you had! Most of the common programs still need to have usage standards within the organization. For instance, if you use an accounts receivable application software program, you should still set standards for how you will adapt that program to meet the unique requirements of your company. Interactive Session: Organizations: Fujitsu Selects a SaaS Solution to Simplify the Sales Process (see page 509 of the text) shows how every company can use technology to improve its business process management regardless of the products it makes. Most off-the-shelf software can’t be changed, so you have to take what comes. The unique requirements of your organization probably won’t be met. You’ll end up having to change your methods to match the software, instead of the other way around. Some software packages do allow some customization, but not as much as a program developed solely for your organization. Application software packages still need lots of planning, especially when it comes to integrating them with the other information systems throughout the organization. Compatibility is key. You should determine the total cost of ownership with these programs beforehand. What are the training costs, implementation costs, and integration costs? They all add up. Selecting software packages can be just as demanding as developing a system on your own. You have to evaluate: • The program’s functions to make sure they fit your needs • Flexibility to adapt to your business • User-friendliness (persware). • Hardware and software resources • Database requirements • Installation and maintenance efforts • Documentation • Vendor quality (including follow-up) • Cost Just as you would for any piece of equipment, you would seek requests for proposal (RFP) from several vendors to fully evaluate the software package according to your needs. Remember, you give up a lot of control when you choose to go with a prewritten software package.
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Outsourcing What happens if an organization decides it doesn’t have the in-house expertise to support the system development process or any of the system maintenance required? No problem—outsource. There are hundreds of outside companies that will do the job. These companies offer expertise and experience, often at a lower cost than in-house staff. That’s the primary reason companies choose offshore outsourcing. They can also offer smaller organizations economies of scale that make overall information processing cheaper. The total cost of ownership of a system can be cheaper because of outsourcing. Perhaps the outsourcing company can keep up with changing technologies better than the organization. It may simply be that the organization decides to spend in-house information resource dollars in other ways. Should you decide to use an outsourcing company to develop an information system, you must be more careful than ever to ensure that everything, right down to the smallest detail, is in writing and agreed upon by both sides. You are signing a contract with the outsourcer that carries the full force of law. You must agree on how changes will be made to the current system. How responsive will the outsourcer be to changing requirements? You still have some responsibilities for the system; what will they be? Get it in writing! You must continually analyze the outsourcing company’s performance and cost and make sure it remains the cheaper, better way to handle the organization’s needs. At some point in time, you may find a different method is in fact cheaper. Figure 13.11 provides information on the total cost of offshore outsourcing.
Figure 13.11 Total Cost of Offshore Outsourcing
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Bottom Line: There are different ways to develop information systems: prototyping, application software packages, end-user development tools, outsourcing. Analyze each and then pick the right tool for the right job.
13.5 What are new approaches for system building in the digital firm era? Until a few years ago it was common for system development to take months if not years. That time frame has shortened to days or weeks. Pundits refer to “Internet time” as a reference for the much more rapid development of systems that some companies experience now. Unfortunately, some of the more important steps of development may be slighted or overlooked altogether in the rush to get a product out the door. Unfortunately, customers may be the ones to suffer the most from the mistakes. Rapid Application Development (RAD), Agile Development, and DevOps Supply and demand. The supply of technical specialists is not enough to support the demand for new systems, or maintenance of the old ones. Something has to fill the gap— that’s why you see so many new methods already on the market and more advanced, easier-to-use tools coming down the road. The shortage of skilled technicians is also why you see more and more companies moving away from the structured methods we’ve reviewed. There just isn’t enough time. Rapid application development (RAD) reduces the time it takes to build systems by using many of the tools that we’ve discussed. You can choose from prototyping or fourth-generation tools to develop systems much more quickly. End users and techies can work hand-in-hand with joint application design (JAD) tools to reduce the development time for new applications. Because of the collaborative environment so prevalent in today’s business world, agile development is a popular way of developing systems. This method takes a large project and breaks it down into small subprojects. Teams use iteration and continuous feedback to develop plans, establish requirements analysis, design the project, code it, test it, and document it. DevOps While agile development focuses on rapid delivery of working software by creating smaller subsets of the entire program, DevOps – short for development and operations – relies on collaboration between software developers and IT operations staff to create a program. DevOps makes it possible to update production systems with new software within hours rather than weeks or months.
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Component-Based Development and Web Services Component-based development is simply the practice of developing reusable components that are commonly found in many software programs. Create a “Save File” function for one application and use it in all applications. Not only does it save development time but creates functions that users have to learn only once and use multiple times. In short, why keep re-inventing the wheel when it works just fine across a multitude of vehicles. Web Services and Service-Oriented Computing Both of these system development methods rely on reusable components obtained from Web sites on the Internet. They are independent of operating systems, programming languages, or client devices. That makes them cheaper and easier to incorporate than proprietary software development. Service-oriented computing (SOC) is a programming paradigm shift in the computer and information technology industry. Unlike object-oriented programming, SOC deals with modules or components that can be represented as reusable entities with service interfaces. Each entity may have a specific goal or objective. The entities can be composed and reused in various applications or solutions. (BusinessWeek.com, Dec 2008) Mobile Application Development: Designing for a Multi-Screen World People are moving away from total dependence on desktop and laptop computing to mobile computing access on iPads, iPhones, smartphones, and tablet mobile devices. Obviously the screens are much smaller on the handheld devices so they must react and interact differently than those on larger screens. It’s not enough nowadays to simply design one Web site and hope it works okay across multiple devices. You can choose from three different technologies: • Mobile Web site: a scaled-down version of a regular Web site. • Mobile Web app: Internet-enabled app with specific functionality for mobile devices. It resides on a server and not the mobile device. • Native app: a standalone application designed to run on a specific platform and device. It resides on the device itself. It’s more expensive to develop than mobile Web apps because a version must be created for every type of device it will be used on. Smaller smartphone screens make better use of multi-touch gestures than larger desktop screens although the new Windows 8 operating system brought touch computing to the desktop. Still, smartphone apps must be optimized for specific tasks but not too many at one time. They need to be designed for usability. Other features that are top priorities for smartphone screens and apps are: • Saving resources and optimizing bandwidth usage 13-19 ..
• • • • •
Reducing screen space Reducing the amount of memory necessary Improving processing speed. Optimizing and reducing data entry Reducing the number of user gestures required
You have a choice. You can design three different Web sites for desktops, tablets, and smartphones. Or, you can use responsive Web design that enables Web sites to automatically change layouts according to a user’s screen resolution regardless of the device used to access the site. Here are the advantages of using responsive Web design: • • • • • • •
Uses a mix of flexible grids and layouts. Uses flexible images. Media queries are optimized for different viewing contexts. Web sites automatically accommodate changing resolutions and image sizes. Eliminates the need for separate design and development work. Users have access to a single source of content. Content is easy to read and navigate with a minimum amount of resizing, panning, and scrolling.
Interactive Session: Technology: Developing Mobile Apps: What’s Different? (see page 516 on the text) explains how companies are developing mobile apps or mobile Web sites to accommodate the changing behaviors of users and customers. Companies must adapt if they want to maintain their competitive advantage.
Bottom Line: New methods of developing systems are continually being introduced. These new technologies, rapid application development, joint application development, component-based development, agile development, and Web services are reducing the time, effort, and cost for businesses and organizations. Developing mobile applications for handheld computing devices is becoming more important.
Discussion Questions 1. In the spectrum of organizational change, which is the most radical type of change: automation, rationalization of procedures, business process redesign, or paradigm shifts? Why? 2. What are some of the reasons business process management efforts fail?
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3. What are the advantages of using object-oriented development methods instead of the traditional system life cycle? 4. What is the advantage of using an application software package? What types of application software packages could you use in your organization? 5. What advantages lie in using Web services instead of proprietary, closed systems? 6. Why is it important to pay close attention to mobile application development and why is it better to use responsive Web design for mobile apps? Answers to Discussion Questions 1. Paradigm shifts are the most radical type of change because they require the organization to rethink the very nature of the business and the necessity for moving into whole new markets. Paradigm shifts can cause major disruptions and extreme change throughout the organization. 2. The largest single barrier to successful business process change is organizational culture. Employees do not like unfamiliar routines, and often try to resist change. Business process management efforts fail because of the high cost and extended time they take to implement. Business process management involves rethinking work flows and business processes. Too often businesses fail to plan for the changes their employees and customers will experience. Many businesses simply don’t communicate with their people enough to make it work. 3. Object-oriented development combines data and processes into a single object that becomes the basic unit of systems analysis and design. Because processing logic resides within objects rather than in separate software programs, objects must collaborate with one another to make the system work. Object-oriented development reduces costs and time because objects are reusable as building blocks for other objects. 4. Application software packages are prewritten programs and are convenient for nontechies to use. The system documentation is prewritten and updates to the program are easy to obtain from the vendor. Technical support, updates, bug fixes, and enhancements are available from Web sites. 5. Web services use open standards that any piece of hardware or software program can access. Web services can be written once and used many different times or different ways. The open standards used by Web services allow companies to connect their business processes easier and more reliably. Web services also enable organizations to tie together disparate systems foregoing the need to build new systems from scratch.
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6. The user experience for mobile device interaction is fundamentally different from using a desktop or laptop PC. Saving resources, bandwidth, screen space, memory, processing, data entry, and user gestures are top priorities for mobile app design. Rather than designing three different Web sites for three different types of computing devices, responsive Web design allows developers to design one Web site that automatically changes layouts according to the user’s screen resolution, whether on a desktop, tablet, or smartphone. Developers can choose from mobile Web sites, mobile Web apps, or native apps when designing for mobile device access.
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Management Information Systems, 15E Laudon & Laudon Lecture Files, Barbara J. Ellestad
Chapter 14 Managing Projects Previously, we discussed how to design and build information system projects. That may be the easy part. It’s much more difficult to manage an entire information system project to make sure a company realizes the intended benefits from its investment and that the system solves problems for the organization rather than create more.
14.1 What are the objectives of project management and why is it so essential in developing information systems? Why do so many information system projects fail to deliver on their promises? Is it because the hardware, software, and data are flawed? Is it because user interfaces don’t allow people to perform their jobs correctly? Is it because the processes aren’t designed correctly? Those are all possibilities. Runaway Projects and System Failure The statistics provided in the Laudon text are startling: • • • •
One-half of private sector projects are underestimated in terms of budget and time required to deliver. A large number of projects are delivered with missing functionalities. Only 32 percent of all technology investments are completed on time, on budget, and with all the promises met. Between 30 and 40 percent of software projects far exceed their original schedules and budget projections.
What is the leading cause of these dismal statistics? In two words—project management. Figure 14.1 lists the consequences of poor project management.
Figure 14.1 Consequences of Poor Project Management 14-1 ..
Project Management Objectives Information system projects range from very small, end-user development projects to major implementations of enterprise systems. Regardless of size, they all have some common characteristics. First, they require the effective use of project management tools and technologies that help keep the project on time, within budget, and meet objectives. Every project includes the same five variables: • • • • •
Scope: What work is or is not included in a project? Time: Establish timeframes for each component of a project. Cost: The amount of time multiplied by the cost of human resources required of a project. Quality: Does the project improve organizational performance and decision making? Risk: Potential problems that may threaten the project’s success.
Bottom Line: The statistics for successful implementation of information systems are dismal. The leading cause of so many project failures is the lack of proper project management. Every project includes five variables that must be adequately managed to help ensure success: scope, time, cost, quality, and risk.
14.2 What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals? “Gee, we thought we did everything by the book. Why doesn’t the system work the way we envisioned?” Perhaps it’s not the system itself but the way changes in the organization were managed. This section will help you better prepare for the hardest part of building information systems—managing the development and implementation of the system and the people it will affect. Management Structure for Information Systems Projects To help ensure success, companies should have four levels of management control for system projects: • Corporate strategic planning group: develops strategic plans. • Information systems steering committee: includes department heads that represent end users and information systems departments; reviews and approves systems plans, coordinates and integrate systems, selects specific projects. • Project management: information systems managers and end-user managers; oversees specific information systems projects. 14-2 ..
•
Project team: directly responsible for individual system projects; consists of systems analysts, end-user business specialists, application programmers, and database specialists.
As you review the list above, one thing you should notice in particular is that there are business specialists and end-user involvement in every level of management. Too many companies fail to include nontechies in systems planning and management, much to their dismay later on. Linking Information Systems to the Business Plan Companies buy the hardware they think is necessary for a new or improved information system. Then they purchase some software to go along with the new hardware. Now they realize their hardware is inadequate for the new software, so they buy more powerful hardware. And the vicious circle continues. Pretty soon they have a whole bunch of hardware and a lot of expensive software, but do they have an information system? Only if they have made sure all the hardware and software purchases fit in with their organizational information systems plan and their people know how to use them. “A what?” you say. “Another plan that stifles creativity and creates roadblocks to getting work done?” No, a good information plan will help companies systematically figure out what they need to get the job done and whether all the hardware and software is necessary and if they really do meet the requirements of the organization. A good information plan will also take personnel needs into account and help determine how all three elements of the triangle will work together for success. The problem is that too many companies don’t have a plan for integrating new hardware and software purchases into their overall business plan, let alone meshing them with the persware side of the triangle. Of course, the information plan should support the overall business plan and not conflict with it. The plan must include all levels of the organization, including the strategic and executive levels. These two levels include the people who often say they are exempt from having to determine information system needs. Information Requirements and Key Performance Indicators Key performance indicators (KPIs) are simply the goals managers feel will make the organization a success. Using this method broadens the scope of the analysis to include entire industries, the broader environment, in addition to the firm itself and its managers. That’s why it’s also called a “strategic analysis.” Basically, you contact several top managers, ask them what they think will make the organization succeed, and then combine the results into a cohesive picture.
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Portfolio Analysis
Figure 14.3: A System Portfolio The portfolio analysis shown in this figure allows a company to objectively rate multiple alternative projects for their risk and potential benefits. Companies too often get locked into just one idea without understanding that multiple choices exist. There is always more than one way to meet the organization’s goals. The ideal situation is to choose a system with the highest benefit and the lowest risk while ignoring systems with the lowest benefit and highest risk. That’s reasonable. This method of rating projects helps companies align their IT assets with their business strategy and results in a better organization-wide coordination of IT investments. Scoring Models The scoring model is effective for comparing various alternatives in terms of their costs. This model can go a long way toward helping organizations determine the best course of action and quantify their decision making. And, if nothing else, it creates a dialog among the managers about strategic factors they should consider for the good of the firm. As the text states, “Scoring models are used most commonly to confirm, to rationalize, and to support decisions, rather than as the final arbiters of system selection.” Bottom Line: An appropriate management structure must be established for information systems projects at the senior, middle, and operational management levels. Information systems plans help link systems projects to the business plan. Critical success factors, portfolio analysis, and scoring models help organizations choose appropriate IT projects.
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14.3 How can firms assess the business value of information systems? Just as you can analyze the benefit of purchasing a new piece of equipment for your business, you can analyze the impact of an information system. Think about it: You tell the boss you need a new storage system for all the widgets you are producing. The boss will ask you to complete some type of analysis to see how the bottom line will be affected. The same is true for a new information system. Just how will it benefit the business overall? What benefits will your customers gain from the new system? However, you can’t reduce everything to dollars and cents. Sometimes the benefits of the new system will be measured in other ways, but you can employ several different methods to evaluate a new information system, just as you would a new storage system. Information System Costs and Benefits One of the more difficult choices to make when evaluating new systems is to determine the tangible benefits versus intangible benefits. When a financial institution must decide whether to offer online banking, it may evaluate the system using one of the methods outlined in the text and determine that it will cost half a million dollars to implement. The immediate cost savings of not having employees interface directly with customers may be only $250,000. On the surface you could say that the new system isn’t worth the cost—the bank will lose $250,000. But the intangible benefits the bank customers may enjoy could potentially be worth a million dollars. In that case, the new system’s intangible benefits will far exceed the tangible benefits. Table 14.3 in the text explains some of the tangible and intangible benefits of information systems. Capital Budgeting for Information Systems There are several methods for analyzing a new system in terms of dollars and cents using capital budgeting techniques. Each method measures the financial worth of the system by determining the difference between cash outflows and cash inflows. The Learning Tracks on the Web site for this chapter helps you see how each method analyzes a proposed new system from a different perspective. Why not just have one, you might ask. Because in this case, one size does not fit all. Financial models used to evaluate new systems are: • • • •
Payback Method: time required to pay back the initial investment. Accounting Rate of ROI: approximation of the accounting income earned. Net Present Value: amount of money an investment is worth, taking into account its cost, earnings, and the time value of money. Internal Rate of Return: rate of return or profit that an investment is expected to earn. 14-5 ..
Limitations of Financial Models Keep in mind that there are limitations to each financial model used to evaluate new systems. Using the online banking example, you can assume the initial cost will not be recouped until months or years after implementation. As we’ve seen in the last few years, the hardware costs can change drastically within a short period of time. As soon as the system is installed, new technology can render it obsolete. How do you factor those realities into a financial evaluation model? Most of the time you can’t. On the other hand, you’ll remember that the costs of adding new users to an existing network is marginal according to Metcalfe’s Law and Network Economics. That must be factored into the financial models as well as elements of the TCO (total cost of ownership). It is not unusual for the personnel costs in the TCO model to be underestimated or even totally overlooked. Bottom Line: Potential new systems should be evaluated in terms of tangible and intangible costs. All costs—hardware, software, and personnel—should be included in the bottom line so that the organization can truly determine the gains, or losses, associated with new projects.
14.4 What are the principal risk factors in information systems projects and how can they be managed? There’s a risk to every project—large and small. Ignore those risks and you’re simply asking for failure. Dimensions of Project Risk Here are three dimensions of risk associated with every project: •
•
•
Project size: As projects grow larger, the associated risk of failure increases. It’s not just technical complexity that jeopardizes large projects. The number of units and groups that will use the new system and the potential influence the project has on business processes affect risk. Project structure: Are requirements clear and straightforward or are they undefined, fluid, and constantly changing? Are users constantly changing their ideas about what the system should do? Do users even agree on what they want the new system to do? Experience with technology: Will the project team and information system staff have to learn new skills associated with the new system? If so, that will expose the project to technical problems and probably take more time to implement.
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Interactive Session: Management: Can the National Health Service Go Paperless? (see page 540 in the text) describes how the United Kingdom Department of Health has set ambitious goals to make the NHS paperless. For any large organization, going paperless is a challenge but even more so when there isn’t enough money and there’s a dismal history of IT failure.
Change Management and the Concept of Implementation Change is a given element in the business world. From mergers and acquisitions, to complete corporate purchases, to changing work processes and methodologies within the same company, change is hard on people and organizations. But change management is one of those necessary evils that keep companies in the lead or helps destroy them. The Concept of Implementation Implementation of a new system is not just about how to put the hardware and software into place. You have to address and manage people and processes to make sure they are in sync with the hardware and software. In essence you become a change agent. You have to convince users that the system is going to improve their world and that the new will be better than the old. If people are going to lose their jobs because of the new system or if they are going to experience a significant difference in responsibilities, you must be clear in communicating those changes to them. The Role of End Users Make users feel they own the new system instead of it being an enemy or something they should fear. That’s why we stress user involvement through the entire development process. The new system shouldn’t be a surprise on Monday morning! Familiarity doesn’t always breed contempt; it should breed acceptance when it comes to new information systems.
Table 14.4 gives you good insight into the user-designer communications gap. As a manager, your job is to bridge that gap to help ensure success of the new system. Too 14-7 ..
little discussion and communication between the techies and the nontechies will be apparent through design flaws and a poorly implemented project. Understand where both sides are coming from, and you'll do a better job of getting them to work together. You can never have too much communication. Management Support and Commitment If managers don’t like the new system or fear it, then how in the world can you expect the workers to accept it? The best way to get managers to like, support, and fund the new system is to communicate with them every step of the way. Make sure they know what’s going on. After all, managers are people too, and they have the same fears as anyone else. Management support and commitment for new projects is required for these reasons: • Creates a positive perception for both users and technical information services staff • Ensures sufficient funding and resources are devoted to the project • Implementing changes in work habits and procedures are easier • Enforcing organizational realignments Change Management Challenges for Business Process Reengineering, Enterprise Applications, and Mergers and Acquisitions The text gives the startling fact that 70 percent of all business process reengineering projects fail to deliver promised benefits. It doesn’t have to be that way. One abiding theme in most of the failures and successes is people. If the changes required by and in people are managed properly, then the success rate increases. Conversely, if people are poorly managed or, just as likely not managed at all, then the project stands a good change of failing. The leading threats of BPR projects are: • • • •
Dealing with fear and anxiety throughout the organization Overcoming resistance by key managers Changing job functions, career paths, and recruitment practices Training
In spite of the size of the information system, some kind of organizational change must take place. Even if the project involves only two people, they will have to do things differently. As projects grow in size and scope, organizational change will grow accordingly. Remember when you moved in with your college roommate? Or perhaps you got married. Or maybe you’re sharing an apartment with someone. Maybe you had to move your favorite chair to another room to accommodate the other’s large-size sofa. Or perhaps your microwave was different than your spouse’s, therefore he had to learn a new way to operate yours. Regardless of the circumstances someone had to change the
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way they do things. The same thing happens in the business world when two companies merge. The business world is fraught with examples of mergers and acquisitions that didn’t work out or were not cost effective. Many of the problems can be traced to employees who didn’t adapt to the changes or to poorly integrated systems. To ensure a successful merger managers must recognize: • • • •
The realistic costs of integration The estimated benefits of economies in operation scope, knowledge, and time Any problematic systems that require major investments to integrate Any likely costs and organizational changes required to upgrade the IT infrastructure
Controlling Risk Factors Identify the nature and level of risk associated with the project first. Then you can use the appropriate tools and risk-management approaches to reduce the risk of the project failing. Managing Technical Complexity You can use special tools to help you manage the implementation of a new information system (internal integration tools). It’s important that the project leaders and team members have the appropriate level of expertise and experience in the project’s technology. Otherwise, you should obtain it from outside sources. Formal Planning and Control Tools Automated management tools such as PERT or Gantt charts (formal planning and control tools) can also help you manage a complex project. They are extremely beneficial for scheduling events and tracking the hundreds of details involved. Compare Figures 14.4, Gantt Chart, and 14.5, PERT Chart, in the text to understand the difference between the two types of planning tools. The Gantt chart depicts all of a project’s activities, showing the start date and the anticipated completion date. It also lists the personnel resource requirements needed for each task. PERT charts on the other hand, show the interrelationship between tasks. It’s a great way to show which tasks must be completed before other tasks can begin. Increasing User Involvement and Overcoming User Resistance We simply can’t say it enough! Get users involved from the very beginning of a project and keep them involved. Use external integration tools to keep people involved and informed. Guard against destructive, although innocent, sabotage of the system 14-9 ..
(counterimplementation). Remember, people will weigh their own needs against those of the organization. You have to make sure the two agree as much as possible. Some of the strategies you can use to overcome user resistance include: • User participation • User education and training • Management edicts and policies • Better incentives for users who cooperate • Improve the end-user interface • Solve organizational problems before introducing a new system
Interactive Session: Organizations: Snohomish County Public Utility Disrict Implements a New Human Resources System (see page 547 on the text) discusses the difficulties of developing and implementing large-scale projects. It also highlights the success of a major project implementation when it’s done correctly.
Designing for the Organization “Just what will this new system do for us?” That’s a very appropriate question but unfortunately, it’s often ignored. Everyone seems to get caught up in the hustle and bustle of the implementation process and they forget to address basic questions about the new system. An organizational impact analysis will help answer questions about organizational structure changes, attitudes, decision making, and operations. We urge you to write down what you want the end result to be in terms of the organization. If you do so, you can use these notes as the basis for your impact analysis. The analysis can also be a great communication tool to explain to people how their jobs will be affected, to explain the changes required, and to help them plan the individual efforts required for a successful new system. How will the new system fit into the human element? That’s the idea behind ergonomics; getting human and machine to agree and complement each other. Sociotechnical Design Unless you design a system that will be totally controlled and operated by robots, you must pay attention to the sociotechnical design of your system. Simply stated, this means how the technical aspects of your system will fit in with the human aspects. Project Management Software Tools Because project management is so difficult, there are some great software programs you can use to help you manage projects regardless of their size. The programs automate many of the mundane tasks such as defining tasks, assigning resources, establishing start and end dates, tracking progress, and creating and maintaining PERT and Gantt charts. 14-10 ..
Best of all, when one element of a project changes, it’s easy to see how other elements are affected. That will help you make better decisions about the project and keep track of the myriad of details. If your organization has several projects in the works, managers should consider using project portfolio management software to help track the proposals and projects against budgets and resource capacity. The software also helps manage dependencies among the projects and helps executives and managers determine the optimal mix and sequencing of projects. Bottom Line: How well changes in an organization caused by implementation of a new system are managed can spell success or failure. The causes of implementation success and failure are user involvement and influence, management support and commitment, controlling risk factors, and designing projects for the organization.
Discussion Questions 1. Why should you consider the intangible benefits of a new system when they are difficult to factor into a capital budgeting model? 2. Discuss the difference between a portfolio analysis and a scoring model for evaluating projects from a strategic standpoint? 3. What are some of the causes of implementation success and failure? Which one(s) do you think are the most important? 4. Use one of the capital budgeting models discussed in the text to determine the cost of implementing a new system in your organization. 5. Discuss how the user-designer communications gap can cause a good project to go bad.
Answers to Discussion Questions 1. Intangible benefits of a new system may outweigh the negative results of a capital budgeting model and show the system to have greater benefits to customers and users than can be measured in dollars and cents. 2. A portfolio analysis allows a company to objectively rate multiple projects for their risk and potential benefits. The scoring model is effective for comparing various alternatives in terms of their costs.
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3. Causes of implementation success and failure are user involvement and influence, the level of complexity and risk, management support and commitment, and management of the implementation process. 4. Answers will vary depending on the project and method chosen. 5. Answers should reference Table 14.4, The User-Designer Communications Gap, and include references to how the techies view projects differently than the nontechies.
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Management Information Systems, 15E Laudon & Laudon Lecture Notes by Barbara J. Ellestad
Chapter 15 Managing Global Systems The world just keeps getting smaller and smaller. No company can afford to ignore foreign markets or the impact of foreign competition on the domestic business environment. You have to adapt to the changing faces, literally, of your competition and devise a plan to bring your organization into a worldwide view.
15.1 What major factors are driving the internationalization of business? Globalization is possible even with very small businesses because of the technological advances in computer networks and telecommunications. Is your organization developing a Web site for e-commerce? You might want to consider publishing it in four or five foreign languages. That’s what it takes today to compete. Developing an International Information Systems Architecture You must have an information system in place that will support the communications, coordination of people and products, and order processing for both domestic and foreign markets. You have to understand the characteristics and individual needs of foreign markets, just as you need to understand your domestic markets. Figure 15.2 depicts five major dimensions of an international information systems infrastructure that should be the basic framework of a global digital firm.
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Figure 15.2 International Information Systems Architecture Walmart learned the hard way that it couldn’t just walk into a foreign country and build a store mirroring those in the United States. Sales were very low and the products just weren’t moving in many of its foreign stores. It wasn’t until Walmart analyzed store designs and layouts, quizzed potential customers, and focused on foreign operations without using domestic stores as a model, that the company realized it was a much different world outside the United States. Walmart re-arranged stores, stocked more items from within the countries, met local customers’ needs, and dramatically increased sales. So don’t start creating all those juiced-up information systems as soon as you decide to pursue the foreign marketplace. Before you tackle the technology, you must: 1. Understand the global environment, including which business driver is most prominent. 2. Determine the negative factors that create management challenges. 3. Consider a corporate strategy. 4. Consider the appropriate organizational structure. 5. Know how you will implement your strategy. 6. Consider the technology platform. Notice that the last issue you’ll have to contend with is the technology. We said before that every information system implementation plan must be in harmony with the basic business plan. In fact, you must first develop the overall business strategy for entering the global arena. Then and only then can you begin to think about how the information system will be synchronized with the basic strategy. The Global Environment: Business Drivers and Challenges
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Table 15.1 gives you an idea of some of the global business drivers, factors influencing the direction of businesses, that organizations must consider in today’s environment.
Perhaps the most important challenge facing corporations and companies wanting to open foreign markets is that of the global culture. We can more easily share cultures with other countries because of increased telecommunications and the Internet. However, when you are merging two entities, one domestic and one foreign, into one business, the culture of that merged organization is an important influence on how well the company does. We’d like to destroy the myth of domestic being defined as a U.S.-based company and the foreign company being from, well, from a foreign country. Toyota Motor Corporation has its domestic headquarters in Toyota City, Japan with manufacturing operations in 27 foreign countries and regions, including the United States. Ask yourself this question: Who says all corporate offices must be located in the continental Unites States? Countries that we traditionally have thought of as third world, or underdeveloped, are emerging as forces to be reckoned with. China, India, Mexico, and others play as big a part in the global economy and its effect on worldwide trade as our own country. Advanced telecommunications systems now allow companies to work around the clock and around the world. Companies may choose to locate parts of their corporate offices in other countries because they fit better with the corporation’s overall global strategy in that location. Many companies are finding it more beneficial to locate manufacturing within the region where it sells its products. If the company experiences problems within a particular region, such as floods or political strife, it can easily shift operations to another region. Business Challenges You know that doing business in foreign countries is not all that easy. There is tremendous risk associated with global businesses. Russia is a prime example of how difficult it can be for businesses to establish themselves in foreign markets amid political turbulence and disorder. Just when your company thinks all is well with its foreign establishment, a terrorist attack can put a crimp in the best laid plans. 15-3 ..
It’s not always that desperate, but companies should make a point of adapting to foreign cultures, just as Walmart had to. For instance, in many countries afternoon siestas are the norm. Other countries have religious and historical laws that prevent women from working or accepting jobs that place them in the position of supervising men. The point is that not every country thinks, works, acts, and plays like Americans (see particularism). A startling example of how domestic and foreign cultures and laws collide is the case of individual information and privacy. In many European countries, companies and governmental organizations are not allowed to collect certain pieces of information about individuals without the person’s prior consent. The individual must be notified first before the information can be collected and before the information can be given to another entity. If a business does collect the information, there are very strict laws about how it must be stored and who can access it. Contrast that with the American business practice of collecting individual information without the person’s knowledge and then selling that data to whoever pays for it. Corporations and companies must reconcile these differences in order to allow transborder data flow between merged information systems. Globalism presents challenges and opportunities in areas of accounting systems, language, and currency usage. Some companies are deciding to adopt foreign systems rather than continuing to use American accounting systems. In a regulatory sea change that could cost billions of dollars, thousands of U.S. companies—plus foreign corporations that do business here—will adopt global financial reporting rules within five years if regulators have their way. Whether U.S. companies like it or not, the new era of global accounting appears unstoppable, and businesses that ignore the International Financial Reporting Standards (IFRS) will fall behind. SEC Chairman Christopher Cox has called the move “a revolutionary development” that will streamline global reporting standards and create “a true lingua franca” for accounting. Business leaders such as the U.S. Chamber of Commerce say it would help the USA compete in the world economy, leading to more cross-border commerce. In an interview, Sir David Tweedie, chairman of the International Accounting Standards Board in London, says the growth of the global economy means “we must eventually end up with a common system of regulation, auditing and accounting.” Executives at Lenovo, the China-based technology giant that bought IBM’s personal computer business in 2005, are big believers in IFRS. Dennis Culin, Lenovo’s director of business transformation, says there was healthy debate and “fear of the unknown” among some U.S.-based 15-4 ..
employees who favored U.S. accounting. But in the end, adopting IFRS was a no-brainer for a corporation doing business in 160 countries. Now, Culin says, Lenovo is weaning itself from IBM’s old “legacy” U.S. accounting system. So far, Lenovo has converted its operations in Asia and Canada to IFRS, and it’s working now on Europe, then Latin America. If the USA moves to global rules, Lenovo will adapt quickly. “We didn’t want to declare ourselves a U.S. company or a Chinese company—we wanted to be a world company,” Culin says. “So this version of accounting fits us.” (UsaToday.com, “U.S. considers costly switch to international accounting rules,” Iwata, Edward, Jan 6, 2009)
State of the Art If you thought building an information system for an organization doing business only in the United States was tough, think about some of the factors we’ve just discussed and then imagine how you would build a system that takes disparate practices into account. Then think about how difficult it is to mesh a system built on 1990s technology with one that was built in the 1980s and one built in 2005. So why do companies even attempt to build themselves into global merchants? Because the potential payoff is enormous! Bottom Line: Global businesses must devote their time and attention to understanding the cultural factors of countries in which they want to do business. Not only must they merge their business units, they must also merge their people into a cohesive team. They must understand and deal with many different external factors in both domestic and foreign environments.
15.2 What are the alternative strategies for developing global businesses? First you have to decide what you’re going to do—you have to choose a strategy. Then you have to organize your business around this strategy. The last step is to build the system that will incorporate the first two. Global Strategies and Business Organization Table 15.3 shows four main global strategies that can form the basis for a global organizational structure.
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Domestic exporter: Most operations are located in the domestic country and the company exports products to foreign companies. A company located in India that exports rugs to the United States would fit this category. All corporate offices are in India, and products are sent to distributors in the United States. Multinational: Part of the company is located in the domestic country and other parts are located in foreign countries. Japanese automobile manufacturers might be in this category. Years ago we complained loudly in the United States about cheaper Japanesemade cars flooding our markets and demanded that they produce vehicles in our country if they wanted to sell them in our country. So they left their corporate operations in Japan, built some factories in America, and satisfied our concerns. Franchiser: Some operations are located in the domestic homeland while extended activities associated with the product are conducted in foreign countries. Starbucks Coffee Company is a primary example of this type of global business. Its corporate headquarters are located in Seattle, Washington. Recipes for products are developed in Seattle. Some coffee beans are roasted in Seattle and then shipped to coffee shops in England. These operations are franchised to keep quality controls in place, and the final product is made in the local area. Transnational: One globe, one company. Going back to our earlier example of Toyota, the company’s headquarters may be in Japan but its operations are spread throughout the world. That’s not just its manufacturing operations. Design facilities and research and development centers are located throughout the world. Because of advanced telecommunications, networks, and global information systems, transnational corporations can decentralize and disperse, or they can centralize and globally coordinate, whichever scenario best meets their needs. Global Systems to Fit the Strategy Once you’ve decided which global business strategy to follow, it’s time to decide how your information system will support it.
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Figure 15.3: Global Strategy and Systems Configurations This figure gives you an idea of the type of information system that will best support the different business strategies. To summarize the text definition of each type of system: • • • •
Centralized: Everything is located at the domestic home base. Duplicated: Development occurs at the home base; operations are located at foreign branches. Decentralized: Each business unit, regardless of location, has its own system. Networked: All business units participate in development and operations.
Reorganizing the Business You have to decide what your overall business goals are and what makes sense for your organization, fit the information system structure to your needs, and never lose sight of new opportunities. 1. Organize value-adding activities along lines of comparative advantage. Starbucks has to decide where to locate the marketing function to maximize its potential. Perhaps it can centralize this function in Seattle so the theme of the current marketing campaign is the same in every coffee shop. It is very picky about maintaining quality control over the coffee bean roasting processes. Is this process better left in Seattle, or should it be moved to England to maintain freshness and high quality? 2. Develop and operate systems units at each level of corporate activity—national, regional, and international. Walmart would probably maintain small information systems in each foreign country to support its local operations. A regional information system would support entire geographic areas such as Southern Europe. Each of these regions would be connected to the main system in the United States that supports activities on a global scale. 3. Establish a world headquarters, a global chief information officer (CIO) position. General Motors has one person who is responsible for an information system that spans the globe. While smaller units spread throughout the world actually carry out 15-7 ..
the operations, the CIO ensures total integration of all the local, regional, and global systems. Bottom Line: There are four main global strategies that businesses can use to organize their global efforts: domestic exporter, multinational, franchiser, and transnational. Determining the global strategy will help a business determine its information system structure: centralized, duplicated, decentralized, or networked.
15.3 What are the challenges posed by global information systems and management solutions for these challenges? Take all the problems and challenges you can think of when developing a single information system for a domestic operation (see the table) and then multiply it by tens or hundreds. Now you understand the problem of developing a system to support a global business operation.
A Typical Scenario: Disorganization on a Global Scale The text gives a wonderful scenario of challenges facing corporations wanting to develop information systems to support global operations. Bring it a bit closer to home: You’re part of a team of 12 students with an assignment due by the end of the month. You have to develop a Web page to support three different presentations given in three different sections of the same class. Each of you will receive an individual grade in addition to a team rating. You’ve been given minimal resources with which to complete the assignment. All 12 team members approach the project from different perspectives, different values, different needs, and different goals. Some like to start early and do a thorough job; others never start any assignment until the day it’s due. Some team members have Apple computers, some have PCs; some have the most current software, others rely on programs created five years ago which are incompatible with today’s software. All of you are very busy with jobs, other classes, and other interests; you find it nearly impossible to meet in order to coordinate project tasks. 15-8 ..
Now you can begin to understand the difficulty for managers when they are organizing or reorganizing global commerce. Global Systems Strategy The following figure shows the connection between the core business processes and the core systems. Only a few business processes use global core systems. Others are divided among regional and local systems.
Figure 15.4: Local, Regional, and Global Systems Define the Core Business Processes Decide how your business processes are divided among global, regional, and local units. Make sure you keep cultural and political biases out of the way when you’re deciding which location is better. Carefully analyze each task and all available resources to support the process in each location. Decide which location best supports each process. You may be surprised to learn that it’s cheaper and more efficient to store manufactured goods separately from where they are produced. Last, you should rank-order the processes and decide which will be managed centrally and which will be distributed to the regional and local level. Identify the Core Systems to Coordinate Centrally Once you’ve identified and analyzed each business process, you decide which systems will be centralized and which to keep decentralized. Obviously, the systems should match the business processes. Some decisions will be based on political influences, and some
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decisions will be made to appease various groups within the organization. Some decisions will seem totally rational, whereas others may seem irrational. Although determining how and where to establish your core processes is the first step, part of the analysis must include the implications of building an information system to support them. For instance, if you decide to create a transnational unit to handle customer technical support, how will your information system support the data storage associated with customer information? What laws will affect your decision? How will you handle the political and cultural influences that determine access and distribution of the personal information associated with your customers? Although it may make sense to create this unit on a transnational basis, you might decide that an information system to support it is not feasible. Choose an Approach: Incremental, Grand Design, Evolutionary Don’t bite off more than you can chew. If you try to fulfill your development and implementation plan all at once, combining every task into one huge project, you’re setting yourself up for failure. It may indeed be cheaper to do it that way, but you have lots of considerations other than cost. There are political, cultural, and historical biases to overcome. Remember, change is extremely difficult for people to accept. You have to convince everyone, especially the executive branch, that your plan is possible and best for the company. Many companies choose to take an evolutionary approach to merging disparate information systems. That is, they pick the most critical areas, such as finance, to merge first. Then they move on to perhaps sales and marketing. Corporate strategic planning may be next, and last might be human resources systems. The point is, you can’t do it all at once. This isn’t the piecemeal approach to which the text refers. The piecemeal approach discussed in the text would be to move accounts receivable to the global system, then a year later move the accounts payable. Another example of an ill-advised piecemeal approach would be to leave the daily production planning processes on the old systems while transferring the production supply purchasing processes to a new system without proper coordination between the two. Make the Benefits Clear You have to convince the organization’s managers that the impending changes will benefit them in the long run. Get them behind your effort and use them to help you develop and establish system changes. They need to understand how they can enhance their own operations through the new system. Global systems can help an organization improve its vertical and horizontal operations. If a political conflict interrupts sugar supplies, a global system can shift the flow of that vital supply to another region. As global operations continue to expand, corporations are 15-10 ..
realizing the benefits of having multiple geographic locations from which they can operate virtually uninterrupted. Should a region or operating unit experience a disruption in sales, the economic burden of declining profits can be spread to other units of a global company. The economies of scale that corporations realize through global operations are tremendous. No longer does a company have to build individual production units in every country in which it wants to sell its products. The Management Solution: Implementation Management’s biggest task is to manage the changes that must take place in a global company. As we mentioned earlier, the changes are more difficult and complex because of the added characteristics of politics, culture, and language. Here are some guidelines: •
Agree on common user requirements: Keep the list of core business processes short and simple. It’s easier to implement the changes that way. Don’t lose sight of the common goal of integration.
•
Introduce changes in business procedures: Your legitimacy is enhanced by how well people accept your authority as a change agent. If you establish yourself as knowledgeable, competent, willing to accept input from others, and if your vision of the end result is sound, you’re more likely to succeed. Give other people some ownership of the change process, and they’ll be more than happy to help you and the company succeed.
•
Coordinate applications development: Communicate, communicate, communicate. Tell people what’s going on; don’t surprise them about anything. Change is difficult enough without people feeling like they’re getting blindsided. This is one area in which an intranet may prove to be an invaluable tool to help you get the word out.
•
Coordinate software releases: Try to get everyone working from the same sheet of music at the same time.
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Encourage local users to support global systems: Participants will want to do it their way because that’s what they are most comfortable with. Your task is to convince them that they may need to adapt to a new way of doing business for the overall good of the company.
Get the opposition on your side as quickly as possible. Cooptation is the process of getting the naysayers to help you determine the solution to the problem without you giving up total control of the change process. Persuading them to help you is far better than beating them into submission.
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Bottom Line: Analyze each workflow process and decide which business unit can best carry it out. Go with the best of the best. Match the structure of your information system to that of your core business processes. Make the benefits clear to all levels of the organization. Use cooptation to encourage ownership of the system. Manage the changes in the information systems as intensely as you manage anything else.
15.4 What are the issues and technical alternatives to be considered when developing international information systems? Advances in technology and the desire to seize new business opportunities presented by the advances are what induce organizations to undertake the changes we’ve been discussing. However, the same things that drive the desire can create the headaches. Hardware, software, and telecommunications are special problems in a global setting: You need to synchronize, harmonize, and integrate. Computing Platforms and Systems Integration Most global companies are a result of merging several units into one cohesive success story. When the merger takes place, you can’t just buy all new hardware and software. It’s too expensive for one thing, and it probably won’t make sense. You have to figure out how you’re going to get all the different types of hardware to work together in one seamless system. You have to get one type of software “talking” to another type of software. You’ve already figured out your core business processes. Now you should figure out which types of software, some of which may already be present in the various units of the merged organization, is the best to use for each process. If you’re currently using proprietary software and choose to keep it, you will probably need a bridge, or middleware software, in order for it to work across all your business units and regions. Each region of the business is used to working according to its standards. For instance, the German unit has been storing data according to its standards and definitions. The Asian units have been using different standards and definitions to accomplish the same task. The idea is to conform the data to one standard across all units so that they can be shared efficiently and effectively. Each unit is going to have to adapt in order for that to work. That’s where the central office comes into the picture. It will have to determine the end goal of the business and the final information requirements needed, take the best of the best, adapt the rest, and solidify all the units into a cohesive whole.
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Connectivity Most Americans don’t think twice about the reliability of our telecommunications systems. When you pick up the phone in Peoria you expect it to work and work well. When you log onto your Internet Service Provider in Cincinnati, you expect instantaneous connections at relatively high speeds. When you travel from state to state, you know that the telephone system will work the same in Texas as it does in Pennsylvania. And you expect reasonably low rates for telephone service, television, and Internet service. Not so in foreign countries. Table 15.5 shows some of the problems you’ll have to contend with when working in other countries.
When you’re trying to establish global communication networks, you must work through the maze of various laws, high-to-low levels of service reliability, different rate charges and currency exchanges, and different companies and governments controlling the telecommunication systems. While the public Internet may not always be reliable and secure, the technologies upon which the Internet is built provide ways for corporations to build the networks they need. Intranets, extranets, and virtual private networks are a few alternatives to using the wideopen Internet. Many foreign countries are leap-frogging some of their past connectivity problems with brand-new technology such as Web-enabled cell phones. Instead of building expensive old-fashioned telecommunication systems with traditional phone lines, people are using wireless communication devices based on satellite and microwave technologies to communicate with one another. You may think of the United States as the “most wired” country in the world. You would be wrong! Finland has far greater penetration in this area per capita than any other country in the world, but it’s based on wireless technology not traditional telephone lines. And Japan has a greater saturation of Web-enabled cell phones and associated applications than America. 15-13 ..
Interactive Session: Organizations: Indian E-Commerce: Obstacles to Opportunity (see page 579 of the text) discusses how difficult and different it is to conduct ecommerce in foreign countries as compared to the relatively simple methods used in the United States and other countries.
Software Localization We mentioned before that different foreign units probably have divergent standards for their information systems. Trying to merge different databases from several domestic units is tough enough. Trying to merge databases from different countries can be quite troublesome because of the added layer of politics, traditions, and languages. Even though the English language is widely accepted in foreign business circles, and it seems reasonable to build software programs based on that language, that decision will create its own problems. Foreign business units may resent having to use applications written in a different language—what’s wrong with Spanish, they may say? Although most of the upper management levels of the foreign business units may understand English and can use it, will the data workers know the language, or will they have to learn it at the same time they are learning a new information system? You may have to adopt software localization policies to convert your applications to a second language. Traditionally, companies have merged their transaction processing systems into one or a few worldwide applications. Now they are looking to do the same with collaborative workgroup software, and well they should. We mentioned at the beginning of this course that many companies are “time-shifting” their projects around the world. A person in New York City may work on a new advertising campaign all day Tuesday. When she’s done for the day, she may electronically send the project to a collaborator in New Delhi, India. He will work on it for several hours and forward it on to the third team member located in Munich, Germany. All of them need to be able to communicate using collaborative software in a common language. Interactive Session: Management: Steelcase Designs Goes for Global Talent Management (see page 581 of the text) discusses how one company successfully implemented a new information system to manage its global workforce and talent pool as well as its relationships with customers and suppliers worldwide.
Bottom Line: Differences in hardware, software, and telecommunications throughout the organization and the countries in which you’re doing business pose tremendous challenges in integrating disparate business units into a cohesive global whole.
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Discussion Questions 1. Discuss the cultural factors organizations must understand in order to do business on a global scale. 2. Discuss the differences in the four global strategies organizations can use to organize their global business. What information system strategies work best for each business strategy? 3. What are the benefits of cooptation when managers are building new information systems to support global businesses? 4. What are some of connectivity problems global businesses must understand and how can the Internet help companies resolve these problems? Answers to Discussion Questions 1. Answers should reference religious laws and civil legal systems, collection of individual information (transborder data flow), privacy issues, work habits, and particularism. 2. Answers should reference the four global strategies: domestic exporters, multinational companies, franchisers, and transnational corporations. Figure 15.3 depicts an appropriate system configuration for each business strategy. 3. Cooptation is the art of working with the opposition to convince them to be part of the solution in designing and implementing the new system. Raw power should be avoided as much as possible. Local units should help develop a short list of transnational systems while agreeing that these systems are truly required. One alternative is to let each regional unit develop an application in its home territory and then implement it throughout the rest of the company. A second alternative is to develop transnational centers of excellence that perform the initial identification and specification of business processes, define the information requirements, perform the business and systems analysis, and accomplish all the design and testing. Implementation and testing are performed in regional locations. 4. Table 15.5 lists the connectivity problems global companies face: quality of service, security, costs and tariffs, poor quality of international services, and regulatory constraints, among others. The Internet and Internet technologies offer a standard platform with standard interfaces. Intranets, extranets, and virtual private networks give companies a way to bypass unsecured public Internet transmissions. Some of the problems will eventually be resolved when Internet connectivity becomes more widely available and reliable in emerging regions of the world. In the meantime, increased use of wireless technologies, especially cell phones, are providing a workaround. 15-15 ..
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Management Information Systems, 15TH ED. 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. In 2013, how does Carr’s argument stand up? Most management information system (MIS) experts disagree. As we discuss later in this chapter 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 Wal-Mart, 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 new 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 in 2013, a
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Chapter 1
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good 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 in 2013 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 2020, the U.S. economy will create 25 million new jobs, and 28.5 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. Many of these new jobs and replacement jobs will require a college degree to perform (Statistical Abstract, 2013; U.S. Bureau of Labor Statistics, 2013). What this means is that U.S. business firms are looking for job 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, including systems analysis and design, software and Web development skills. 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 function effectively in this new, emerging labor market. Let’s look at the career opportunities for business school majors.
ACCOUNTING There are about 1.1 million accountants in the U.S. labor force today, and the field is expected to expand by 16 percent by the year 2020, adding 190,000 new jobs, and a similar number of jobs to replace retirees. This above-average growth in accounting is in part driven 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. After the financial meltdown of 2007–2009, there followed an explosion of growth in forensic accounting. Accountants can be broadly classified as public accountants, management accountants, government accountants, and internal auditors. Accountants provide a broad range of services to business firms including preparing, analyzing, and verifying financial documents; budget analysis; financial planning; information technology consulting; and limited legal services. A new specialty called “forensic accounting” investigates white-collar crimes, such as securities fraud and embezzlement, bankruptcies and contract disputes, and other possibly criminal financial transactions. Accouncontinued
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tants increasingly rely on information systems to summarize transactions, create financial records, organize data, and perform financial analysis. In fact, there is no way that firms today can perform even basic accounting functions without extensive investment in systems. As a result of new public laws, accountants are beginning to perform more technical duties, such as implementing, controlling, and auditing systems and networks, and developing technology plans and budgets. What kinds of information system skills are really important for accounting majors given these changes in the accounting profession? Here is a short list: ◆◆
◆◆
Knowledge of current and likely future changes in information technology, including hardware, software, and telecommunications, which will be used by public and private firms, government agencies, and financial advisors as they perform auditing and accounting functions. Also essential is an understanding of accounting and financial applications and design factors to ensure firms are able to maintain accounting records and perform auditing functions, and an understanding of system and network security issues, which are vital to protect the integrity of accounting systems. Understanding of enterprise systems capabilities for corporate-wide financial reporting on a global and national scale. Because so many transactions are occurring over the Internet, accountants need to understand online transaction and reporting systems, and how systems are used to achieve management accounting functions in an online, wireless, and mobile business environment.
FINANCE Finance majors perform a wide variety of jobs in the U.S. economy. Financial managers develop financial reports, direct investment activities, and implement cash management strategies. The financial manager occupation includes many sub-titles such as financial analysts, financial examiners, budget analysts, and appraisers, There are about 400,000 financial managers in the U.S. labor force with several different occupational titles such as financial analyst, examiners, budget analysts, personal financial managers, stock brokers, investment bankers, and appraisers. The number of financial managers is expected to grow by about 15%, adding 80,000 new jobs by 2020. The growth in finance employment has clearly slowed from previous years prior to the recession of 2007–2009. Financial managers require strong system skills and 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 investments in information systems help achieve corporate goals and achieve 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 also co-major in information systems (and vice versa). What kinds of information system skills should finance majors develop? Following is a brief list:
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An understanding of likely future changes in information technology, including hardware, software, and telecommunications, that will be used by financial managers and financial service firms. This includes an understanding of financial applications and design factors to ensure firms are able to manage their investments, cash, and risks; new kinds of mobile and wireless applications to manage financial reporting; and development of online systems for financial transactions. As new trading systems emerge, financial service firms and managers will need to understand how these systems work and how they will change their firm’s business. Knowledge of the new role played by enterprise-wide financial reporting systems on a global and national scale. As more and more transactions move online, finance majors need to understand online transaction reporting systems and management of online system investments.
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 in this chapter means that eyeballs are moving rapidly to the Internet. As a result, Internet advertising is the fastest-growing form of advertising, expanding at more than 30 percent annually and reaching $37 billion in 2013. (Other forms of marketing communications are growing at a much slower 5 percent rate.) All this means that branding products and communicating with customers are moving online at a fast pace. There are about 900,000 marketing, public relations, sales, and advertising managers in the U.S. labor force. This field is growing faster than average and is expected to add more than 200,000 jobs by 2020. There is a much larger group of 2.6 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 1.8 million jobs by 2020. Here are some of the general information systems skills on which marketing majors should focus: ◆◆
◆◆
An ability to understand Internet and marketing database systems, and how they impact traditional marketing activities, such as brand development, production promotion, and sales. This would include an understanding of design factors to ensure firms are able to market their products, develop reports on product performance, retrieve feedback from customers, and manage product development. 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 continued
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discipline is 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. Here are the general information systems skills on which operations management majors should focus: ◆◆
◆◆
Knowledge of the changing hardware and software platforms that will be used in operations management. This would include an understanding of the role that databases, modeling tools, and business analytical software play in production and services management. An in-depth understanding of how enterprise-wide information systems for production management, supplier management, sales force management, and customer relationship management are used to achieve efficient operations and meet other firm objectives.
MANAGEMENT Management is the largest single group in the U.S. business labor force with more than 51 million members, not including an additional 547,000 management consultants. Overall, the management corps in the United States is expected to expand faster than other occupational groups, adding about 3.8 million new jobs by 2020, growing at around 15% for the forecast period. This is slower than average for all occupations. There are more than 20 different types of managers tracked by the Bureau of Labor Statistics, all the way from chief executive officer, to human resource managers, production managers, project managers, lodging managers, medical managers, and community service managers. The job of management has been transformed by information systems, and, arguably, it would be impossible to manage business firms today without the extensive use of information systems, even very small firms. Nearly all of the 51 million managers in the United States use information systems and technologies everyday to accomplish their jobs, from desktop productivity tools to applications coordinating the entire enterprise. Here are the general information systems skills on which management majors should focus: ◆◆
◆◆
Knowledge of new hardware and software that can make management more efficient and effective, enhance leadership and coordination capabilities, and improve the achievement of corporate business objectives in the broadest sense. This would include an understanding of the role that databases play in managing information resources of the firm, and the role of new communication and collaboration technologies, such as wikis, blogs, and wireless and cellular computing. An in-depth understanding of how enterprise-wide information systems for production management, supplier management, sales force management, and customer relationship management are used to achieve efficient operations and help managers make better decisions for improving firm performance.
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INFORMATION SYSTEMS The information systems field is arguably one of the most fast 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. Of the top 20 fastest-growing occupations through 2012, five are information systems occupations. There are about 308,000 information system managers in the United States, with an estimated growth rate of 18 percent through 2020, expanding the number of new jobs by more than 55,000 new positions, with an additional 50,000 new hires required for replacements. 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. Outsourcing and Offshoring The Internet has created new opportunities for outsourcing many information systems jobs, along with many other service sector and manufacturing jobs. Offshore outsourcing to low-wage countries has been controversial because U.S. workers fear it will reduce demand for U.S. information systems employment. However, this fear is overblown given the large demand for new information system hires in the United States through 2020. In fact, reducing the cost of providing information technology services to U.S. corporations by offshoring labor-intensive and lower-level jobs may increase the demand for U.S.-based information system workers as firms find the price of investing in information technology falls relative to other investments while its power to increase revenues and profits grows. There are two kinds of outsourcing: outsourcing to domestic U.S. firms and offshore outsourcing to low-wage countries, such as India and eastern European countries. Even this distinction becomes problematic as domestic service providers, such as IBM, develop global outsourcing centers in India. The impact of domestic outsourcing on the overall demand for information technology employment through 2020 is most likely quite small. Service provider firms, such as Hewlett-Packard and Accenture, add domestic IT employees as they expand their domestic IT services, while domestic information systems departments lose some employees or donot hire new employees. The impact of offshore outsourcing on U.S. domestic IT jobs is more problematic because, ostensibly, jobs that move offshore decrease demand for workers in the United States. 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. Hence, the largest impact of offshore outsourcing will mostly likely be on technical positions in information systems and less on managerial positions.
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Inflation in Indian wages for technology work, coupled with the additional management costs incurred in outsourcing projects, is leading to a counter movement of jobs back to the United States. Moreover, while technical IS jobs can be outsourced easily, all those management and organizational tasks required in systems development—including business process design, customer interface, and supply chain management—often remain in the United States. The net result is that offshore outsourcing will increase demand in the United States for managerial IS positions, while negatively impacting lower-level technical jobs. 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 new and emerging hardware and software can be used by business firms 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 in-depth understanding of databases, database design, implementation, and management. 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 software packages providing new system solutions.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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 In a few years, the primary means of accessing the Internet both in the U.S. and worldwide will be through mobile devices like tablet and smartphone computers, and not traditional desktop or laptop PCs. This means that the primary platform for e-commerce products and services will also change to a mobile platform (Table 1-1). FIGURE 1.1
U.S. Internet and Mobile Internet Users, 2011-2017 (millions)
2017
178
2016
168.1
2015
262
210.2
258
196.7
254
181 157.1
2014
162.9 143.2
2013
93.9
2011
33.5 0
50
Mobile Phone Internet Users
237
124.7
Tablets 230
98.6 100
Internet Users
243
143.2 123.1
2012
248
150
200
250
300
Mobile Internet—Smartphones and tablets are the fastest growing form of Internet access. Mobile Internet users will be 45% of all Internet users in 2013, and grow to 64% by 2016. Source: eMarketer, 2013
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You can see this sea change in technology platform today whenever you travel and watch business people peck away at their Blackberries 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 no longer at home anymore. Instead they’re in a car taking the kids to the next “engagement.” And both are working long hours and bring work home with them or come home late. 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 is a challenge for even the dominant Internet players. Google finds its PC-based ad business must somehow shift to the mobile platform and make up for slowing growth in its traditional search engine-based marketing engine. Apple struggles against the growing popularity of cheaper Samsung Android phones, and tries to develop a mobile advertising platform (iAd) to rival the leader in mobile ads (Google). Microsoft and Intel both struggle to develop mobile hardware and software for the consumer and business market. HP and Dell experience declining PC revenues, and fail to develop mobile alternatives to for their customers. Amazon struggles to encourage customers to purchase retail products using their phones, while experiencing some success with tablet-based retail, and dominating ebook sales both with its Kindle reader, and Kindle apps on mobile devices. Figure 1.2 illustrates how fast mobile devices have grown as a percentage of the Internet population. In 2013, 75% of the U.S. adult population uses the Internet, but 45% use phones, and 38% tablets. By 2017, Internet penetration slowly grows to 80%, but phone and tablet users grow to 64% and 54%, respectively. FIGURE 1.2
Internet, Mobile, and Tablet Users Penetration (% of Internet Users)
2017 2016
Internet % Population
2015 Tablets
2014 2013
Mobile Phone
2012 2011 0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
While PCs are expected to remain the largest % of Internet users by 2017, table and phone Internet access is expected to grow much faster and nearly equal the penetration of PCs. Source: eMarketer, 2013
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Mobile Is Global The rapid growth of the mobile Internet platform is a global phenomenon, and not just a U.S. phenomenon. Figure 1.3 illustrates the changing global Internet platform. FIGURE 1-3
Global PC, Smartphone and Tablet Shipments, 2010–2016
2016 2015 2014 2013
Tablets
2012
PCs
2011 Smartphones
2010 0
200
400
600
800
1000
1200
1400
Source: IDC, 2012
In 2013, 800 million smartphones were shipped worldwide, while only 400 million PCs were shipped. By 2016, the gap will increase to 1.1 million phone shipments and only 520 million PC shipments. Tablets trail both PCs and phone shipments by a significant amount, but are growing much more rapidly than PCs. 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.
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?
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In 2013 the U.S. labor force has about 155 million workers. 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 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 five years.
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 power 90% of the worlds PCs; Only 12% of Smart phones use Microsoft’s operating systems and that’s mostly in Asia (Windows mobile). Instead smart phone manufacturers either purchase operating systems like Symbian, the world leader, or build their own like Apple’s iOS and Google’s Android OS, typically based on Linux and JAVA platforms. 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. For instance, Apple’s latest iPhone 5 uses an Apple-designed A6 ARM chip with a dual core 1.3 gigahertz processor that uses only .45 milliwatts of power (compared to a typical laptop dual core mobile Intel processor that uses 25 watts—about 500 times more power consumption). Apple has not officially released information on the chip or its manufacturer, but it is believed the chip is manufactured by Samsung. 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. While the latest Energy Star 4 lap top disk drives consume 500
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milliwatts at idle, and 1 watt writing and reading, flash memory chips consume about 50 milliwatts writing and reading data (twenty times less power). Powerful, energy efficient client devices are only one-half of the emerging digital platform. Without second and third generation cellular networks, and Wi-Fi wireless local networks, mobile platforms enabling computing anywhere and anytime would be impossible. By 2013 there will be 143 million cell phone subscribers in the United States, and 1.7 billion cell subscribers worldwide. 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 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. Figure 1.4 illustrates the rapid growth of m-commerce following the introduction of mobile devices. In 2011, m-commerce was only 7% of all e-commerce. By 2013 it had grown to 15%, and in 2016 is estimated to be 23%-- nearly a quarter of all e-commerce.
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FIGURE 1.4
6
M-commerce and E-commerce, 2011-2016
450 385
400 338
350
296
300 $ Billions
259
250
195
200
Mobile Commerce
226
E-commerce
150 100 50
13.6
24.6
2011
2012
38.4
52.1
68.3
86.9
0 2013
2014
2015
2016
Source: eMarketer, 2013
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 offline 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. The forecast for m-commerce suggests double-digit increases inthe number of mobile shoppers and buyers, and overall sales through 2016. By comparison, traditional e-commerce conducted over PCs is expected to increase at 9-10% in the period. 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
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reason, tablets will play a significant role in the growth m-commerce as their adoption rates are higher than for smart phones. Figure 1.5 illustrates the comparative influence of smartphones and tablets in the growth of m-commerce. FIGURE 1.5
M-commerce Sales by Device
70
61
60 46
50 40 $ Billions
34
30
24
20 10 0
Tablets
14 5
8
13
10
20
17
Cell Phones
24
Other
1
1
1
1
1
1
2011
2012
2013
2014
2015
2016
Retail purchases made through tablets are expected to comprise 70% of m-commerce sales in 2016, up from 62% in 2013. Smartphone sales are expected to grow at double-digit rates and comprise 35% of m-commerce sales in 2013, falling to 28% in 2016. Sales made through other mobile devices, such as e-readers or handheld gaming systems, will represent less than 3% of total m-commerce sales during the period.
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 (Figure 1.7)
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FIGURE 1.7
8
Sources of M-commerce Revenues
60 Apps
50
Goods
40
Entertainment
30
Music
20
E-books
10 0 2011
2012
2013
2014
2015
2016
Sources: eMarketer, 2013; author estimates
There are several surprises in Figure 1.7. The sales of apps on both Apple and Android devices is larger than sales of goods in 2013, and is expected to grow faster than all other mobile revenues through 2016. By 2016, sales of apps and sales of services within apps is almost twice as large as the sale of goods. Second, physical goods and services sales, while growing, do not grow as fast as expected. Third, e-book sales are surprisingly strong when compared entertainment and music. Here are some explanations. The app sales reflects in part the growth in apps—Apple and Google each claim to have over 1 billion apps in their stores. There are an estimated 50 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. The top ten most expensive apps range in price from $179 (Nursing Constellation Plus, a reference tool for emergency room physicians) to $999 (BarMax California Edition, a students taking the California Bar exam). The most expensive iPad apps are a little more expensive, ranging in price from $299 for TouchChat HD (a tool for communicating with the impaired) to $999 for Intuition Control (a scrap management system). In comparison, single music tracks sell for .99 cents, and despite the number of musical downloads, the revenue is far less than app revenue. 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
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mobile time. There’s also the “fat finger” problem: purchasing on a 3.5” 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. Figure 1.8 illustrates how consumers actually use their smartphones as indicated by the kinds of apps they are downloading. FIGURE 1.8
The Apps Consumers Use
Source: Nielsen, 2011
Purchasing goods and services, as opposed to informing and socializing activties, is not high on the list of apps that are downloaded. Only 26% of smartphone users download shopping/retail apps, and actual purchasing is not that common (as opposed to shopping).
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A final surprise in Figure 1.7 concerns the strength of mobile eBook sales which 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. US mobile advertising spending is about $7 billion in 2013 (compared to $46 billion for all online advertising), and is expected to grow at 25% to 40% a year to 2016, reaching a total spend of $27 billion in 2017. In 2013 mobile advertising is only 16% of all online advertising. Mobile advertising is growing about four times faster than all online ad spending). By 2016, mobile advertising will be an estimated 40% of all online advertising.
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FIGURE 1-5
11
U.S. Mobile Ad Spending 2011-2017 (millions)
$70.0 $57.5
$60.0
$Billions
$66.3
$52.8 $46.5
$50.0 $40.0
$62.0
Online Ad Spending
$39.5 $32.0 $27.1
$30.0 $21.5 $20.0 $10.0
$16.2
$2.0
$4.1
$7.3
Mobile Ad Spending
$11.3
$2011
2012
2013
2014
2015
2016
2017
Mobile Internet advertising is the fastest growing online ad channel. Source: eMarketer, 2012
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 threat to 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, ad revenues decline because 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 continued
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browsers. The biggest revenue generating apps for advertising will be games and entertainment (art 42% of user time, it’s the largest time segment for mobile users), social networks (mostly Facebook, 32% of mobile user time), 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 b usinesses use this information to track which items have been sold, to determine sales revenue, and to identify hot-selling items and other sales trends. continued
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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 p rovide 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, d evelopment, and maintenance of production facilities; the establishment of production goals; the acquisition, storage, and availability of production materials; and the scheduling of equipment, facilities, m aterials, 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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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. 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.
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FIGURE 2-3 An Accounts Receivable System
An accounts receivable system tracks and stores important c ustomer data, such as payment history, credit rating, and billing history.
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).
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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. FIGURE 2-4 An Employee Record Keeping System
This system maintains data on the firm’s employees to support the human resources function.
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 Benefits 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
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“Teamwork and Collaboration at Cisco.” Cisco CEO John Chambers explains how abandoning command-and-control leadership has enabled the company to innovate more quickly, using collaboration and teamwork. See the Video Case Package for this book.
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 difference between cooperation, collaboration, and team work (project teams)? Figure 1-1 illustrates the differences 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 continued
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FIGURE 1-1 Cooperation, Collaboration, and Team work
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. Without it, we would not have villages, towns, cities or countries. Or business firms. 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 firm, you collaborate with accountants working in an accounting firm 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 firm’s organizational structure, but are rather informal groups. Now let’s step it up one more time to talk about teams.
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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 specific mission that someone in the business assigned to them. They have a job to complete. The members of the team need to collaborate on the accomplishment of specific tasks and collectively achieve the team mission. The team mission might be to “win the game,” or “increase online sales by 10%,” or “prevent insulating foam from falling off a space shuttle.” Teams are often short-lived, depending on the problems they tackle and the length of time needed to find a solution and accomplish the mission. Teams often involve people in very different parts of a business firm, 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. The nature of work has changed from factory manufacturing and pre-computer office 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 finished product was completed. Today the kinds of jobs we have require much closer coordination among the parties involved in producing the service or product. These 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 office jobs that require close coordination of many different people in order to complete the work. For instance, creating a Web site for a firm 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 firm. 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 firm. The organization of the firm has changed from work at a single location, to work taking place in offices or factories throughout a region, a nation, or even around the globe. For instance, Henry Ford developed the first mass production automobile plant at a single Dearborn, Michigan factory. In 2012, Ford produced 6.5 million automobiles and employed about 245,000 employees at 100 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. Think 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 firms. Their 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. There 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.
Briefly, collaboration and social networking have become a growing theme of social, political, and business organization in the age of the Internet. Economies, organizations and firms, 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? There 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 firm 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 firms than was true in the past (for reasons outlined above). Table 1-1 summarizes some of the benefits of collaboration identified 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 difficulties of obtaining solid empirical evidence of these contributions involves the difficulties 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. That study concluded that “collaboration is a key driver of overall performance of companies around the world. Its impact is twice as significant as a company’s aggressiveness in pursuing new market opportunities (strategic orientation) and five times as significant as the external market environment (market turbulence)… The results show that collaboration can positively impact each of the gold standards of performance - profitability, profit 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. Those that collaborate less, do not perform as well. It’s just that simple.” A more rigorous empirical analysis of the diffusion of information in a single corporation found that social networks--the foundation of collaboration-- were exceptionally powerful in moving news information up and down the hierarchy of a firm, while discussions of topics were expedited among peers at that same level in an organization. The overall economic benefit of collaboration continued
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was signficicant: 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 findings. FIGURE 1-2 A Model of Collaboration
While there is scant empirical information to back up these statements, there is a wealth of anecdotal accounts which supports this general framework. While there are many presumed benefits to collaboration, as you can see in Figure 1-2, you really need the right business firm 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?” Think 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. This list is not exhaustive, but seeks to capture the central themes found in discussions of collaboration. These characteristics are in alphabetical order, not in order of importance.
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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.
The 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 different 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 different 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 different specialties, and most are committed, dependable, and mission conscious. These last three qualities-committed, dependable, and mission or goal oriented-seem to be absolute minimal requirements for good team members. The significance of this finding is that it takes a diverse group of people to make a really successful team. You need a lot of different 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. There continued
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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 find out how many people chose each feature as #1. If you have quantitative skills, you might calculate the rank order correlation coefficient for the rankings. What do you find? Next, compare the lists of individual strengths. What do you find?
From a business point of view, the meaning is obvious. If you could get all your people working together effectively on teams, you would greatly increase the total output, and the productivity of the firm would grow, all without hiring new people. So teamwork becomes integral to having a successful firm.
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? Thousands 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 different 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. 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).
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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). The 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 finished, 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).
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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 firm. 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 five different colors of nodes (people): blue, grey, red, green, yellow) which represent members of five different groups or teams. Source: mailchimp.com/blog/using-emailto-uncover-hidden-social-networks.
Examining Figure 1-3, you can see some interesting patterns. The groups blue, red, and green each have real “centers” where a small number of people receive and send a great deal of communications. These 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. These 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. These people tend to be the ones who can get additional resources for their teams. They are connected not just to people like themselves, but to others in different 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 influential.
5.0 How to Build and Manage a Collaborative Team As a manager you will find 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. There are six steps to forming effective, 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 firm, 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 five teams including a systems analysis team to identify the business information requirements; a design team to select from a variety of different technical solutions; a programming team that builds the system (or adapts a packaged system to your firm); 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 staff 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 identified the sub-objectives, and the teams, you will need to identify the skills needed for each team. Not all teams have the same requirements. The 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. The design, programming, and testing teams require technical competence first, 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 firm 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 effective teams in a firm, 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 firm, 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 firms, especially large firms, 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. There often was a senior management Planning Group that spent most of each year just planning what lower level people should do. The 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 firms used to behave in the 1950s to1990s, but caricatures often have some truth. Command and control firms 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 figure 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 firms still operate this way. A collaborative business culture is very different. 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. The function of middle managers is to build the teams, coordinate their work, and monitor their performance. That’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 firm (ease of cooperation) regardless of their position? 2. Does your unit cooperate regularly with other units at work? (frequency of cooperation). You can substitute office, or department, depending on how your firm organizes itself. 3. Are people in other departments easy to access and communicate with? 4. Does your firm reward individuals only, or does it reward teams and individuals? 5. Does your firm 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. This 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 firms 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 first software tools began to appear that supported what was call “group work.” These early tools were called “groupware,” and the field 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, groupware is one of many 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 fifteen categories (Table 1-4 lists the categories or types of collaboration software identified by experts in the field). 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
The entire map of over 150 collaboration tools is too large to reproduce here, but it is available at http://www.mindmeister.com/maps/show_public/12213323. Some of the high-end tools like IBM’s Lotus Notes are expensive, but powerful enough for global firms. 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 Apps/Google Sites. Google Sites is a tool that allows users to quickly and easily design group-editable Web sites. Google Sites is one part of the larger Google Apps suite of tools. Google Sites users can put up Web sites in minutes and can, without any advanced technical skills, post a variety of files including calendars, text, spreadsheets, and videos for private, group, or public viewing and editing. Google Apps include the typical desktop productivity software tools (word processing, spreadsheets, presentation, contact management and mail). Table 1-5 describes some of the capabilities of Google Apps and Google Sites.
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TABLE 1-5 Google Apps / Google Sites Features Google apps/sites
Description
Google Calendar
Private and shared calendars; multiple calendars (family schedules, business schedules).
Gmail
Google’s free online email service is used for e-mail messaging and IM.
Google Docs and Spreadsheets
Word/Excel replacements; simultaneous online editing, sharing, publishing
E-mail, online storage, chat, programming
Premium addition adds make this a full featured collaborative tool
Google Sites
Team collaboration sites for sharing of documents, schedules, calendars, and search documents.
Google Video
Firm wide video sharing and commenting capability
Socialtext, a widely used enterprise collaboration environmennt, takes adifferent approach from Google. Instead of shared applications, Socialtext provides a set of capabilities that support social networking. Socialtext’s flagship product, Socialtext Workspace, is the first enterprise wiki and the foundation of the connected collaboration platform. Socialtext People enables enterprise social networking. Socialtext Dashboard provides personalized and customizable widget-based interface for people and teams to manage attention. Socialtext wiki provides enables employees to find expertise within the firm. SocialCalc is the social spreadsheet for distributed teams. There are many other online collaboration tools (Table 1-6), among them is Microsoft’s SharePoint, one of the most widely adopted collaboration environment for small and medium businesses. TABLE 1-6 Other Popular Online Collaboration Tools Tool
Description
Socialtext
A server-based collaboration environment which provides social networking, Twitter-like microblogging , wiki workspaces, with integrated weblogs, distributed spreadsheets, and a personal home page for every user. Connectors to Microsoft SharePoint and Lotus Connections are also available.
Microsoft SharePoint
A browser-based collaboration and a document-management platform, combined with a powerful search engine. These can be used to host web sites that access shared workspaces and documents, as well as specialized applications like wikis and blogs from a browser. Installed on corporate servers, not software as service.
Zoho Notebook and Project
Collecting and collaborating on text, line drawings, images, Web pages, video, RSS feeds. Project management (task management, work flow, reports, time tracking, forums, and file sharing). Free or $5/project/month for premium service.
Bluetie
Online collaboration with email, scheduling, to-do lists, contact management, file sharing. Free for less than 20 users, $4.99 user/month after that.
Basecamp
Share to-do lists, files, message boards, milestone tracking. Free for a single project, $12/month for 3 projects with 200 megabytes of storage
OneHub
Share documents, calendars, Web bookmarks; email integration and IM. Manage hub resources; bulletin board.
WorkZone
Collaboration with file sharing; project management; customization; security.
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Several of these online services have excellent video introductions to their products. These videos can give you a keen sense of what is available on the Internet for a very low cost or no cost. For a tour of OneHub, point your browser at: http://onehub.com/tour. For Google Sites go to http://www. youtube.com/watch?v=X_KnC2EIS5w. For small and medium size firms that use Microsoft server products and local area networks, Microsoft SharePoint is the most widely adopted collaboration system. Microsoft’s strategy is to take advantage of the fact that it owns the desktop through its Microsoft Office and Windows products. For Microsoft, the path towards enterprise wide collaboration starts with the Office desktop and Microsoft network servers. SharePoint software makes it possible for employees to share their Office documents and collaborate on projects using Office documents as the foundation. 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, collaborate on and publish documents, maintain task lists, implement workflows, and share information via wikis and blogs. Sharepoint has a Web-based interface and close integration with everyday tools such as Microsoft Office 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 find relevant information quickly and efficiently 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-specific 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 offline, and to synchronize changes when reconnected to the network. Provides enterprise search tools for locating people, expertise, and content.
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For very large firms (Fortune 1000 and Russell 2000 firms) the most widely used collaboration tool is IBM’s Lotus Notes. IBM’s strategy is to take advantage of the fact that it dominates the Fortune 1000 data processing and networking environment. IBM’s approach to collaboration is therefore to start from the top down through implementation of an enterprise-wide Lotus server solution by the central IS Department. In large multinational corporations with tens of thousands of employees this may be the only enterprise-wide solution and is beyond the capabilities of Microsoft local area networks. Lotus Notes does indeed work with Microsoft Office documents, but has its own proprietary software for other tasks including word processing, spreadsheets, and presentation software. Lotus Notes is a client-server, collaborative application developed and sold by IBM Software Group. IBM defines the software as an “integrated desktop client option for accessing business e-mail, calendars and applications on an IBM Lotus Domino server.” The 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. Thousands of employees at hundreds of large firms use IBM Lotus Notes as their primary collaboration and team work tools. Firmwide installations of Lotus Notes can cost millions of dollars a year for a large Fortune 1000 firm, whereas Google Apps/Google Sites comes in a limited free version or a more sophisticated premium version for $50 per user/per year. A client-server product like Lotus Notes inherently involves the central IS department, and it is a major implementation effort. Online software services are therefore attractive because they do not require any installation on corporate servers, or even the IS Department to be involved. Nevertheless, existing online tools like the Google collaboration services are not as powerful as those found in Lotus Notes, and it is unclear they could scale to the size of a global firm (at least for now). Very large firms adopt IBM Lotus Notes because of the promised higher level of security, and the sense that the firm retains control over sensitive information. Large firms 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 firms. 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.
MAKING SENSE OUT OF COLLABORATION TOOLS We have avoided trying to formally define 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
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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 firm? 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
The Time/Space matrix focuses on two dimensions of the collaboration problem: time and space. For instance, you need to collaborate with people in different time zones and you cannot all meet at the same time. Midnight in New York is Noon in Bombay, so this makes it difficult 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 firms. Getting people together for a physical meeting is made difficult by the physical dispersion of distributed firms (firms with more than one location), the cost of travel, and the time limitations of managers. 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).
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TABLE 1-7 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 classification scheme to categorize the different 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 classification tools to start thinking about how to choose collaboration and team work tools for your firm. As a manager, you will want to purchase and use the tools that solve the issues your firm is facing. Here’s a To-Do list to get started: 1. What are the collaboration challenges facing the firm in terms of time and space? Locate your firm in the Time/Space matrix. Your firm can occupy more than one cell in the matrix. Different collaboration tools will be needed for each situation. 2. Within each cell of the matrix where your firm 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 benefits to your firm. 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 firm willing to put proprietary information into the hands of external service providers over the Internet? Is your firm willing to risk its important operations to systems controlled by other firms? What are the financial risks facing your vendors? Will they be here in three to five years? What would be the cost of making a switch to another vendor in the event the vendor firm fails?
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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 firm at a price you can afford, and within your risk tolerance. REFERENCES: Aral, Sinan; Erik Brynjolfsson; and Marshall Van Alstyne, “Productivity Effects of Information Diffusion 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. The Information Age: Economy, Society and Culture. Vol I: The 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 Through 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, Thomas 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, Thomas W. and Kevin Crowston. “Computer Supported Collaborative Work.” Proceedings of the 1990 ACM Conference on Computer supported Cooperative Work, Los Angeles, 1990. Malone, Thomas W. and Kevin Crowston. “The Interdisciplinary Study of Coordination.” ACM Computing Surveys (CSUR). March, 1994. Scarnati, James T. “On becoming a team player.” Team Performance Management, 2001. Simonin, Bernard. “The 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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
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because they are services provided to everyone in the firm, but you would want to charge the manufacturing division for a production control system because it benefits that division e xclusively. Equally important, management should establish priorities on which systems most deserve funding and corporate attention.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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 f unction 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 t echnology 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 high-level 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 © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 2: Global E-business Collaboration
Learning Track 5: Occupational and Career Outlook for Information Systems Majors 2010–2020 Total employment in the United States is expected to increase by about seven percent from 2010 to 2020. However, the 20.5 million jobs expected to be added by 2020 will not be evenly distributed across major industry and occupational groups. Changes in consumer demand, improvements in technology, the rise and fall of industries and entire sectors of the economy, and many other factors, will contribute to the changing employment structure of the U.S. economy. Industries and occupations associated with health care, personal care, social assistance, and construction are projected to be the fastest growing. Occupations which do not require a college degree (either two or four-year college degrees) will have the slowest growth in the 2010-2020 forecast period. Also, the labor force is aging, and the labor participation rate will decline, slowing the growth in the labor force. Employment growth in IS/MIS jobs will be about 50% greater than average job growth in other fields.
Career Satisfaction Among Information Systems Majors A survey completed in 2010 found that IS majors were among the most satisfied with their career path since graduation when compared to other majors (Figure 1-1). In fact, MIS majors had the highest level of career path satisfaction. 54% of MIS graduates were “satisfied” or “very satisfied” with their career path since graduation. The survey, which was conducted by PayScale.com between April and June of 2010, only included respondents with jobs, but could also include people who went on to earn a graduate degree. It included 10,800 employees who got their bachelor’s degrees between 1999 and 2010. The survey was done as part of the Wall Street Journal’s Paths to Professions project, which looked at jobs that are satisfying, well-paid and have growth potential. The PayScale survey examined people in a set of jobs that included industries such as health care, finance, and government (Figure 1-1). The differences among the top half college majors are not huge, but they are interesting and statistically significant. The average for all careers is 46%. It is likely that those college majors with less than “average” satisfaction reflect difficulties in finding jobs in a field for which they have trained, and when found, retaining jobs and having good job experiences. Psychology had the lowest level of satisfaction. continued
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Another factor is pay. MIS is ranked 15th out of 114 occupations in terms of median starting pay ($50,900) and mid-career median pay ($90,300) (Payscale.com, 2010). FIGURE 1-1
MIS Scores Highest in Career Path Satisfaction
MIS Job Projections to 2020 If MIS college graduates today are among the most satisfied, and if this is in part related to employment prospects and job satisfaction after graduation, then the future for the various IS/MIS careers is quite positive because jobs in MIS will continue to expand over the next eight years at a healthy rate. IS employment in the United States will grow by about 800,000 jobs in the forecast period to 2020. Figure 1-2 below presents data from the Occupational Outlook Handbook (Bureau of Labor Statistics, 2013) for the period 2010-2020. This table collapses a variety of MIS occupational titles into nine occupational categories: computer and information scientists, database administrators, information systems managers, security analysts/Web developers, network and system administrators, systems analysts, computer support specialists, and software developers/programmers. Figure 1-3 describes the percentage change and salary range in these occupations over the forecast period. continued
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Job Outlook for Selected IS Occupations 2010-2020
Source: Bureau of Labor Statistics, 2013. Table by author.
Compensation of IS Personnel IS occupation salaries are generally far above the average compensation for employees in the United States (about $45,000 annually) (Figure 1-3). FIGURE 1-3
Percentage Change and Salary Range in Selected IS Occupations, 2010-2020
%Change Median Salary Computer and information scientists 19% $100,660 Database administrators 31% $73,490 Information systems managers 18% $115,780 Security analysts, Web developers, network architects 22% $75,660 Network and system administrators 28% $69,160 Systems analysts 22% $77,740 Source: Bureau of Labor Statistics, 2013. Table by author. 18% Computer support specialists $46,260 Software developers, programmers 30% $90,500
The top five occupational titles in terms of salary are: information system managers with a median salary of $116,000; computer and information scientists, $100,660; software developers and programmers, $90,500, systems analysts, $77,740; security analysts and Web developers, $75,660. About 518,000 new jobs will develop in these areas by 2020. The largest number of jobs created will be software developers/programmers (about 270,000). Students of MIS with a managerial interest will find significant opportunities in project management, system management, and liaison roles with other corporate managers in marketing and sales, production, general administration, and
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finance. Students with an interest in database, data mining, networks and software development will also find significant opportunities.
Fastest Growing IS Occupations All IS occupations show a far higher rate of growth than the average for all occupations (about 7%). The fastest growing occupations are database administrators (31%) followed by software developers/programmers (30%), network/system administrators (28%). The other IS occupations are growing in the 15%-20% growth range in this ten-year period (Figure 1-4). Computer support specialists will grow by 18%, adding about 110,000 new jobs. Computer support specialists provide technical assistance and advice to company employees, and customers, as well as provide training materials. These are excellent entry-level jobs for recent graduates, and offer many opportunities for advancement to higher paying IS jobs in the future, as well as promotions to corporate divisions and departments like marketing, logistics, and finance. Software developers and programmers, and network occupations tend to be more technically oriented, whereas systems analysts jobs tend to be more management oriented. Systems analysts provide a crucial link between business managers and systems staff by helping managers to define information requirements, system design, and implementation. Both of these occupations require good technical, interpersonal, and problem solving skills. Systems analysts require, in addition, excellent writing and presentation skills. FIGURE 1-4
Computer and information scientists
2020
2010
New Jobs
33,500
28,200
5,300
Database administrators
144,700
110,800
33,900
Information systems managers
363,700
307,900
55,800
Security analysts, Web developers, netw
368,000
302,300
65,700
Network and systems administrators
443,800
347,200
96,600
Systems analysts,
664,800
544,400
120,400
Computer support specialists
717,100
607,100
110,000
1,184,000
913,100
270,900
Software developers, programmers
Technical vs. Managerial IT Jobs One question business students often ask is “How much technology do I need to know to get a good job?” Unfortunately, there is no single answer for this question. From a career perspective, what is better: start out with a strong technology background, and then build on those skills and experiences, seek out additional educational credentials, and seek a higher paying management position? Or, is it better to focus on the management skills while in school, apply for managementoriented IS jobs, and learn a smattering of technology along the way? continued
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Figure 1.5 groups the various IS occupations into two groups: managerial and technical. Managerial occupations include information systems managers, systems analysts, network and system administrators, and database administrators. Technical occupations include software developers and programmers, computer support specialists, and security analysts/Web developers. From what we have said so far, it’s clear that the technical jobs are more numerous to begin with and are generating slightly more jobs than the managerial occupations, and that the managerial occupations pay more than the technical occupations on average. Figure 1.5 illustrates that technical IS jobs are more numerous and are growing a bit faster. FIGURE 1.5
Technical vs. Managerial IT Job Growth 2010–2020
Note: Technical jobs: software developers/programmers, computer support specialists, security analysts/Web developers. Managerial jobs: information systems managers, systems analysts, network and system administrators, and database administrators.
In the history of the MIS profession there are a variety of successful career paths. Some senior IS managers started out in narrow technical jobs and worked their way up to becoming managers and even CIOs (Chief Information Officers). In contrast, there are some CIOs who have very little technology background but a great deal of experience as project managers, dealing with other senior managers, and managing at the Vice-president and C-level (senior management) in other divisions of the company. However, this latter case is rare. Chances are in the first interview students have with potential IS/MIS employers, the question of technical competence will come up. Therefore, it is wise for recent college graduates seeking employment in the IS/MIS field to have a good to strong technical background. One career strategy is to focus on developing technical skills while in school and then use those skills to obtain an entry-level job. Return to school, or learn on the job, managerial skills to participate in the higher earnings of this group. Another strategy is to focus on technical skills for an continued
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entry level job, then build on those skills staying within the technical track to attain higher paying technical positions. The optimal career strategy is arguably a mix of strong technical skills with an equally strong set of inter-personal, collaboration, and management skills. If you can’t get along with colleagues, have poor project management skills, and are poorly organized in your work, chances are good your technical skills alone may not be enough for a successful career.
The Impact of an Aging Labor Force on IS Careers The demand for IS and MIS employees will actually be much higher in the next decade and beyond than discussed above because of the aging population and labor force in the United States. The U.S. civilian population, including individuals aged 16 and older, is expected to increase by 25.2 million to a total of 325 million from 2010 to 2020 (about 8%). The labor force is expected to increase at about the same rate from 157 million in 2010 to 167 million in 2020, an increase of .8% a year, down from greater than 1% in previous decades. Labor force growth is slowing. As the baby boomers continue to age, the 55 and older age group is projected to increase by 29.7 percent, more than any other age group. Meanwhile, the 45 to 54 age group is expected to decrease by 7.6 percent, reflecting the slower birth rate following the baby-boom generation. The 35 to 44 age group is anticipated to experience little change, with a growth rate of 0.2 percent, while the population aged 16 to 24 will grow at only .3 percent over the projection period. According to the U.S. Census Bureau, the number of people aged 55 and older will increase to 30% by 2020, while the number of younger workers will grow only 5%. By 2030, with the last of the baby boom generation turning age 66, an unprecedented 20% of the population will be over age 65. The share of the youth labor force, workers aged 16 to 24, is expected to decrease from 14.3 percent in 2010 to 12.7 percent by 2020. The primary working-age group, those between 25 and 54 years old, is projected to decline from 67.7 percent of the labor force in 2008 to 63.5 percent by 2018. Workers aged 55 years and older, by contrast, are anticipated to leap from 18.1 percent to 23.9 percent of the labor force during the same period. As baby boomers grow older, so does the U.S. workforce. In a nutshell, the U.S. population and the labor force are getting older over the foreseeable future, and slowing in growth. Three decades ago the median age of the labor force was 35 years. Today, the median age is estimated to be 41 and by 2030, the median age is expected to be 48. Retirement age had been falling since the turn of the Century (from 74 years down to 62 years), but going forward to 2018, more elderly workers will remain in the labor force and average age at retirement is expected to increase to 67 (for a variety of reasons including better health, extension of the legal age of “full retirement” by the Social Security Administration, and economic necessity). So far we have been using projections for new openings in the IS field. These projections did not account for replacement positions for those retiring. The number of replacement positions is not known for the specific IS field, but overall in the labor force, about 25% of today’s labor force will continued
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retire in the years 2010-2020. Using this ratio and applying it to the IS field suggests actual job growth with be 25% higher than suggested by looking just at “new positions.” This means the IS field will actually add about 1.25 million new jobs in the period 2010-2020. Industry Effects: Choosing The Right Sector While employment prospects for IS/MIS majors look very good, it certainly will help if students focus on those sectors and industries that are likely to expand. The shift in the U.S. economy away from goods-producing in favor of service-providing is expected to continue. Service-providing industries are anticipated to generate approximately 14.5 million new wage and salary jobs. As with goods-producing industries, growth among service-providing industries will vary (Figure 1-6). FIGURE 1-6
Numeric Change in Wage and Salary Employment in Service-Providing Industries, 2010–2020 (Projected)
Source: BLS National Employment Matrix
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Choosing the right industry for employment is like choosing the right asset class in an investment portfolio. The best opportunities for IS employment both in terms of percentage growth and overall numbers of new jobs can be found healthcare, professional and scientific services, and educational services. In general, employment in the manufacturing sector is not expected to grow as fast as service sector employment although there are local exceptions. In the recession of 2008-2010, and the slow-growth period of 2011-2013 that followed, manufacturing sector growth is larger than service sector growth. And in some regions where manufacturing plays a large role in the local economy, such as Ohio, Michigan, and Indiana, IS employment opportunities will be larger in manufacturing than services. Pay attention to local markets.
The Impact of Outsourcing on IS/MIS Employment: A Riddle In the last decade, tens of thousands of IS/MIS jobs in the United States have been outsourced to India, as well as other countries. The three leading Indian outsourcing firms (Wipro, InfoSys, and Tata) are growing at about 10% annually, and currently employ about 300,000 IS/IT workers in India, most of whom are working on outsourced projects from the United States, and Europe. Large American global technology firms like Cisco, Microsoft, and IBM have made significant investments in India. IBM has created seven centers in India, and employs over 150,000 Indian workers in 2012. Microsoft has over 5000 employees in India working on products at all stages of the lifecycle from research and development, to support services. Cisco has 7,000 employees in India. Accenture, one of the world’s largest IT and business consulting firms which has a large and growing practice called “business process outsourcing” and “management outsourcing,” has over 74,000 employees in India working diligently to encourage firms around the world to outsource to India, or other low-wage countries. At the same time, large outsourcing firms like Wipro and Tata send over 100,000 IS workers to the U.S. every year. There are many reasons that outsourcing to India and other areas has grown so rapidly. Labor costs in India are 10%-20% of labor costs in the U.S. A $60,000 a year programmer in the United States can be employed in India in 2013 for about $8,000-$10,000, and that programmer will live comfortably. Second, the Internet has made it possible and inexpensive to coordinate and manage far flung teams of employees. Third, Indian infrastructure has improved to the point where it can support global business operations (although there are exceptions). Fourth, India and China with 1 billion+ populations and nearly 8% annual GDP growth rates represent significant investment opportunities for American and other global firms. Most investments in China are not made for their outsourcing potential, but for the chance to participate in the growth of China’s domestic and export markets. In their own right, India and China are the economies which will grow twice as fast as the U.S. economy in the next decade assuming existing trends continue. All of this outsourcing would seem to paint a dim picture for IS/MIS careers in the United States. One would expect thousands of IS/MIS workers out of a job, and investment in systems shrinking. continued
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Oddly, after a decade of significant outsourcing, unemployment among American IS/MIS workers is half that of the labor force average of 7.6 % in 2013, and is lower than unemployment among all college graduates and professionals of similar educational levels (about 3.7%). The estimated unemployment rate among IS/IT/MIS workers is less than 3.2%. Whatever the impacts of outsourcing, it clearly has not led to widespread unemployment among U.S. IS workers. Why not? Oddly, despite all the outsourcing of IT work, investment by U.S. businesses in information technology and systems has expanded in the last decade at an extraordinary rate of about 5% annually (more than twice the rate of growth of the economy as a whole). Investment in information technology, systems, hardware, software and telecommunications equipment was $540 billion in 2012, 52% of all capital investment in the U.S., and up from $366 billion in 1998 (Bureau of Economic Analysis, 2013). Employment levels in the IS/MIS careers and occupations have also expanded in the U.S. over the last decade at about 5% annually. How is it possible that IS/MIS outsourcing can be proceeding at a very rapid rate, and growth in IS/MIS careers and investments is expanding? The answers are speculative. One possible answer is that outsourcing has largely involved lower level, technical programming and engineering jobs and not higher level, high value-added jobs. As more lower level jobs are outsourced, more higher value jobs replace them. Moreover the demand in the U.S. for technical programming jobs has exceeded the supply, leaving plenty of work for local U.S. technical personnel. Some jobs like technical support specialist cannot be easily outsourced. Higher level management jobs are much less likely to be outsourced because of the need for face-to-face interaction with suppliers, customers, and employees. Sales and marketing are difficult to outsource. Another possible explanation is that the growth of outsourcing has potentially lowered the costs of system development in the U.S., making systems less expensive to build, and therefore encouraging U.S. firms to invest more in IT/IS and systems in general. The cost of technology has also fallen significantly (in terms of cost/millions of instructions per second). These developments are the equivalent of lowering the price of capital (in this case IT capital). And high levels of IS investment in the U.S. have only encouraged more outsourcing (as well as domestic employment). One result is a virtuous circle: outsourcing leads to lower system development costs, which leads to more investments in systems, which leads to higher demands for skilled IS/MIS labor, some of which will be outsourced. There are of course brakes and limits on the outsourcing process which are beyond the scope of this paper.
Summary: Employment Career Prospects for IS/MIS Majors to 2020 OO OO
Recent college graduates report high levels of satisfaction in their IS/MIS careers. US IT/IS jobs will grow at 5-6% over the period, about 1.5 times the GDP growth and considerably faster than the overall growth in the labor force. continued
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Compensation for IS/MIS graduates is above average compensation for college graduates and is likely to remain so for the forecast period. Unemployment among IS/IT/MIS workers is extremely low The fastest growing IS/MIS jobs are database administrators, software developers/programmers, and network system administrators. The highest paid IS/MIS jobs are information systems managers, computer and information scientists, software developers. Technical vs. managerial jobs. Technical jobs show large percentage and absolute growth, but managerial jobs pay more, and are far less likely to be outsourced. Both technical and managerial knowledge and skills are valued in the marketplace. It helps to choose the right economic sector when preparing for the job market. Healthcare, professional and educational services show the highest sector growth rates over the next ten years. Outsourcing has had a significant impact on IS/MIS employment and investment in the United States although not in the ways commonly believed. Outsourcing has not led to massive unemployment or under investment in U.S. IT infrastructure. On the contrary, outsourcing may have led to more systems development and more employment than otherwise might have occurred. Technical jobs which can become routinized and commoditized suffer the greatest risk of outsourcing to low wage countries. Managerial jobs, and those technical jobs which require hands-on, judgmental, creative, and design skills are much less likely to be outsourced. Future growth in the U.S. IT/IS sector will be driven by falling capital costs in IT/IS sector, more powerful hardware and software, and relatively stable IS/IT wage rates in the United States. Wages rates in India and China are rapidly increasing, shifting business calculations on where to locate work.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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 business 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
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Transformation of the business enterprise
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Growth of a globally connected economy
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Growth of knowledge and information-based economies
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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. In 2013, nearly 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 $1 trillion computer hardware and software industry in the United States, the $250 billion consumer electronics industry, the continued
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$1.6 trillion communications industry (traditional and wireless telephone networks), and the $900 billion 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 storage devices such as iPods 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 d river’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 mass-produced 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 mass-customized 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
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inventory, now 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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, continued
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and employee satisfaction). Responsibilities for control of systems, audits, and management should be clearly defined. The potential liabilities of systems officers and the corporation should be detailed in a separate document. COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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 Works 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 chapter surveys the capabilities of computer hardware and computer software and highlights the major issues in the management of the firm’s hardware and software assets.
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, 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 continued
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with programs already 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 a contemporary Intel i7 chip has four processors on board (quad core), each of which operates at 2.8 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 Ghxz. In 2013 personal computers and smartphones typically use dual or quad core processors. For instance, the Apple iPhone 5 uses an Apple A6 dual core processor operating at 1.3 Ghz, with a solid state memory (see below) of 16 GB. An HP Ultrabook (light weight laptop) uses the Intel i5 processor which is a dual core processor operating at 1.5 to 2.6 Ghz depending on the model, and 3 MB of cache memory.
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.
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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.
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.
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Secondary storage devices such as floppy disks, 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. There are two kinds of magnetic disks: floppy disks (used in PCs) and hard disks (used on large commercial disk drives and PCs). 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 also use floppy disks, which are removable and portable, with storage of up to 2.8 megabytes and a much slower access rate than hard disks. 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 exsit. Solid state memory does not have the multiple terrabyte capacity of the largest disk drives, and currently the largest commercial solid state drives have a 256 gigabyte capacity as found in the Apple MacBook Air.
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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: today’s hard drives easily store a terrabyte of data, whereas typical flash drives have only about 16 GB of storage, but can go as high as 64 GB, less than one-tenth the storage of 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. By 2003 solid state memory replaced small hard drives in the Apple iPod music players, and eventually became one key element in the 2007 Apple iPhone, and all smartphones thereafter. While early solid state memories had limited storage capacity (a few megabytes), today’s smartphones come with 16 and 32 GB of memory, enough for nearly a million songs!
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. 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 up to 660. 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. CD-ROM is read-only storage. No new data can be written to it; it can only be read. WORM (write once/read many) and CD-R (compact disk-recordable) optical disk systems allow users to record data only once on an optical disk. Once written, the data cannot be erased but can be read indefinitely. 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 are initially being used to store movies and multimedia applications using large amounts of video and graphics, but they have replaced CD-ROMs because they can store large amounts of digitized text, graphics, audio, and video data. Once read-only, writable and re-writable DVD drives and media are now available.
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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 is very inexpensive and relatively stable. However, it stores data sequentially and is relatively slow compared to the speed of other secondary storage media. In order to find an individual record stored on magnetic tape, such as an employment record, the tape must be read from the beginning up to the location of the desired record.
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 hightransmission 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.
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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 computer-readable 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.)
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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. 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. Most Web sites today are multimedia sites, combining video, text, and audio in a single consumer experience. continued
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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 such as MP3.com can download MP3 music clips over the Internet and play them on their own computers. In 2013, the iTunes Store has a catalog of over 12 million songs, over 55,000 TV episodes and over 8,500 movies.
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 continued
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environment can be 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. continued
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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).
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. continued
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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.
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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.
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BASIC and Pascal BASIC and Pascal are 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 is easy to use but does few computer processing tasks well, even though it does them all. Different versions of BASIC exist. Named after Blaise Pascal, the seventeenth-century mathematician and philosopher, Pascal was developed by the Swiss computer science professor Niklaus Wirth of Zurich in the late 1960s. Pascal is used primarily in computer science courses to teach sound programming practices.
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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 continued
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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.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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 specified services.” In most commercial contracts, the exact meaning of “perform specified services” 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 worldclass 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 agreements 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
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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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TABLE 1
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
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 performance in previous contracts. Therefore, service level agreements for service outsourcing can be more costly than providing the service from internal sources. continued
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 is handing over its Java based database program called Cloudscape to the Apache Software Foundation, an open source group. Novell is investing heavily in open source companies that sell versions of open source server software. 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 costpreferably, 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 TechnologyNeutral
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 © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 5: IT Infrastructure and Emerging Technologies
Learning Track 4: The Evolution of IT Infrastructure The IT infrastructure in organizations today is an outgrowth of over 50 years of evolution in computing platforms. There have been five stages in this e volution, each representing a different configuration of computing power and infrastructure elements (see Figure 5.2). The five eras are general-purpose mainframe and minicomputer computing, personal computers, client/server networks, enterprise computing, and cloud and mobile computing. Technologies that characterize one era may also be used in another time period for other purposes. For example, some companies still run traditional mainframe systems or use mainframe computers as massive servers supporting large Web sites and corporate enterprise applications.
General-Purpose Mainframe and Minicomputer Era: (1959 to Present) The introduction of the IBM 1401 and 7090 transistorized machines in 1959 marked the b eginning of widespread commercial use of mainframe computers. In 1965, the mainframe computer truly came into its own with the introduction of the IBM 360 series. The 360 was the first commercial computer with a powerful operating system that could provide time sharing, multitasking, and virtual memory in more advanced models. IBM has dominated mainframe computing from this point on. Mainframe computers became powerful enough to support thousands of online remote terminals connected to the centralized mainframe using proprietary communication protocols and proprietary data lines. The mainframe era was a period of highly centralized computing under the control of professional programmers and systems operators (usually in a corporate data center), with most elements of infrastructure provided by a single vendor, the manufacturer of the hardware and the software. This pattern began to change with the introduction of minicomputers produced by Digital Equipment Corporation (DEC) in 1965. DEC minicomputers (PDP-11 and later the VAX machines) offered powerful machines at far lower prices than IBM mainframes, making possible d ecentralized computing, customized to the specific needs of individual departments or business units rather than time sharing on a single huge mainframe. In recent years, the minicomputer has evolved into a midrange computer or midrange server and is part of a network.
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FIGURE 5.2 Eras in IT Infrastructure Evolution Illustrated here are the typical computing configurations characterizing each of the five eras of IT infrastructure evolution.
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Personal Computer Era: (1981 to Present) Although the first truly personal computers (PCs) appeared in the 1970s (the Xerox Alto, the MITS Altair 8800, and the Apple I and II, to name a few), these machines had only limited distribution to computer enthusiasts. The appearance of the IBM PC in 1981 is usually considered the beginning of the PC era because this machine was the first to be widely adopted by American businesses. At first using the DOS operating system, a text-based command language, and later the Microsoft Windows operating system, the Wintel PC computer (Windows operating system software on a computer with an Intel microprocessor) became the standard desktop personal computer. In 2012, there are an estimated 1.2 billion PCs in the world, and 300 million new PCs are sold each year. 90% are thought to run a version of Windows, and 10% run a Macintosh OS. The Wintel dominance as a computing platform is receding as iPhone and Android device sales increase. Nearly one billion people worldwide own smartphones, and most of these users access the Internet with their mobile devices. Proliferation of PCs in the 1980s and early 1990s launched a spate of p ersonal desktop productivity software tools—word processors, spreadsheets, electronic presentation software, and small data management programs—that were very valuable to both home and corporate users. These PCs were stand-alone s ystems until PC operating system software in the 1990s made it possible to link them into networks.
Client/Server Era (1983 to Present) In client/server computing, desktop or laptop computers called clients are networked to powerful server computers that provide the client computers with a variety of services and capabilities. Computer processing work is split between these two types of machines. The client is the user point of entry, whereas the server typically processes and stores shared data, serves up Web pages, or manages network activities. The term “server” refers to both the software application and the physical computer on which the network software runs. The server could be a mainframe, but today, server computers typically are more powerful versions of personal computers, based on inexpensive chips and often using multiple processors in a single computer box., or in server racks. The simplest client/server network consists of a client computer n etworked to a server computer, with processing split between the two types of machines. This is called a two-tiered client/server architecture. Whereas simple client/server networks can be found in small businesses, most corporations have more complex, multitiered (often called N-tier) client/server a rchitectures in which the work of the entire network is balanced over several d ifferent levels of servers, depending on the kind of service being requested (see Figure 5.3).
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FIGURE 5.3
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A Multitiered Client/Server Network (N-Tier)
In a multitiered client/server network, client requests for service are handled by different levels of servers.
For instance, at the first level, a Web server will serve a Web page to a client in response to a request for service. Web server software is responsible for locating and managing stored Web pages. If the client requests access to a c orporate system (a product list or price information, for instance), the request is passed along to an application server. Application server software handles all application operations between a user and an organization’s back-end business systems. The application server may reside on the same computer as the Web server or on its own dedicated computer. Chapters 6 and 7 provide more detail on other pieces of software that are used in multitiered client/server architectures for e-commerce and e-business. Client/server computing enables businesses to distribute computing work across a series of smaller, inexpensive machines that cost much less than centralized mainframe systems. The result is an explosion in computing power and applications throughout the firm. Novell NetWare was the leading technology for client/server networking at the beginning of the client/server era. Today, Microsoft is the market leader with its Windows operating systems (Windows Server, Windows 8, Windows 7, and Windows Vista).
Enterprise Computing Era (1992 to Present) In the early 1990s, firms turned to networking standards and software tools that could integrate disparate networks and applications throughout the firm into an enterprise-wide infrastructure. As the Internet developed into a trusted communications environment after 1995, business firms began seriously using the Transmission Control Protocol/Internet Protocol (TCP/IP) networking standard to tie their disparate networks together. We discuss TCP/IP in detail in Chapter 7.
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The resulting IT infrastructure links different pieces of computer hardware and smaller networks into an enterprise-wide network so that information can flow freely across the organization and between the firm and other o rganizations. It can link different types of computer hardware, including m ainframes, s ervers, PCs, and mobile devices, and it includes public infrastructures such as the telephone system, the Internet, and public network services. The enterprise infrastructure also requires software to link disparate applications and enable data to flow freely among different parts of the business, such as enterprise applications (see Chapters 2 and 9) and Web services (discussed in Section 5.4).
Cloud and Mobile Computing Era (2000 to Present) The growing bandwidth power of the Internet has pushed the client/server model one step further, towards what is called the “Cloud Computing Model.” Cloud computing refers to a model of computing that provides access to a shared pool of computing resources (computers, storage, applications, and services) over the Internet. These “clouds” of computing resources can be accessed on an as-needed basis from any connected device and location. Currently, cloud computing is the fastest growing form of computing, with companies spending about $8 billion annually in the United States, and another $6 billion worldwide. Thousands or even hundreds of thousands computers are located in cloud data centers, where they can be accessed by desktop computers, laptop computers, tablets, entertainment centers, smartphones, and other client machines linked to the Internet, with both personal and corporate computing increasingly moving to mobile platforms. Microsoft, IBM, HP, Dell, and Amazon operate huge, scalable cloud computing centers that provide computing power, data storage, and high-speed Internet connections to firms that want to maintain their IT infrastructures remotely. Software firms such as Google, Microsoft, SAP, Oracle, and Salesforce.com sell software applications as services delivered over the Internet.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 5: IT Infrastructure and Emerging Technologies
Learning Track 5: 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. Cloud computing is much more than computing on the Internet. Defining “cloud computing” has been as difficult as defining “Web 2.0.”1 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, Sun, Oracle, Google, Yahoo, Amazon, and many others who plan to benefit from cloud computing. The estimated size of this marketplace is rather uncertain, ranging from $80-$160 billion in 2012, to as much as $1 trillion in 2020. Cloud computing is fashionable. Cloud computing is also a very imprecise slogan that gets mixed up with other social values like efficiency, productivity, and “Green computing” which sends some acolytes into a religious state, while others are skeptical, like Larry Ellison, founder and CEO of Oracle Computing, who quipped in November 2008: “The interesting thing about cloud computing is that we’ve redefined cloud computing to include everything that we already do. I can’t think of anything that isn’t cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women’s fashion. Maybe I’m an idiot, but I have no idea what anyone is talking about. What is it? It’s complete gibberish. It’s insane. When is this idiocy going to stop? Everything is cloud computing these days and we’ve been doing it for years.” Shortly thereafter, Oracle launched a major cloud computing effort, and placed a prominent link on its Web page to this new effort. Cloud computing promises a great deal, and at times these promises may overreach its realistic capabilities, and underestimate the risks and hence total life cycle costs. continued
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1.0 Cloud Computing: Getting it Straight Cloud computing is much more than just computing on the Internet-that happened already in the 1990s if not before. 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, platform services, 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. 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 Apps (office applications on line), Google Sites (a online collaborative environment), and similar services offered by MicrosoftLive 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. continued
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Examples of entire application development platforms on the Web include Amazon’s Elastic Computer Cloud (EC2) which provides a virtual programming environment; Google App Engine; Microsoft Live Mesh; and Sun network GRID. While each of these provide “platform as a service,” they offer different services and capabilities. 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 an estimated 500,000 simple 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. Eliminates 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 large scale data storage start at 15 cents per gigabyte for the first 50 terrabytes. Telecommunications costs start at 10 cents per gigabyte in, and 17 cents per gigabyte out. The cost of storing 1 gigabyte of information in a typical corporate storage area network (a managed array of hard drives) is about $2.00! 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 continued
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tracking trillions of 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 move 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. One of the largest cloud computing infrastructures to date is supplied by IBM’s Blue Cloud initiative. By 2008 IBM announced it was building “cloud computing services” into nine IBM data centers around the globe, each costing about $350 million each. One data center in Singapore was specifically designed to be a cloud computing center. What’s inside a Blue Cloud data center? Not much more than what’s inside any IBM corporate data center. Thousands of Linux based blade servers designed to operate with minimal power and air conditioning requirements; some of IBMs new Series 7 mainframe computers that themselves run thousands of instances of various operating systems. Using proprietary software, these computers can be dynamically linked together for periods of time to boost computing power to trillions of computations per second (compared to a single PC capable of 3 billion instructions per second). Because these capabilities already exist in the data centers, it’s difficult to understand “what’s new” in the Blue Cloud initiative. What is new however is offering these services on a “demand computing” basis, and charging customers for actual capacity and service used rather than for a fixed price. Instead of buying software licenses, for instance, customers can be charged on the amount of data or time used to process data with the software. To ensure the operation and survival of the 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. The technologies being offered to the community by IBM’s Blue Cloud centers include IBM Rational software development tools, WebSphere Application Server software and DB2 database software running on IBM System x, System p and BladeCenter servers. IBM Tivoli systems management software will manage the cloud computing environment. In other words, the centers continued
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built by the large “Big Iron” manufacturers are typically populated by their proprietary software solutions even if these solutions run on Linux servers using “open source” operating systems. 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.
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 may open 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 Cloud Computing Vendors and Services Functional Area
Business Process
Amazon Elastic Computer (EC2 and S3)
Broadly based cloud environment providing computing and storage; various Web APIs; AMI (Amazon machine image) programming environment. Utilizes Amazon’s spare computing capacity required by its retail operations.
IBM Blue Cloud
Extensive cloud services from computing and storage to proprietary software
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Google App Engine and Google Apps
Python programming environment for developing new applications development platform; data storage; office productivity applications SaaS. No value added services.
Microsoft Live Mesh
Small business storage, and Web based applications for collaboration; no value added services.
Sun Network.com
Broadly based cloud environment providing computing and storage; various Web APIs.
Oracle Cloud Products
Oracle Database 11G, Oracle Fusion Middleware, and Oracle Enterprise Manager available to run on the Amazon EC2 and S3 platforms.
Mozy
One of a large number of online backup and file transfer services available to individuals for free, or a nominal fee. Others include Carbonite, Xdrive, and ATT’s Data Vault.
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 and phenomenon. 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. continued
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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, on February 15, 2008, Amazons S3 Cloud Storage system went down for three hours. Many small and medium businesses were knocked out of service. 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)? For this reason, large corporations have so far only 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 7. 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. continued
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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
SIZE
CUSTID
Long Integer
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
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. continued
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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
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1 next to the SERVICE_ID field in the SERVICE Table is linked to the SERVICE_ID field in the APPOINTMENT 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 SERVICE 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. continued
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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., continued
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Maria Jones and her 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 continued
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included and 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 continued
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all five of the tables in the database. If tables are improperly related to each other, reports will be difficult 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 = 11/5/04 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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
LNAME
ADDR1
1
A
Brown
88 Main Street
Malone
42 Sweetbriar L
Q
Montague
11 Venice Plaza
Georgia
2
Patrick
3
Juliet
4
Mary Ellen
Smith
5
Mary Allen
Smith
STATE
ZIP
HOME PHONE
WORK PHONE
NY
10521
(914) 332-1234
(914) 222-8182 (912) 455-5555 gbrown@qqq.org
CELL PHONE
Bocarain
NY
10598
(914) 333-4333
(211) 222-2121
NY
10598
(914) 888-8181
(212) 921-0404 (212) 222-1221
Marian Lane
Catalan
NY
10520
(914) 821-3666
22 September
Bocarain
NY
10598
6
Justin
J
Jumpup
6233 Ridgeview
Thomas
E
Brown
7 Schiff Ave
8
Zoe
Nother
9
Mary Ann
Smith
10
John Paul
12
Jeanne
13
Mark
15
Jim
Q
CITY Missoula Bocarain
7
J
ADR2
Apt. 22
(914) 999-1919
Catalan
NY
10520
Bocarain
NY
10598
91 Glendale
Bocarain
NY
10598
(212) 345-6789
8 Race Road
Catalin
NY
10520
(941) 222-1888
Jones
66 Ocean View
Bocarain
NY
10598
Greene
9499 Threws Le
Bocarain
NY
10598
MacGregor
43 Schiff Ave
Catalan
NY
10520
Brown
9 Penland Park
Missoula
NY
10521
Bldg. C
(212) 333-4567 (912) 456-7823 (941) 765-3424
EMAIL PMAL@AOL.COM
DOB
SEX
PERSONAL INFO
7/7/1951
F
WORKS AT M8
6/12/1981
M
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
Early gray show
M
very quiet guy
M
handsome!
(212) 459-7878 (430) 686-8565
(518) 333-3311
6/10/1979
OLD CUST ID
M LOVE THE ME
*Number
continued
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Learning Track 2
2
APPOINTMENT TABLE WITH SAMPLE DATA CUSTID
SERVICE_ID
APPT_DATE
APPT_TIME
EMP_SS
PROD_NUM
APPT_COMMENT
1
2
11/5/2013
3:30 PM
123456789
1
2
11/7/2013
2:00 PM
123456789
2
2
11/5/2013
8:30 AM
987654321
2
3
11/7/2013
3:00 PM
123456789
4
3
5
11/5/2013
10:00 AM
123456789
8
3
5
11/7/2013
11:30 AM
987654321
8
4
2
11/5/2013
3:00 PM
987654321
4
1
11/7/2013
9:00 AM
123456789
6
5
3
11/5/2013
12:00 PM
123456789
3
5
3
11/5/2013
9:00 AM
123456789
2
6
5
11/5/2013
11:30 AM
987654321
7
6
11/5/2013
10:30 AM
123456789
7
2
11/7/2013
4:30 PM
987654321
8
1
11/5/2013
1:00 PM
987654321
9
4
11/5/2013
2:30 PM
123456789
10
2
11/5/2013
4:30 PM
123456789
12
4
11/5/2013
9:30 AM
987654321
13
2
11/5/2013
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 continued
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the CUSTOMER and 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 Scotchman. 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.
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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 NAME, 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 SEX contains an F in sorted order by last name and first name. SELECT LNAME, FNAME, SEX FROM tblCUSTOMER WHERE SEX = “F” ORDER BY LNAME, FNAME;
Note that the letter F is a string and therefore must be enclosed in quotes.
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LNAME
FNAME
SEX
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 SEX does not contain an F in sorted order by last name and first name SELECT FNAME, LNAME, SEX FROM tblCUSTOMER WHERE SEX <> “F” ORDER BY LNAME, FNAME; FNAME
LNAME
SEX
Jim
Brown
M
Thomas
Brown
M
John Paul
Jones
M
Justin
Jumpup
M
Patrick
Malone
M
Select only the records where SEX contains an F and the zip code is 10520 in sorted order by last name and first name. SELECT LNAME, FNAME, SEX, ZIP FROM tblCUSTOMER WHERE SEX = “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
SEX
ZIP
Smith
Mary Ann
F
10520
Smith
Mary Ellen
F
10520
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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 SEX = “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.SEX) = “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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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,
continued
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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.
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 s pecified 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
continued
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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.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 7: Telecommunications, the Internet, and Wireless Technology
Learning Track 1: Broadband Network Services and Technologies Telecommunications is the digital plumbing that holds the modern digital firm together, and makes it possible for the all the computers, telephones, and Internet devices to work. Closely tied to the evolution of the modern computer and processing chips, telecommunications capacity has expanded nearly as fast as computing power, while costs have radically dropped. The cost of moving a 6 gigabit DVD movie over the Internet to your home has dropped exponentially from 1995 when it cost $1.75/kilobit, to 2013 when it cost one one-hundreth of a penny per kilobit. Today, over 25 million people in the U.S. are VoIP digital phone subscribers (provided by Cable companies who are not “traditional” phone companies), and there are 245 million mobile phone subscriptions, not to mention nearly 84 million home broadband subscribers who can effectively use VoIP along with other Internet applications like video and television. About 193 million adults (18+) use the Internet in the U.S. and about 60% of them have a wireless Wi-Fi access capability. Wi-Fi is more of a technology than it is an industry provider—there are very few firms that specialize in the delivery of Wi-fi service and they are not consequential in terms of revenue. That said, Wi-fi technology (whoever installs and operates it) has to be a part of the decision calculus for managers who are trying to build an appropriate telecommunications infrastructure for their firms. These developments in telecommunications have complicated the decision making of managers in some respects, while simplifying their lives at the same time. Decisions about telecommunications service providers and services is more complex simply because there are so many providers. On the other hand, the solutions being provided are both incredibly powerful and inexpensive when compared to the past. In some instances, management decisions have been simplified by the emergence of clear winners. For instance, if you have a distributed, high value labor force that needs to stay in close touch with customers and vendors 24 hours a day, 7 days a week, there really is no better device or service than a smartphone with text, email, voice, and Internet functionality built into a computer you can fit in your pocket. This revolution in telecommunications technology and services was facilitated by a regulatory environment that sought to break up old monopolies, encourage new market entrants, and reduce barriers to competition. Until about 25 years ago, the American Telephone and Telegraph (AT&T) Company provided virtually all telecommunications services in the United States, with monopoly status granted by the Communications Act of 1934. In return for the right to provide a continued
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single national telephone and telegraph network, Congress regulated the prices that AT&T could charge and required universal service to be extended to all regions of the country, including rural America, at a “reasonable price.” Starting in the mid-1950s, the U.S. Department of Justice started antitrust action to end the AT&T monopoly and promote more competition in telecommunications. A 1982 court order, implemented in 1984, broke up AT&T into a long-distance company and seven independent, regional telephone companies (Regional Bell Operating Companies, known as RBOCs) that were ordered to permit long-distance competitors such as Sprint and MCI to offer service to local customers. The court order stimulated competition in manufacturing, long-distance, and information services, while retaining regulated monopoly in local telephony. Competition ultimately drove four of the RBOCs out of business, and today there are only three RBOCs left: ◆◆ ◆◆
◆◆
Qwest: created by the merger of US West and Qwest Communications International Inc. AT&T: created by the merger of SBC, Ameritech, and Pacific Telesis, AT&T and Bell South. In 2004, Cingular Communications merged with AT&T. In 2006, the new company dropped the Cingular name and is now called AT&T. Verizon - created by the merger of Bell Atlantic, Nynex, and GTE.
The Telecommunications Act of 1996 unleashed even more competition in telecommunications by permitting long-distance companies to offer local service and by requiring RBOCs to lease local last-mile lines to competitors at a deeply discounted rate. The act also allowed RBOCs to enter the long-distance market. The combined impact of technological change and deregulation was to create a much more complex, diverse, and competitive telecommunications environment. Table 7-1 illustrates the complexity of today’s telecommunications environment and the options available to business firms and individuals as a result of deregulation and new technologies. Privatization and the removal of legal barriers to market entry (all loosely referred to as “deregulation”) have dramatically reshaped the global telecommunications industry over the past two decades. The old monopolies have lost large chunks of market share in data services and in long-distance and international telephone calls. Prices in many segments have plummeted. But this situation has evolved once again, taking us back to the days of large monopolies and oligopolies. By 2013 a more concentrated marketplace has emerged. As in nearly all market situations requiring huge capital investments, scale is one of the driving forces of firm success. The larger the scale of firms, the lower their fixed capital costs per customer. Hence, in the telecommunications industry there are inherent structural forces which lead to industry concentration and the elimination of competition. While new entrants poured into local communications markets-from wireless cellphones and networks for wireless Internet access to long-distance carriers, VoIP
continued
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Internet telephone service providers, and cable companies—many of these new entrants have either gone out of business or been bought by the large national and global players. Prior to deregulation and the technology device explosion, telecommunications decisions were comparatively simple. AT&T was the only choice for telephone service, and for data communication, managers chose IBM, Digital Equipment, or another networking/computer firm. Now managers must make decisions that involve comparing many competitors and many different technologies, all of which promise to provide effortless connectivity. Over time, as industry concentration proceeds, management decisions will once again be more simplified and huge service providers can provide the entire spectrum of telecommunications services from cellular phone, to Internet connectivity, and high speed data services. This development parallels what has happened in the home communications market with Cable and national phone companies offering packages of bundled services (the so-called “triple play” bundle). TABLE 7.1 The Largest Telecommunication Providers to U.s. Homes and Businesses Providors
Services
INTEGRATED TELEPHONE CARRIERS AT&T
AT&T Inc. is the largest communications holding company in the United States and worldwide, by revenue. It is the leading worldwide provider of IP-based communications services to businesses and the leading U.S. provider of wireless, high speed Internet access, local and long distance voice, and directory publishing and advertising services. AT&T along with other “telephone” carriers is moving aggressively to compete with integrated cable providers by expanding video entertainment offerings to include fiber optic home service (U-verse) for Internet distribution of video and television. Major Internet backbone provider.
Verizon Communications
econd largest wireless and landline local and long distance telephone carS rier; Internet access, VOIP Internet telephone, Internet video, business continuity and transaction-based voice and data services; Internet backbone provider. Now offering high performance fiber optic service to homes (FIOS) for broadband Internet applications like video and television
Sprint Nextel
hird largest wireless and landline local and long distance telephone carT rier; Internet access, VOIP Internet telephone, Internet video, business continuity and transaction-based voice and data services; Internet backbone provider.
Century Link
mallest of the integrated national providers of voice, video, and data serS vices using both wireless and landlines.
INTEGRATED CABLE PROVIDERS Comcast, Time Warner Cable, CableVision digital cable TV, highspeed Internet access, Internet telephone
Analog and high definition digital television and video; triple play service: telephone, Internet, and television (both analog and digital)
continued
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Providors
4
Services
PURE WIRELESS PROVIDERS Virgin Mobile
Virgin is an international brand of mobile cell service popular in Europe but also with a small U.S. presence. Offers wireless data and voice service, picture and text messaging, downloaded music and movie clips on mobile phones; mobile Web access, downloadable games.
T-Mobile
T-Mobile is a subsidiary of Deutsche Telecom (120 million customers in Europe). In the U.S. it is a smaller national provider of wireless voice, messaging, and data services. Offers wireless data and voice service, picture and text messaging, downloaded music and movie clips on mobile phones; mobile Web access, downloadable games.
Sprint Nextel
Sprint Nextel offers a range of wireless and wireline communications services; Nextel is widely recognized for developing, engineering and deploying innovative technologies such as instant instant national and international push-to-talk capabilities.
Research in Motion (RIM)
Research In Motion (RIM) is the designer, manufacturer and marketer of the BlackBerry, a proprietary email and Internet access network. Aside from email, RIM provides phone, text messaging (SMS and MMS), and Internet access.
INTERNET TELEPHONY (VOIP) PROVIDERS Skype
kype (owned by eBay) provides free instant messaging, voice calling, and S video conferencing among the more than 700 million registered Skype users. It makes money by selling premium features, such as SkypeOut (cheap calls from Skype to traditional landlines or mobile phones anywhere in the world) and SkypeIn (a personal and portable Skype number that people can call you on wherever you are in the world). Originally designed to be used on client PCs, Skype now offers support for cell phones and is beginning to distribute in 2008 its own Skype device called Skypephone, a 3G wireless handset that lets users make Skype-to-Skype calls and send Skype instant messages from their mobile phone to other Skype users no matter where they are.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 7: Telecommunications, the Internet, and Wireless Technology
Learning Track 2: Cellular System Generations
Cellular Generations Wireless phone systems throughout the world are gradually moving toward much higher speeds and capacities. This transition involves over $150 billion in worldwide investment by 2016 in what are called 4G networks (fourth-generation cellular networks). The first generation (1G) of cellular networks originating in the early 1980s were analog based. They supported voice communication and could only be used for data transfer with a proper modem. Second-generation (2G) cellular networks appeared about 10 years later using digital networks. 2G systems provide better voice quality and global roaming capabilities and can support s imple data services such as SMS. Although 2G systems are used primarily for voice, they can support data transmission at rates ranging from 9.6 to 14.4 kilobits per second (Kbps). This transmission speed is still too slow for comfortable Internet access. Third-generation (3G) cellular networks are based on packet-switched technology that achieves greater efficiencies and higher transmission speeds. 3G networks have speeds ranging from 144 Kbps for mobile users in, say, a car, to over 2 Mbps for stationary users. This is sufficient transmission capacity for video, graphics, and other rich media, in addition to voice, making 3G networks suitable for wireless broadband Internet access and always-on data transmission. If 3G networks are able to handle e-mail, instant messaging, and Web browsing as effortlessly as current wired technologies, but they are not fast enough to handle video, especially high definition video. Fourth generation (4G) cellular networks use a variety of multiplexing technologies to share network resources among many users. 4G networks are also referred to as 4G-LTE for Long Term Evolution. In the U.S., all 4G networks use this variant of 4G. Commercially available 4G-LTE networks can achieve speeds of 100 Mbps download, and 50 Mbps upload, which is faster than typical home cable speeds. Although wireless carriers have invested in 3G technology, it is still not in wide use. In the meantime, those interested in high-speed Internet access and data transmission are turning to an interim solution called 2.5G networks. These networks are packet-switched, use many existing infrastructure elements, and have data transmission rates ranging from 50 to 144 Kbps. A 2.5G
continued
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service called General Packet Radio Service (GPRS) transports data over GSM wireless networks and improves wireless Internet access. 2.5G also improves data transmission rates for CDMA. Table 7-2 summarizes these cellular generations. TABLE 7-2
Wireless Cellular Generations
Generation
Capacity
Description
1G
Low
Analog cellular networks for voice communication
2G
10–14 Kbps
Digital wireless networks, primarily for voice communication; limited data transmission capability
2.5G
50–144 Kbps
Interim step toward 3G in the United States
3G
144 Kbps—2+ Mbps fixed
igh-speed, mobile, supports video and H other rich media, always-on for e-mail, Web browsing, instant messaging
4G-LTE
50–100 Mbps
Very high speed cellular service that can support high definition video, teleconferencing, along with phone and data services .
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 7: Telecommunications, the Internet, and Wireless Technology
Learning Track 3: 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, Siebel Systems’ Siebel Sales 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 c ritical 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.
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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 Systems’ 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 Pocket PC PDAs, RIM 957s wireless e-mail handhelds and other wireless handhelds, field service software from CRM vendor Siebel Systems, cellular wireless data service from Cingular Wireless, and Antenna SmartClient and Antenna A3 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 (Songini, 2004).
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. mySAP 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. continued
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A firm that needs to ship out goods can use mySAP 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 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. mySAP 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 PDAs and smart phones. According to a study by consulting firm A. T. Kearney, about 50 percent of U.S. hospitals have adopted wireless technology, and that number will exceed 90 percent by 2010 (A. T. Kearney, 2004). 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 PDAs, smart phones, or laptops.
Lab test results
Doctors can immediately obtain data about lab tests from a wireless PDA, 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 medicaldatabases.
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COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 7: Telecommunications, the Internet, and Wireless Technology
Learning Track 4: Introduction to Web 2.0 Many of the unique features of e-commerce and the Internet come together in a set of applications and social media technologies referred to as Web 2.0. The Internet started out as a simple network to support e-mail and file transfers among remote computers. Communication among experts was the purpose. The Web started out as a way to use the Internet to display simple pages and allow the user to navigate among the pages by linking them together electronically. You can think of this as Web 1.0—the first Web. By 2007 something else was happening. The Internet and the Web had evolved to the point where users could create, edit, and distribute content to others; share with one another their preferences, bookmarks, and online personas; participate in virtual lives; and build online communities using social networks like Facebook. This “new” Web was called by many Web 2.0, and while it draws heavily on the “old” Web 1.0, it is nevertheless a clear evolution from the past. Let’s take a quick look at some examples of Web 2.0 applications and sites: ◆◆
◆◆
Twitter is a social network/micro-blogging service that encourages users to enter 140-character messages (“tweets”) in answer to the question “What are you doing?” Twitter has more than 320 million active users worldwide, sending around 500 million tweets per day and more than 5 billion tweets a month. Twitter has begun to monetize its subscribers by developing an ad platform and providing marketing services to firms that want to stay in instant contact with their customers.
Web 2.0 a set of applications and technologies that allows users to create, edit, and distribute content; share preferences, bookmarks, and online personas; participate in virtual lives; and build online communities
YouTube, owned by Google after a $1.65 billion purchase, is the world’s largest online consumer-generated video-posting site. In 2015, YouTube is morphing into a premium video content distributor and video producer, offering feature length movies, television series, and its own original content. In 2015, YouTube had around 260 million unique viewers in the United States, and more than 1 billion a month worldwide. According to Google, 300 hours of video are posted to the site every minute! YouTube reportedly streams more than 4 billion videos per day, including more than 1 billion a day to mobile devices. However, although YouTube’s
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revenues reportedly doubled in 2014 to nearly $4 billion, it does not turn a profit. ◆◆
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The Apple iPhone (with more than 700 million sold worldwide through June 2015) supports mobile versions of Web 2.0 applications such as Facebook, Facebook Messenger, YouTube, Instagram, Skype, Pandora, Spotify and Line, not to mention games like Candy Crush, Fruit Ninja, and Angry Birds. In 2015 there are over 1 million apps for iPhones, and a similar number for Android phones. Apple’s iPad, introduced in 2010, builds on the iPhone foundation for a truly mobile e-commerce capability. As of June 2015, about 250 million iPads had been sold since its introduction. Instagram is a mobile photo-sharing application available for Androids and iPhones that allows users to easily apply a variety of different photo filters and borders, and then post the photos to social networks such as Facebook, Twitter, Foursquare, Tumblr and Flickr. Launched in November 2010, Instagram quickly attracted more than 50 million users and in April 2012 was purchased by Facebook for $1 billion (Buck, 2012). In 2015 Instagram has over 64 million users, and its rival photo sharing site Pinterest has over 47 million U.S. users, 100 million worldwide. Wikipedia allows contributors around the world to share their knowledge and in the process has become the most successful online encyclopedia, far surpassing “professional” encyclopedias such as Encarta and Britannica. Wikipedia is one of the largest collaboratively edited reference projects in the world, with more than 5 million articles available in English and more than 37 million in total, in 285 languages. Wikipedia relies on volunteers, makes no money, and accepts no advertising. Wikipedia is consistently ranked as one of the top 10 most visited sites on the Web. Tumblr is a combination of blog platform and social network. It allows users to easily post text, photos, links, music, videos and more. As of June 2015, Tumblr hosts over 240 million blogs, containing almost 99 billion posts. On a typical day, users make over 113 million posts (Tumblr.com, 2015) Wordpress is another company that provides software that allows you to easily create and publish a blog or Web site on the Web. WordPress is an open source product built by a community of volunteers and available for use free of charge. According to WordPress, more than 409
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million people read blogs on WordPress.com, and users produce about 56 million posts per month (WordPress.com, 2015). What do all these Web 2.0 applications and sites have in common? First, they rely on user- and consumer-generated content. These are all “applications” created by people, especially people in the 18–34 year-old demographic, and in the 7–17 age group as well. “Regular” people (not just experts or professionals) are creating, sharing, modifying, and broadcasting content to huge audiences. Second, easy search capability is a key to their success. Third, they are inherently highly interactive, creating new opportunities for people to socially connect to others. They are “social” sites because they support interactions among users. Fourth, they rely on broadband connectivity to the Web. Fifth, many of them are currently only marginally profitable, and their business models are unproven despite considerable investment. Nevertheless, the potential monetary rewards for social sites with huge audiences is quite large. Sixth, they attract extremely large audiences when compared to traditional Web 1.0 applications, exceeding in many cases the audience size of national broadcast and cable television programs. These audience relationships are intensive and long-lasting interactions with millions of people. In short, they attract eyeballs in very large numbers. Hence, they present marketers with extraordinary opportunities for targeted marketing and advertising. They also present consumers with the opportunity to rate and review products, and entrepreneurs with ideas for future business ventures. Last, these sites act as application development platforms where users can contribute and use software applications for free. Briefly, it’s a whole new world from what has gone before.Web 2.0
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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. In 2014 and 2015 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 s ecurity 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. The trend turned to hiring application or system specific experts with less of an eye toward security. In 2015, the demand for qualified IT security workers reached levels that were reminiscent of the period directly following 9/11. A report released by the research firm Foote Partners stated that salaries for certified security technologists increased by two percent in the first half of the year. It had been more than a year since this group of workers had registered a measurable increase in compensation. 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 JPMorganChase, Target, TJ continued
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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 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 Security Science program to its EC-Council University training curriculum. The program covers cyberlaw, disaster recovery, e-business security, IT security project management, as well as security for Linux, networks, programming, and wireless installations. The students in this master’s program already possess undergraduate degrees in computer science or IT security. 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.”
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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 Ten Domains of Security. The exam focuses on these ten domains. TABLE 1
The Ten Domains of Security
Domain
Key Topics
Access Control Systems & Methodology
Preventive, detective, and corrective access control, identification, and authentication
Applications & Systems Development
Key security issues at each phase of the software development cycle.
Business Continuity Planning
our phases of business continuity planning; disaster recovery planF ning.
Cryptography
Encryption: symmetrical and asymmetrical.
Law, Investigation, and Ethics
Comprehension of laws related to information security and computer crimes; code of ethics.
Operations Security
I mplementing the appropriate controls for hardware, software, and other resources; auditing and monitoring; evaluating threats and vulnerabilities.
Physical Security
Identifying threats and vulnerabilities in the information system’s environment; protecting the system from threats.
Security Architecture & Models
onfiguring security for specific information systems; models: access C control, integrity, and information flow.
Security Management Practices
Key concepts, controls, and definitions for security practices, including the confidentiality, integrity, and availability triad (CIA), risk analysis, classification of data, documentation, and awareness.
Telecommunications, Network, and Internet Security
etwork structures, communication methods, data transport protoN cols, network and transmission security.
The prerequisites for applying to take the CISSP exam are stringent. To be eligible for the exam, applicants must commit to the (ISC)2 Code of Ethics and have at least five years of “direct fulltime security professional work experience” in a minimum of two of the ten security domains. Applicants may reduce the work experience requirement by up to two years-one year for a fouryear college degree or a master’s degree in information security earned from a U.S. Center of National Excellence in Information Security (or regional equivalent); and one year for possessing another approved and relevant (ISC)2 certification.
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The fee for the CISSP exam is $599 for standard registration (within 16 days of the exam). Passing scores generally fall in the 70%-80% range, and fewer than 8 percent of exam takers score above 85% due to the expanse of knowledge covered on the exam. Once a candidate for certification passes the exam, he or she must have the application endorsed by a CISSP in good standing. If none is available, arrangements can be made for another professional with information systems knowledge to endorse the application based on familiarity with the applicant’s professional experience. 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 of $85. (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
Wireless#, CWNA, CWNE, CWSP
Check Point
CCSA, CCSE, CCMSE
Cisco
CCSP
CompTIA
i-NET+, Security+
CIW
CIW Security Analyst
(ISC)2
CISSP, SSCP
TruSecure
TISCA
In the field, and certification notwithstanding, Paul Pescitelli recommends that job applicants have competence in at least two of the ten 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 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.
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TABLE 3
Example IT Degrees
5
Institution
Type
Degree
DeVry University
Undergraduate
Bachelor’s degree in Business Administration with a major/concentration in Security Management
RIT
Undergraduate
Bachelor of Science in Information Security and Forensics
RIT
Graduate
Master of Science degree in Computer Security and Information Insurance
Colorado Technical University Online
Undergraduate
Bachelor of Science in Information Technology-Security
Penn State University
Undergraduate
Bachelor of Science in Security and Risk Analysis
Capella University
Graduate
Master of Science degree in Information TechnologyInformation Security Specialization
Boston University
Graduate
Master of Science in Computer Information Systems: Security; Master of Science in Computer Science: Security
DePaul University
Undergraduate
Bachelor of Science in Information Assurance and Security
DePaul University
Graduate
Master of Science in Computer, Information, and Network Security
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
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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 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 Degrees
Position
2012 Salary Range
Chief Security Officer
$97,500 - $141,100
Senior IT Auditor
$81,500 - $107,000
IT Auditor
$69,250 - $97,000
Data Security Analyst
$72,500 - $99,250
Systems Security Administrator
$70,500 - $99,750
Network Security Administrator
$69,750 - $98,500
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 Security Officer: The 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 continued
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may also be the liaison between the company and external auditors. The job may also require testing and 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. Systems Security Administrator: The person in this position performs risk management tasks on a firm’s computers and network. The duties of a systems security administrator include real-time 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. There are about 300,000 employees in the U.S. information security field. That number is expected to rise by 22 percent looking out to 2020 according to the Bureau of Labor Statistics. 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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
◆◆
Companies must report insider trades more expeditiously
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Companies must offer protection for whistleblowers continued
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Companies must disclose material changes in their financial state or operations promptly 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 devaluing 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 continued
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effectively. This is especially important in an era when even individual employee workstations must be added to the aggregate official record. 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 analysis 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 continued
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to erase data was 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, photocopiers, 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 forensic 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 continued
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specialists can examine local network connections to gather evidence from data transmissions or uploads of files.
Obtaining Digital Evidence Like any other piece of evidence used in a legal case, the information obtained by a computer 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, important 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 continued
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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 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 analyzing and documenting multiple e-mail formats.
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 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.
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Paraban Device Seizure
Provides deleted data recovery and full data dumps of certain cell phone models
SMART
Software utility that can acquire data from digital devices and clone it to any number of images and devices simultaneously. Able to recover deleted data and interpret file system metadata, and to perform an onsite or remote preview of a target system.
Helix
Includes more than 35 tools for incident response and forensic analysis, including tools for wiping data from disks, recovering data from slack space, and viewing the Windows Registry.
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 forensics 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 ensuring that all legal procedures and company policies are carefully followed. This position generally requires a bachelor’s degree, usually in management, computer security, criminal justice, or computer forensics. The salary for computer forensics professionals ranges for $85,000 to $120,000 per year, with salaries at private companies usually higher than those in law enforcement. Computer forensics directors typically earn salaries in the range of $120,000 to $160,000.
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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 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.”
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 Utica College of Syracuse University, Keiser University, and Marymount University in Arlington, Virginia, offer bachelor’s degree programs in computer forensics. Many more colleges are planning new programs in computer forensics. continued
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Master’s degree programs in computer forensics are typically pursued by law enforcement and computer security professionals who have already earned bachelor’s degrees. These programs require course work in digital forensics, computer security and fraud analysis. Educational institutions offering a computer forensics master’s degree include the University of Central Florida, John Jay College of Criminal Justice, Marshall University, and the University of East London.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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.
controls All the methods, policies, and procedures that ensure protection of the organization's assets, accuracy and reliability of its records, and operational adherence to management standards
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.
general controls Overall controls that establish a framework for controlling the design, security, and use of computer programs throughout an organization application controls Specific controls unique to each computerized application
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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.
Implementation controls Audit of the systems development process at various points to make sure that it is properly controlled and managed
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.
software controls Controls to ensure the security and reliability of software program security controls Controls designed to prevent unauthorized changes to programs in systems that are already in production
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TABLE 1
ssential User and Technical Documentation for an E 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.
hardware controls Controls to ensure the physical security and correct performance of computer hardware
Many kinds of computer hardware also contain mechanisms that check for equipment malfunction. Parity checks detect equipment malfunctions continued
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responsible for altering bits within bytes during processing. Validity checks monitor the 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.
computer operations controls Procedures to ensure that programmed procedures are consistently and correctly applied to data storage and processing.
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
data security controls Controls to ensure that data files on either disk or tape are not subject to unauthorized access, change or destruction
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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 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: ◆◆
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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 finegrained 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.
administrative controls Formalized standards, rules, procedures, and disciplines to ensure that the organization’s controls are properly executed and enforced segregation of functions Principle of internal control to divide responsibilities and assign tasks among people so that job functions do not overlap to minimize the risk of errors and fraudulent manipulation of the organization’s assets
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. 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.
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TABLE 2
Effect of Weakness in General Controls
WEAKNESS AREA
IMPACT
Implementation controls
ew systems or systems that have been modified will have errors or N fail to function as required
Software controls (program security)
nauthorized changes can be made in processing. The organization U may not be sure of which programs or systems have been changed.
Software controls (system software)
hese controls may not have a direct effect on individual applications. T Since other general controls depend heavily on system software, a weakness in this area impairs the other general controls
Physical hardware controls
ardware may have serious malfunctions or may break down altoH gether, introducing numerous errors or destroying computerized records.
Computer operations controls
andom errors may occur in a system. (Most processing will be corR rect but occasionally it may not be.)
Data file security controls
nauthorized changes can be made in data stored in computer sysU tems 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. 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
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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.
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 controls Procedures to check data for accuracy and completeness when they enter the system, including input authorization, data conversion, and edit checks
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Input authorization. Input must be properly authorized, recorded, and monitored as source documents flow to the computer. 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.
input authorization Proper authorization, recording, and monitoring of source documents as they enter the computer system
Data conversion. Input must be properly converted 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. (Pointof-sale systems can capture sales and inventory transactions directly by scanning product bar codes.)
data conversion Process of properly transcribing data from one form into another form for computer transactions
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.
batch control totals A type of input control that requires counting batches or any quantity fieldin a batch of transactions prior to processing for comparison and reconciliation after processing
Edit checks. Various routines can he 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.
edit checks Routines performed to verify input data and correct errors prior to processing
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.
processing controls Routines for establishing that data are complete and accurate during updating
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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.
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run control totals Procedures for controlling completeness of computer updating by generating control totals that reconcile totals before and after processing computer matching Processing control that matches input data with information held on master files
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: ◆◆ ◆◆
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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
output controls Ensure that the results of computer processing are accurate, complete, and properly distributed
Developing a Control Structure: Costs and 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 continued
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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 one-for-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 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 continued
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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 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. continued
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COPYRIGHT NOTICE Copyright © 2017Kenneth 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 on the World Wide Web) 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, 15TH ED. 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 In 2012 and 2013, 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. In 2011 RSA systems, the leading provider of dongle-based security to American industry and defense contractors suffered a massive breach which resulted in the records of 40 million employees being stolen. Lost also was the software code that was used by its clients to establish secure passwords in their systems. The hackers now had the passwords to RSA clients’ data and intellectual property. RSA said two separate hacker groups worked in collaboration with a foreign government to launch a series of spear phishing attacks against RSA employees, posing as people the employees trusted, to penetrate the company’s network.
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-to-date 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.
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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 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: ◆◆
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 complexity is difficult to document and design—designers continued
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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
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be processed in 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 continued
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extremely risky because such problems often stem from the fundamental workings of the system. To minimize the 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 © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 9: Achieving Operational Excellence and Customer Intimacy: Enterprise Applications
Learning Track 1: SAP Business Process Map
A Process Map for Procuring New Equipment. The process map shows how SAP enterprise software can integrate different enterprise areas into one smooth process flow for the procurement of a new piece of equipment for a maintenance engineer. Source: © SAP AG. Used with permission. All rights reserved.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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.
continued
Management Information Systems, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 9: Achieving Operational Excellence and Customer Intimacy: Enterprise Applications
Learning Track 2: 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-theart 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). ◆◆
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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. continued
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 9: Achieving Operational Excellence and Customer Intimacy: Enterprise Applications
Learning Track 3: Best-Practice Business Processes in CRM Software TABLE 9-1
Examples of Best Practice Business Processes in the 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 © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 10: E-Commerce: Digital Markets, Digital Goods
Learning Track 1: E-commerce Challenges: The Story of Online Groceries What could be easier than ordering all your groceries online and having them delivered to your doorstep at a time you choose? No more driving to the store, wasting gas and time, pushing carts down aisles, jostling with over-anxious shoppers, or waiting in the check-out lines. For those who don’t mind giving up the “social experience” of shopping, as well as aspects like thumping melons to test for freshness, tearing off a shock of sweet corn to smell for mold, or sampling a cut of salami before ordering, online grocery shopping provides a compelling value proposition. In 2015 an estimated 12.5 million online shoppers will generate $18 to $24 billion in online g rocery sales in the United States at over 2,000 online grocers. Online grocery sales are expected to expand at 21% annually through 2018, compared to a 3% growth for physical markets. 12% of US consumers order some groceries online for home delivery. The United Kingdom has the largest online grocery market at around $12 billion in sales. In fact, online grocery sales are growing at nearly three times the rate of traditional grocery sales offline. In a recession, driven by the high cost of restaurant food, as well as gas for cars, consumers are cooking at home more often, and looking for food deals and convenience online. Online recipe sites are seeing a doubling of traffic. Still, there’s a lot of room for future growth: online groceries still account for less than 3% of all grocery sales in the United States. There are three online grocery business m odels: start fresh, leverage out, and local build. The history of large-scale online grocery begins with the “start fresh” approach of Webvan, launched in 1999 with $400 million of venture funding, and another $600 million of stock sales to the public. Webvan’s business plan was audacious: start a totally new nationwide, online, grocery distribution system serving 10 cities at first, and expanding to additional major cities in a few years. When Webvan flamed out in July 2001 after having spent almost $1 billion trying to build the Web’s largest online grocery store based on huge distribution warehouses in seven U.S. cities, most pundits and investors thought the entire online grocery business model was either a failure or a fraud. Facing the costs of building an entirely new distribution system of warehouses and truck fleets to compete with existing grocery businesses, not to mention the expense of marketing, and a huge IT infrastructure, Webvan compounded its problems by o ffering below-market prices and free delivery of even small orders at just about any time of the day or night in urban areas often clogged with traffic. Webvan is generally considered to be the largest and most spectacular e-commerce failure in history. That said, it was also ahead of its time: very few customers felt continued
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comfortable ordering “high-touch” goods online in 2001. Today, the culture of online purchasing has changed. Despite Webvan’s failure, the pundits have proven to be wrong again. Online grocery is alive, well, growing rapidly, but with different aspirations and business models. Pundits did not count on Manhattan’s FreshDirect (and hundreds of other local niche online grocers) or the ability of traditional grocery chains to move into the ashes of the online grocery business to create solid, profitable businesses. These firms are learning how to exploit this potential market with p rofitable business models. The largest online players today are traditional firms such as California’s huge Safeway Stores, APSupermarket.com, and Shoprite.com in the North East, and Royal Ahold (Dutch owner of the U.S. Stop & Shop and Giant food stores, among others, and the Internet firm Peapod.com). Big-box discount stores such as Costco, BJ’s, and Sam’s Club also offer online grocery services. Sam’s Club, the Wal-Mart-owned big box chain of stores, offers customers a “Click N’ Pick” service: order online, pick it up at the nearest Sam’s Club store, and you won’t even have to stand in line to pay for your groceries. These firms are leveraging their existing nationwide distribution and supply chain systems, as well as their thousands of local stores, to provide shoppers with the opportunity of selecting what they want online, and then picking it up at the local stores or h aving it delivered by the local stores. These U.S. firms followed the lead of the successful British grocer Tesco. Tesco is the largest chain of supermarkets in Britain and opened an online division in 1990. It is considered to be the largest and most successful online grocery store in the world in 2013. Peapod expects to generate $495 million in 2012 and grow at a 9.1% sales CAGR from 20122016. While Peapod is traditionally known for operating a ‘best-in-class’ home delivery service, the retailer has evolved its model to include QR-Code driven mobile shopping walls, and grocery pick-up – using Chicagoland as its testing ground. Something must be working. Peapod announced that it would launch more than 100 virtual grocery stores at commuter rail stations in Boston, Connecticut, New York, New Jersey, Philadelphia, Washington, D.C. and Chicago. In a virtual grocery store, pictures of products are posted on a large public LCD display with QR codes underneath. Shoppers use their smartphones to scan the QR codes of the items they want. The products in their virtual shopping carts are delivered right to the customers’ homes at their selected delivery time. No need to waste time on the Internet or, worst case, actually go to a physical store. In the United States, Safeway’s wholly owned subsidiary GroceryWorks.com provides online shopping and delivery services for S afeway stores in California, Oregon, Washington, Arizona, Maryland, Virginia, and the District of Columbia; and for Vons stores in Southern California and Las Vegas, Nevada. Customers register online, entering their p ersonal information, including their frequent shopper cards. They are shown lists of recently purchased items to speed selection. The prices of goods are the same as those in the stores. Safeway has so-called “pickers” roam the aisles of nearby stores using a computerized picklist that directs them through the store in an e fficient pattern, and even specifies the order of packing goods into bags. The orders are put into a van and delivered to the customer within a two-hour window for a fee of $10. continued
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At Royal Ahold’s Peapod.com, which serves its Stop & Shop and Giant Food store customers in 24 regional markets, shoppers can view both their online ordering history and their offline purchases at nearby stores during the previous four months. Peapod is the largest online grocery in the United States. Its Web site also features a shopping list that displays items in the order they can be found at the customer’s local store. Customers have the option of o rdering online and picking it up at the store, or printing the shopping list and taking it to the store. The average online order is about $168, much larger than in traditional grocery stores. For these traditional supermarket chains, the value being offered to customers is convenience and time savings at prices only marginally higher than self-shopping. FreshDirect exemplifies the third and most common online grocery business model: local build. Other well-known local niche players include Inland Marine (Houston), Gopher G rocery (St. Paul), and Greenling (Austin), all with revenues greater than $1 million. These local online grocers focus on knowing their local customers, high-quality fresh produce, low costs, and convenient delivery. In July 2002, Joe Fedele and Jason A ckerman founded FreshDirect as a new kind of high quality and high-tech food preparation and delivery service in Manhattan, and raised $120 million in venture funding. Operating out of a 300,000-square-foot plant in Queens just across the river from Manhattan, FreshDirect trucks deliver groceries to densely populated Manhattan, Brooklyn, and Queens at prices 25% below what most New York grocers charge. It charges a $5.49–$6.79 delivery fee, depending on location and size of order, and requires a minimum order of $30. The value proposition to c onsumers is convenience and time savings, but also higher quality at lower prices. How can FreshDirect succeed at these prices? One answer is that FreshDirect concentrates on very fresh perishable foods and stays away from low-margin dry goods. For instance, the FreshDirect Web site features around 3,000 perishables and 3,000 packaged goods compared to the typical 25,000 packaged goods and 2,200 perishable items that a typical grocery store offers. To do so, FreshDirect c reated the most modern automated perishable food processing plant in the United States. While most of the factory is kept at 36 degrees to ensure freshness and quality control, dedicated areas vary from a low of minus 25 degrees for frozen foods to a high of 62 degrees in one of its specially designed fruit and vegetable rooms. At the factory, FreshDirect butchers meat from whole carcasses, makes its own sausage, cuts up its own fish, grinds coffee, bakes bread and pastries, and cooks entire p repared meals. FreshDirect employs the same “make-to-order” manufacturer-direct philosophy as does Dell. Cleanliness is an obsession- the factory was built to exceed U.S. Department of Agriculture standards. Critical to the success of FreshDirect is a powerful IT infrastructure that seamlessly connects online customers to inventory, billing, and then to truck delivery. The firm uses SAP software (an enterprise resource planning system) to track inventory, compile financial reports, tag products to fulfill customers’ orders, and precisely control production down to the level of telling bakers how many bagels to cook each day and what temperature to use. It uses automated carousels and conveyors to bring orders to food-prep workers and packers. The FreshDirect Web site is powered continued
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by BEA Systems’ Weblogic platform, which can track customer preferences, such as the level of fruit ripeness desired, or the preferred weight of a cut of meat. FreshDirect also uses NetTracker, Web site traffic and online behavior analysis software, to help it better understand and m arket to its online customers. At peak times, the Web site has handled up to 18,000 s imultaneous shopping sessions. The final piece in the formula for profit is a supply chain that includes dealing directly with manufacturers and growers, thus cutting out the costs of m iddle-level distributors and the huge chains themselves. FreshDirect does not accept s lotting fees (payments made by manufacturers for shelf space). Instead, it asks suppliers to help it direct-market to consumers and to lower prices. To further encourage lower prices from suppliers, FreshDirect pays them in four b usiness days after delivery, down from the industry pattern of 35 days. FreshDirect was profitable for the first time in 2008. The key to profitability has been improving its execution of the initial concept, and a rededication to customer service, just plain listening to customers. In recent years, FreshDirect has introduced the following “customer centric” ideas: ◆◆
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Produce: Employed experts to rate the freshness of all produce and set prices accordingly. This reduces customer concerns about not being able to feel the product. Packaging: Eliminated the use of foam, and reduced the number of cardboard boxes by 1.5 million in response to customer complaints. Favorites: Developed a customer r elati-onship management system that tracks each customers’ past purchases, and presents them on-screen for re-ordering. Increased order size by 10%. Recommender system: Added a YMAL (You-Might-Also-Like) cross-selling tool, which recommends products that other customers purchased. Added 5% to total revenue. Rating systems: Developed a rating system for its own produce and seafood that allows grocers to showcase their best goods and customers to decide what “looks” good online. Order pattern analysis: Instituted a system to reminds customers of their favorite products and e-mails them when the system thinks they might be running out. Computer-driven truck packing: Created to handle over 45,000 deliveries a week in the New York Metro area. Web apps: FreshDirect introduced an iPhone app that allows mobile shoppers full access to its complete Web offerings. More than 65% of FreshDirect’s customers have smartphones, and 50% have iPhones.
With these features and direct mail campaigns, FreshDirect has increased customer loyalty and reduced its churn rate (the number of customers who leave the service). Currently, 65% of its total customer base of around 600,000 active customers are repeat, loyal customers, whose average order size is over $120, and who contribute 80% of FreshDirect revenues. Word among investors continued
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is that FreshDirect is planning an IPO in the near future, causing many to roll their eyes as they remember the history of Webvan in early part of the decade. Is this time different? The technology has changed drastically, there’s more bandwidth to explore food products online, and the culture has shifted to using smartphones as mobile shopping devices. Best of all, FreshDirect is working from a financial perspective. Although a private company that does not issue financial information, analysts estimate that in 2015 FreshDirect will generate over $500 million in revenue, and expand its customer base to over 700,000 customers in the New York and Philadelphia metropolitan areas.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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?
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Who will be on the management team?
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What are their duties?
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What are your current personnel needs?
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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 startup 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?
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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
____
What % markup?
b. Suggested price
____
c. Competitive
____
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. ◆◆
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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.
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Fixed Expenses: Include rent, depreciation, utilities, insurance, loan repayments, etc.
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Net Profit (loss) (before taxes): Subtract total expenses from gross profit.
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Taxes: Enter federal, state and local income taxes.
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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. ◆◆
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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 continued
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credit extended to 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). ◆◆
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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 continued
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 this rapidly expanding segment of the economy have never been better. In 2015, e-commerce retail and service revenues will exceed $531 billion. 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 12% a year. 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 approaches $1 trillion in annual revenues. Marketing and advertising are shifting from traditional media towards interactive, participative Web 2.0 sites, creating additional new employment opportunities for marketing specialists. Internet advertising and marketing reached $58 billion in 2015 (31% of all media spending), and is projected to grow to $92 billion in 2019. 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. With the Internet/e-commerce economy booming, the related job market is hot again as well.
Careers As you’ve learned from the text, the Internet/e-commerce economy remains hot, and the prospects for employment in this rapidly expanding segment of the economy remain comparatively rosy. The Internet economy, which includes the sales of computers, servers, telecommunications, routers, and a myriad number of technological gadgets that make the Internet work, as well as e-commerce retail and services, now well over $2 trillion in annual revenues in the G-20 nations. E-commerce retail and service revenues in the United States 2015 exceeded $508 billion. Overall, the B2C e-commerce economy in the United States 2015 grew at around 15% and even faster in China and elsewhere! 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,
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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. For instance, demand for information security analysts, Web developers, and computer architects is expected to grow by 22% from 2010 to 2020. 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 business intelligence developers), which is expected to grow by 31% from 2010 to 2020, 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 2015 Salary Guide, salaries for these jobs range from $57,000 for entry-level Web designers to over $100,000 for senior Web developers and network administrators. Those with ASP skills can typically command an additional 4% in increased salary, while ColdFusion and DCOM/COM/Active X skills translate into an additional 5%. AJAX skills garner an additional 6%. Add an additional 7% for content management system (CMS) skills, and 8% for .Net and Web services development skills. , C#, Java, Java Enterprise Edition (Java EE/ J2EE), and PHP skills are worth an even higher premium, typically 9%, while the highest additional percentages is reserved for virtualization skills (10%) and SharePoint skills (12%). Some of the hottest areas in today’s e-commerce and Internet economies are data mining, and 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:
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TABLE 10-1 Job Title
Description
Average Salary
Web designer
Designs and builds back-end e-commerce system; designs and builds front-end e-commerce site; creates Web pages to meet customer needs and organization strategy; participates in project management, strategy development, budgeting, and analytics. Familiarity with HTML, XML, JSP, CSS, PHP, AJAX, and similar Web languages and platforms typically required, as well as knowledge of Adobe Web page and design software.
$64,000–$105,500
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 Web services, TCP/IP, FTP, HTTP, HTTPS, LDAP and similar Internet protocols typically required.
$66,000–$102,000
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 AJAX, ColdFusion, JavaScript, SOAP, HTML/DHTML, LAMP and others.
$73,000–$102,000
Electronic Data Interchange (EDI) specialist
Defines EDI document specs; supports EDI project implementations and production systems; performs analysis, design, coding, and QA for EDI applications; administers and maintains data exchange logs.
$74,000-$108,000
Information security analyst
Defends organization from hacking and other cybercrime; includes antivirus strategies, credit card encryption, and steganography.
$106,000-149,000
E-commerce business 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.
$90,000-125,000
Mobile Applications Developer
Builds mobile applications and mobile Web sites for iOS, Android, BlackBerry, Windows Mobile/Windows Phone 7, Symbian using Java, Java EE, Java ME, JavaScript, JSON, Objective-C, .Net, and HTML.
$93,000-$132,000
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.
$91,000-$131,000
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.
$108,000-$153,000
Web site/database integrator
Uses standard Web programming languages, database languages, and knowledge of legacy systems (e.g., accounting, financial, inventory) to connect Internet or Intranet sites with business-critical databases.
$112,000-$160,000
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.
$98,000-$104,000
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E-commerce CFO
Typically desired by companies that are planning to go public; must be well-versed in the IPO process and skilled at raising revenue and building a brand.
$125,000–$300,000
Director/Vice President, 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.
$165,000–$250,000
Sources: Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Robert Half Corporation, The Robert Half Technology 2015 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 2.0 tools, such as blogs, wikis, and RSS feeds, to help convert browsers into buyers.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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, 15TH ED. 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 5.7 lists some of the major trends in e-commerce payments in 2015–2016. TABLE 5.7 Major Trends in E-Commerce Payments 2015–2016 • Payment by credit and/or debit card remains the dominant form of online payment. • PayPal remains the most popular alternative payment method online. • Apple introduces Apple Pay, a contactless mobile payment system for its iPhones and Apple Watch devices. • Start-up Square begins to gain traction with a smartphone app, credit card reader, and credit card processing service that permits anyone to accept credit card payments. • Google introduces Google Wallet, a mobile payment system based on near field communication (NFC) chips.
Online payment represents a market of more than $50 billion in 2015. 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 $7 to $10 billion a year in revenue. Given the size of the market, competition for online payments is spirited.
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In the United States, the primary form of online payment is still the existing credit card system. Although credit card usage slipped somewhat during the recession, the total payments volume for online use of credit cards by U.S. consumers is expected to climb by over 50% by 2016, compared to just a 2% increase for debit card usage during the same period. Alternative payments, although currently representing less than 20% of e-commerce transactions, are also expected to continue to make inroads into traditional payment methods. Figure 5.13 illustrates the approximate usage of various payment types. PayPal is the most popular alternative to usage of credit and debit cards online. FIGURE 5.13 Online Payment Methods in the United States
Traditional credit cards are still the dominant method of payment for online purchases, although alternative methods such as PayPal and mobile payments are faster growing.
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 Web site 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. Online purchases in China are typically 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
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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 5.14 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.
merchant account a bank account that allows companies to process credit card payments and receive funds from those transactions
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FIGURE 5.14 How an Online Credit Card Transaction Works
As shown in Figure 5.14, 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 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 continued
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(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 wellknown 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.
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 continued
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online stored value a specified limit. Paypal is an example of an online stored value payment payment system, which permits consumers to make instant, online payments to system permits merchants and other individuals based on value stored in an online account. consumers to make instant, online payments In 2014, PayPal processed $235 billion in payments, and had 173 million to merchants and other active registered users. PayPal builds on the existing financial infrastrucindividuals based on ture of the countries in which it operates. You establish a PayPal account by value stored in an online account 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. PayPal is discussed in further depth in the case study at the end of the chapter.
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 Payments 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 Web sites 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 Checkout (now merged into Google Wallet, 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. Bill Me Later also appeals to consumers to do not wish to enter their credit card information online. Bill Me Later describes itself as an open-ended credit account. Users select the Bill Me Later option at checkout and are asked to provide their birth date and the last four digits of their social security number. They are then billed for the purchase by Bill Me Later within 10 to 14 days. Bill Me Later is currently offered by more than 1,000 online merchants. WUPay (formerly eBillme, and now operated by Western Union) offers a similar service. 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
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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. Dwolla is a similar cash-based payment network for both individuals and merchants. It bypasses the credit card network and instead connects directly into a bank account. Dwolla is free for transactions under $10 and only 25 cents per transaction for those over $10, and is currently available at more than 15,000 merchants. Like Dwolla, 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 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, 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 near field communication chips. Near field communication (NFC) is a set of shortcommunication range wireless technologies used to share information among devices within (NFC) a set of shortabout 2 inches of each other (50 mm). NFC devices are either powered or range wireless passive. A connection requires one powered unit (the initiator), and one target technologies used to share information unpowered unit that can respond to requests from the powered unit. NFC among devices 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, a mobile app designed to work with NFC chips. Google Wallet 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
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Apple Pay as a contactless payment system for iPhones, and by 2015 is accepted by one-half of the top 100 retailers, and thousands of smaller stores. In 2015, mobile retail purchases are expected to total around $76 billion. The promise of riches beyond description to a firm that is able to dominate the mobile payments marketplace has set off what one commentator has called a goat rodeo surrounding the development of new technologies and methods of mobile payment. The end-of-chapter case study, Online Payment Marketplace: Goat Rodeo, provides a further look at the future of online and mobile payment in the United States, including the efforts of PayPal, Google, Square, and others.
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.” Examples of digital cash include Bitcoin and Ukash. Bitcoins are encrypted numbers (sometimes referred to as cryptocurrency) that are generated by a complex algorithm using 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. For example, in September 2012, hackers stole $250,000 worth of Bitcoins from BitFloor, a New Yorkbased company that allows account holders to buy and sell Bitcoins and exchange them for U.S. dollars using the Automated Clearing House (ACH) system. Another group of hacktivists threatened to release Mitt Romney’s tax returns unless they were paid $1 million in Bitcoins. Nonetheless, there are companies, such as BitPay, that are touting Bitcoins as a legitimate alternative payment system, and trying to make it easier for merchants to accept them. Ukash is another digital cash system that uses a unique 19-digit code, and can be stored online in an eWallet. Ukash can be purchased at more than 420,000 retail locations around the globe, and used wherever it is accepted.
digital cash an alternative payment system in which unique, authenticated tokens represent cash value
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Virtual currencies, on the other hand, typically circulate primarily within an internal virtual world community, such as Linden Dollars, created by Linden Lab for use in its virtual world, Second Life, or are associated with a specific corporation, such as Facebook Credits. Both types are typically used for purchasing virtual goods.
COPYRIGHT NOTICE Copyright © 2017 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 on the World Wide Web) 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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virtual currency typically circulates within an internal virtual world community or is issued by a specific corporate entity, and used to purchase virtual goods
Management Information Systems, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 11: Managing Knowledge
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: ◆◆ ◆◆
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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.
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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, 2013.
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 p urchase, 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: ◆◆
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Where do most of our customers come from? The answer might tell m anagers where to spend more marketing resources, or to initiate new m arketing 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).
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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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FIGURE 3
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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 c ustomers 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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FIGURE 4
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 12-1 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 12-1 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 12-1 and 12-2 illustrate two types of behavioral diagrams: a use case diagram and a sequence diagram. FIGURE 12-1 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. continued
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Several 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 12-2 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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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 environment, over 80% of the $800 billion business consulting industry involves business process design, redesign, and process re-engineering. These business process design activities have grown along with the huge $1.7 trillion annual spend on 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 e ntirely 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 business process. Each of these are examples of how American firms have used the opportunities a fforded by new information technologies to re-design existing business processes, and to create new business models. American business firms have learned to use technology to create new, very efficient business processes. continued
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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 operations 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, document it, and measure it. 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 purposes 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 a ttributes of any business process (see Figure 1 below): continued
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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 information 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.
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 continued
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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.
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.
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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 procurement 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 procurement 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 excessively 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 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 continued
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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 know how to cut the time in half, and reduce the direct labor cost to less than $20,000. Do you have an ideas? continued
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. 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
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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
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the firm, 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. continued
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FIGURE 2
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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 © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 14: 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 long-term 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 i nstalling pollution control equipment, converting to a human resources database to meet some government r egulations, 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, continued
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specifically, 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
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 continued
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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 t ypically 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 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
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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. If the new system project is approved, implementation would commence in January 2005 and the new system would become operational in early January 2006. 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: Original investment Annual net cash inflow
= Number of years to pay back
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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).
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.
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 continued
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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) Useful life
= Net benefit
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: Payment x
1 – (1 + interest)-n Interest
= 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 continued
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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 cost-benefit 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. Present value ofcash inflows Investment
= Profitability index
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.
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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 cash-flow 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 e fficiency 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 © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 14: Managing Projects
Learning Track 2: Information Technology Investments and Productivity Information technology now accounts for about 35 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 acceleration 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 than in the past, and in that sense the service of higher education has improved. Measuring the value of this improvement is a challenge. continued
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The contribution of information technology to productivity in information and knowledge industries 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 s tructures, 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 © 2017 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 on the World Wide Web) 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, 15TH ED. MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon Chapter 14: 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
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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.
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.
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 continued
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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. 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.
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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 a nalyses of them shapes their information needs. It is especially suitable for top management and for the development of 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 a ggregated 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 © 2017 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 on the World Wide Web) 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.