Management Information Systems Plus MyMISLab with Pearson eText - Access Card Package, 13E Kenneth C

Type:

Instructor Manual

Management Information Resource: Systems Managing the Digital Firm Edition:

13th Edition

Author(s):

Kenneth C. Laudon Jane P. Laudon

Chapter 1 Information Systems in Global Business Today Learning Objectives 1.

2.

3.

4.

5.

How are information systems transforming business and what is their relationship to globalization?

Why are information systems so essential for running and managing a business today?

What exactly is an information system? How does it work? What are its management, organization, and technology components?

What are complementary assets? Why are complementary assets essential for ensuring that information systems provide genuine value for an organization?

What academic disciplines are used to study information systems? How does each contribute to an understanding of information systems? What is a sociotechnical systems perspective?

Chapter Outline 1.1

1.2

1.3

The Role of Information Systems in Business Today How Information Systems Are Transforming Business What’s New in Management Information Systems?

Globalization Challenges and Opportunities: A Flattened World The Emerging Digital Firm Strategic Business Objectives of Information Systems Perspectives on Information Systems What Is an Information System?

Dimensions of Information Systems It Isn’t Just Technology: A Business Perspective on Information Systems Complementary Assets: Organizational Capital and the Right Business Model Contemporary Approaches to Information Systems Technical Approach Behavioral Approach Approach of This Text: Sociotechnical Systems

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, 13 Business processes, 11

Information technology (IT) infrastructure, 21 Input, 16 Internet, 21 1-1 ..

Complementary assets, 27 Computer hardware, 21 Computer literacy, 18 Computer software, 21 Culture, 20 Data, 15 Data management technology, 21 Data workers, 19 Digital firm, 11 Extranets, 21 Feedback, 16 Information, 15 Information system, 15 Information systems literacy, 18 Information technology (IT), 15

Intranets, 21 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, 16 Processing, 16 Production or service workers, 19 Senior management, 19 Sociotechnical view, 30 World Wide Web, 21

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, “Shortening Lines at Disney World: Technology to the Rescue,” shows students that even the entertainment industry has embraced technology as a way to enhance customer value and increase the business’s competitive advantage. Students will start to become familiar with the idea that many different kinds of businesses have had to change the way they operate, even Disney World. In order to increase their profits and improve customer satisfaction, Disney World monitors its operations using internal inputs from video cameras, digital park maps, computer programs and other tools to immediately alter management of its entertainment features. It also gathers data from external inputs like airline bookings, hotel reservations, and historic attendance data to plan ahead and ensure the business can meet customer demands.

The effective use of technology at Orlando’s Walt Disney World shows why information systems are essential for enhancing customer service, making the business more efficient, and increasing revenues.

Section 1.1, “The Role of Information Systems in Business Today,” gives students a feel for the importance of information systems in business today and how they have 1-2 ..

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.

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: Organizations: Running the Business from the Palm of Your Hand 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, location-based 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 1-3 ..

machine. They can receive information and data instantaneously, which allows them to make better, faster decisions. In the case of Doylestown Hospital, doctors use iPhone applications to access medical reference applications, giving them a broader base of information on which to base decisions.

2. Identify the problems that businesses in this case study solved by using mobile digital devices.

Jackson Kayak’s CEO, Eric Jackson monitors industry trends in the field and meets directly with dealers and customers to maintain a strong customer focus. He uses an iPhone and iPad to run his entire 120-person company from afar. His iPad gives him instant access to his company so he can analyze customer data, refresh Web site content, or approve new designs. He has calendars, email, contact management, and the ability to create and edit documents, spreadsheets, and presentations all on his mobile handheld device. His employees and managers use their mobile devices to compare manufacturing equipment side-by-side with images of replacement parts.

GE’s employees use iPhone and iPad apps that help them find patterns and trends in large volumes of data that may help alert them to problems before they become serious enough to affect customers or suppliers. Monitoring apps let managers zoom in from a global map to a specific transformer and read key performance indicators at any time. Employees access email, contacts, documents, and electronic presentations using their mobile devices.

Dow Corning managers analyze real-time data from core corporate systems including sales figures, trends, and projections, using mobile handheld devices. “In 15 seconds I can get a sense of whether there’s a financial performance issue I need to get involved with,” said Executive Vice President and Chief Financial Officer Don Sheets.

Sunbelt Rentals combined multiple systems and databases into a single package for its sales teams. Rather than accessing several different computer systems for information, sales agents receive combined information from corporate point-of-sale systems, inventory control and management systems, and enterprise systems, for a truly integrated view of business functions.

3. What kinds of businesses are most likely to benefit from equipping their employees with mobile digital devices such as iPhones, iPads, and BlackBerrys?

Any business with a need to communicate 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 examples:

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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 justin-time supply chains.

Section 1.2, “Perspectives on Information Systems,” gives students the facts and definitions that underpin information systems and allow students to knowledgeably discuss information systems. Students do not need the knowledge of a technical person, but they do need to understand the role of information technology and how it must support the organization’s business strategy. They must also understand how information technology can be used to help transform a business. Note that the chapter’s definitions and terms help prepare students to discuss information systems as an intricate part of business systems. Encourage students to see that technology is subordinate to the organization and its purposes.

This is also a good place to reinforce the differences between information systems literacy and computer literacy. When asked to describe company information systems, students often depict information systems in terms of technology. It is important to stress that information systems are more than just technology, and that they have management, organization, and technology dimensions. Figure 1-5 and the diagram at the beginning of the chapter (page 4) 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 1-5 ..

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?

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 Web site. 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?

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Operational excellence: UPS has maintained leadership in small-package deliver 1-6 ..

services despite stiff competition from FedEx and the U.S. Postal System by investing heavily in advanced information technology.

•

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.

•

Customer and supplier intimacy: Customers can download and print their own labels using special software provided by UPS or by accessing the UPS Web site.

UPS spends more than $1 billion each year to maintain a high level of customer service while keeping costs low and streamlining its overall operations.

•

Improved decision making: Special software creates the most efficient delivery route for each driver that considers traffic, weather conditions, and the location of each stop. 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. To further increase cost savings and safety, drivers are trained to use “340 Methods” developed by industrial engineers to optimize the performance of every task from lifting and loading boxes to selecting a package from a shelf in the truck.

•

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.

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, “Contemporary Approaches to 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 (page 98) may help you explain contemporary approaches to information systems.

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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. How are information systems transforming business and what is their relationship to globalization?

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.

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 digital platforms, growth of online software-as-a-service, and the growth of cloud computing.

Table 1-1 (page 7) outlines new MIS changes and their impact on business. The table is organized by the three dimensions of information systems: technology, management, and organizations.

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.

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

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

Companies can operate 24/7 from any geographic location around the world. Jobs can just as easily move across the state or across the ocean. Employees must continually develop high-level skills through education and on-the-job experience that cannot be outsourced. Business must avoid markets for goods and serves that can be produced offshore much cheaper. The emergence of the Internet into a full-blown international communications system has drastically reduced the costs of operating and transacting business on a global scale.

2. Why are information systems so essential for running and managing a business today?

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

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

3. What exactly is an information system? How does it work? What are its management, organization and technology components?

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.

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

• •

•

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.

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.

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.

4. What are complementary assets? Why are complementary assets essential for ensuring that information systems provide genuine value for an organization?

Define complementary assets and describe their relationship to information technology.

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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.

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

Table 1-3 (page 27) 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) 5. What academic disciplines are used to study information systems? How does each contribute to an understanding of information systems? What is a sociotechnical systems perspective?

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).

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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.

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.

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

Although student answers will vary, this is a good place to reiterate that information systems are more than just technology. Information systems development and usage involves organization, management, and technology dimensions. It is important to understand who will use the information systems and how the information systems will be used to facilitate decision making and control within the organization.

Computer specialists understand the technology and definitely play an important role within the development and maintenance of information systems. Computer specialists have an in-depth technology background, but may not be well versed in the business or its operations. This is why computer specialists should function as part of a team, and this team should have the hybrid strength of many different skills and personalities. The team should definitely understand the business, the business requirements, and the goals for the information systems.

2. If you were setting up the Web site for Disney World visitors, what management, organization, and technology issues might you encounter?

Answers will vary, however a good starting point is to use Table 1-2 (page 20) to flush out some suggestions.

Organization—typical problems include: • Outdated/poor business processes (usually inherited from the past) • Unsupportive culture and attitudes • Political in-fighting 1-12 ..

• • •

Turbulent business environment/changes in the organization’s surrounding environment Complexity of task Inadequate resources

Technology—typical problems include: • Insufficient or aging hardware • Outdated software • Inadequate database capacity • Insufficient telecommunications capacity • Incompatibility of old systems with new technology • Rapid technological change Management—typical problems include: • Lack of employee training • Difficulties of evaluating performance • Legal and regulatory compliance • Work environment • Lack of employee support and participation • Poor or indecisive management

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

Table 1-3 (page 27) of the text provides a list of complementary social, managerial, and organizational assets required to optimize returns from information technology investments.

Organizational assets: • Supportive organizational culture that values efficiency and effectiveness • Appropriate business model • Efficient business processes • Decentralized authority • Distributed decision-making rights • Strong IS development team Managerial assets: • Strong senior management support for technology investment and change • Incentives for management innovation • Teamwork and collaborative work environments • Training programs to enhance management decision skills • Management culture that values flexibility and knowledge-based decision making

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Social assets: • The Internet and telecommunications infrastructure • IT-enriched educational programs raising labor force computer literacy • Standards (both government and private sector) • Laws and regulations creating fair, stable market environments • Technology and service firms in adjacent markets to assist implementation

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

Management Decision Problems 1. 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

2. 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.

Improving Decision Making: Using Databases to Analyze Sales Trends: Software skills: Database querying and reporting Business skills: Sales Trend Analysis 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: MIS13ch01_solutionfile.mdb Improving Decision Making: Using the Internet to Locate Jobs Requiring Information Systems Knowledge Software skills: Internet-based software Business skills: Job searching 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.

Video Case Questions You will find a video case illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the case.

Collaboration and Teamwork: Creating a Web Site for Team Collaboration Form a team with three or four classmates. Then use the tools at Google Sites to create a Web site for your team. You will need to create a Google account for the site and specify the collaborators (your team members) who are allowed to access the site and make contributions. Specify your professor as the viewer of the site so that person can evaluate your work. Assign a name to the site. Select a theme for the site and make any changes you wish to colors and fonts. Add features for project announcements and a repository for team documents, source materials, illustrations, electronic presentations, and Web pages of interest. You can add other features if you wish. Use Google to create a calendar for your team. After you complete this exercise, you can use this Web site and calendar for your other team projects.

Use this checklist to ensure all elements of the Web site have been created: • Create a Google account • Specify collaborators • Specify your professor as site viewer 1-15 ..

• • • • •

Assign name to site Select theme Add features Add repository Create calendar

Use this checklist to evaluate the elements of the Web site: • Are the page contents fairly well-organized?

• Are page formats fairly well-designed?

• Have all team members been given collaboration rights?

• Has the professor been given permissions for viewing the site content • Is the repository fairly well-organized or a hodge-podge of files?

• Has the calendar been created and is it fairly easy to use?

Case Study: Are Electronic Medical Records a Cure for Health Care?

1. Identify and describe the problem in this case.

The majority of medical records are currently paper-based, making these records very difficult to access and share. Inefficiencies in medical record keeping are one reason why health care costs in the United States are the highest in the world. Because administrative costs and medical recordkeeping account for 12 percent of health care spending, improving those processes can lead to saving billions of dollars every year.

2. What management, organization, and technology factors are responsible for the difficulties in building electronic medical record systems? Explain your answer.

Management: Physicians, hospitals, and insurers must meet federal mandates for implementing electronic medical records or suffer penalties. Only a small amount of money is available from the federal government for upfront costs associated with the implementation. The expenditure of overhauling recordkeeping systems represents a significant increase in the short-term budgets and workloads of smaller health care providers.

Organization: Many smaller practices are finding it difficult to afford the costs and time commitment to upgrade their recordkeeping systems. Patient privacy concerns, data quality issues, and resistance from health care workers are other difficulties that must be addressed.

Technology: It’s unclear whether or not the many different types of systems being developed and implemented will be compatible with one another, jeopardizing the goal of a national system where all health care providers can share information.

3. What is the business, political, and social impact of not digitizing medical records (for individual physicians, hospitals, insurers, patients, and the U.S. Government)?

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Individual physicians: The federal government plans to assess penalties on practices that fail to comply with the new electronic recordkeeping standards. Medicare and Medicaid reimbursements will slowly be reduced by 1 percent per year until 2018, with further, more stringent penalties coming beyond that.

Hospitals: Health care spending figures are inflated by inefficiency, errors, and fraud.

Insurers: Processing insurance claims from patients, hospitals, and physicians will continue to be a slow, cumbersome process fraught with errors and fraud. Insurers will continue to spend too much money on claims processing—money that could be used to pay actual medical costs.

Patients: Medical information cannot be shared among physicians and hospitals easily and quickly. That impacts overall medical care and attention and can potentially be life-threatening. Patients will spend more money on medical care just to cover administrative costs rather than on the care itself.

U.S. Government: A perception of a potential conflict of interest for insurance companies involved in the creation of health record systems exists, which may make it more difficult to fully deploy EMR systems. A 2009 poll found that 59 percent of respondents said they doubted the confidentiality of online medical records. Even with making the systems as secure as possible, a perception of poor privacy could affect the success of the system and the quality of care provided.

4. What are business and social benefits of digitizing medical recordkeeping?

Business benefits: An electronic medical record system contains all of a person’s vital medical data, including personal information, a full medical history, test results, diagnoses, treatments, prescription medications, and the effect of those treatments. A physician would be able to immediately and directly access needed information from the EMR without having to pore through paper files. If the record holder went to the hospital, the records and results of any tests performed at that point would be immediately available online. Many experts believe that electronic records will reduce medical errors and improve care, create less paperwork, and provide quicker service, all of which will lead to dramatic savings in the future: an estimated $77.8 billion per year.

Electronic systems hold the promise of immediate processing or “real-time claims adjudication,” just like when you pay using a credit card, because claim data would be sent immediately and diagnostic and procedure code information are automatically entered.

Social benefits: If the Veterans Affairs electronic medical record system is an example, patients stand to gain a great deal from the implementation of new record systems. The quality and thoroughness of medical care is higher and the in-home 1-17 ..

monitoring process improves medical care and the lives of VA patients. More patients receive necessary periodic treatments under the VA system. Patients also report that the process of being treated at the VA is effortless compared to paper-based providers.

5. Are electronic medical record systems a good solution to the problem of rising health care costs in the United States? Explain your answer.

If done correctly, EMR systems can help control rising health care costs. However, many obstacles stand in the way of fully deploying systems that are compatible and inexpensive enough for doctors and hospitals to retrofit their current systems. Also, no nationwide software standards for organizing and exchanging medical information have been put in place.

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Chapter 2 Global E-Business and Collaboration Learning Objectives 1.

2.

3.

4.

5.

What are business processes? How are they related to information systems?

How do systems serve the different management groups in a business?

How do systems that link the enterprise improve organizational performance?

Why are systems for collaboration and teamwork so important and what technologies do they use?

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

Chapter Outline 2.1

2.2

2.3

2.4

Business Processes and Information Systems Business Processes How Information Technology Improves Business Processes Types of Information Systems Systems for Different Management Groups Systems for Linking the Enterprise E-Business, E-Commerce and E-Government Systems for Collaboration and Social Business What is Collaboration?

What is Social Business?

Business Benefits of Collaboration and Social Business Building a Collaborative Culture and Business Processes Tools and Technologies for Collaboration and Social Business The Information Systems Function in Business The Information Systems Department Organizing the Information Systems Function

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, 47 Chief information officer (CIO), 69 Chief knowledge officer (CKO), 69 Chief privacy officer (CPO), 69 Chief security officer (CSO), 69

Executive support systems (ESS), 52 Information systems department, 68 Information systems managers, 69 Interorganizational system, 56 IT governance, 70 2-1 ..

Collaboration, 58 Customer relationship management (CRM) systems, 56 Cyberlockers, 64 Decision-support systems (DSS), 49 Digital dashboard, 52 Electronic business (e-business), 57 Electronic commerce (e-commerce), 57 E-government, 57 End users, 69 Enterprise applications, 53 Enterprise systems, 53

Knowledge management systems (KMS), 56 Management information systems (MIS), 47 Portal, 52 Programmers, 69 Social business, 59 Supply chain management (SCM) systems, 55 Systems analysts, 69 Teams, 58 Telepresence, 63 Transaction processing systems (TPS), 46

Teaching Suggestions The opening vignette, “TELUS Embraces Social Learning,” provides an outstanding example of how the company embraced social business tools to significantly reduce its learning budget all the while it increased the amount of learning and education available to its employees. These technologies are the very same ones every business needs to succeed.

Prior to incorporating the new social business tools, 90 percent of the TELUS learning budget was devoted to formal learning in which employees had to wait until attending a scheduled class before they could learn new techniques. After the company began incorporating new collaboration and social business tools into its employee education, only 60 percent of the budget was devoted to formal learning. Further cost savings will occur as the new learning solutions take hold.

TELUS uses Microsoft SharePoint Server 2010 as a single point of entry to shared knowledge. It has the ability to search all the company’s learning assets simultaneously.

Employees create their own Web pages to describe their areas of expertise and special skills. It also offers blogging tools to allow employees to locate an expert, discuss his or her experiences, share advice, and find answers to questions without having to take a class or interrupt a colleague.

Document sharing, tagging user-generated content, and videos, all contribute to the social learning and collaboration among employees at TELUS. Along the way, TELUS changed its organizational culture and business processes for knowledge dissemination and employee learning.

Section 2.1, “Business Processes and 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 2-2 ..

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, “Types of Information Systems” 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.

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.

Interactive Session: Technology: Can Airlines Solve Their Baggage Handling?

Case Study Questions 1. What types of transactions are handled by baggage handling systems?

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The primary types of transactions handled by baggage handling systems are moving bags from check-in areas to departure gates, moving them from gate to gate and then finally, moving them from arrival gates to baggage claim areas. That’s a lot of input data, processing, and output data.

When computers scan the bar code on a piece of baggage, the data is processed quickly. The output determines where and when to send the bags. After being scanned once, the system always knows where the bags are at any point in the system.

2. What are the management, organization, and technology components of baggage handling systems?

Management: Those who tag luggage at check-in counters must enter the data correctly. The tags contain flight information and a bar code that all of the computers in the system can read. Once bags reach the gate, they enter a sorting station where airline employees use computer terminals to send bags to the correct plane. Delta recently added a service that allows passengers to track their checked bags from scanning at check-in, to the flight they’re loaded on, and then arrival at baggage claim.

Organization: Paying for often spotty and unreliable baggage handling service was one of the biggest sources of customer dissatisfaction throughout the industry.

Baggage handling systems can be extremely expensive, but if implemented successfully, pay for themselves. Lost and mishandled baggage is a major expense for airlines, and reducing the incidence of lost and mishandled baggage creates significant yearly savings.

Technology: Baggage handling systems are among the most complex systems because they involve a wide variety of sensors, actuators, mechanical devices, and computers. The systems use over three million lines of software program code.

Advanced technology used in these systems include destination-coded vehicles (DCV), automatic bar code scanners, use of radio frequency identification (RFID) tags, and high-tech conveyors equipped with sorting machines. Because DCVs move at high speed and do not come to a full stop to receive baggage, the conveyors must be extremely precise, depositing bags where they are needed at just the right time for maximum efficiency.

3. What is the problem these baggage handling systems are trying to solve? Discuss the business impact of this problem. Are today’s baggage handling systems a solution to this problem? Explain.

The problem baggage handling systems are trying to solve is customer dissatisfaction and to promote customer goodwill as well as reduce costs.

Business impact: Overall the airline industry rate for lost luggage has improved by 38 percent over similar figures from two years ago when nearly 2.5 million bags were 2-4 ..

lost or delayed. Lost and mishandled baggage is a major expense for airlines.

Reducing the problem creates significant yearly savings. The global airline industry price tag for mishandled baggage is $2.5 billion per year.

Today’s baggage handling systems do appear to be a solution to the problem. US Airways lost nine bags for every 1,000 travelers in 2007. After implementing a new system, that number dropped to three bags for every 1,000 travelers. Even though the company spent $16 million on the system, the airline saved $25 million a year and boosted customer satisfaction.

Between 2008 and 2010, Delta Airlines installed optical scanners to read baggage tag bar codes, widened and extended its system of baggage conveyor belts, and installed a central control room to monitor conveyor belts and baggage carousels in Atlanta and most of its other airport terminals. The airline recorded a top-notch baggage handling record of just 2.93 mishandled bags per 1,000 passengers. Bags now take less than 10 minutes to travel from terminal to terminal. The process used to take as long as 30 minutes with the older system.

4. What kinds of management reports can be generated from the data from these systems?

All data input into the baggage handling systems are recorded in transaction processing systems. From there, a variety of Management Information Systems (MIS), Decision Support Systems (DSS), and Executive Support Systems (ESS) reports can be generated.

MIS reports may include information about the number of bags at any given time in any given place; how long it takes to move a bag from point A to any other point in the system; the number of bags processed through the baggage handling system that are outside the norms. Equipment management reports can be generated that provide information about the maintenance status of the various system components.

DSS reports can be generated that advise managers when to perform maintenance on equipment or whether equipment should be moved to alternate locations based on baggage loads. These kinds of reports can also provide information to managers about whether the system is meeting its goals and how it can be improved.

ESS reports can advise executives about cost factors and if the system is providing the targeted return on investment. Information about the efficiency of the system is also available to executives based on data generated by the baggage handling systems.

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

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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.

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 ebusiness and e-commerce. Stress that e-business refers to the use of digital 2-6 ..

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: Management: Piloting Procter & Gamble from Decision Cockpits Case Study Questions 1. What management, organization, and technology issues had to be addressed when implementing Business Sufficiency, Business Sphere, and Decision Cockpits?

Management: Managers and executives were receiving data and information but only when it was days or weeks old—too late to make on-the-spot decisions and immediately solve problems.

Organization: A major reason for P&G’s success has been its robust information technology and willingness to pursue new IT innovations to maintain a competitive advantage in its industry. P&G has made it its goal to digitize its process from end to end and to fundamentally change the way it gathers, reports, and interprets data. One of its major goals was to eliminate time spent by employees debating the validity of competing versions of data found in emails, spreadsheets, letters, and reports. By providing a one-stop source of accurate and detailed real-time business data, all employees are able to focus instead on decisions for improving the business.

Technology: The old business model was to figure out what reports people wanted, capture the data, and then deliver them to the key decision-makers days or weeks later. The new model is more instantaneous with people huddling together in person or via video and pulling in the right experts to fix a problem the moment it arises.

More real-time data and analytics expertise were required.

2. How did these decision-making tools change the way the company ran its business? How effective are they? Why? These solutions eliminate time spent debating different data sets, and instead use a system that allows leaders to focus on immediate business decisions using the most accurate data available at that precise moment.

The Business Sufficiency program, furnishes executives with predictions about market share and other key performance metrics six to twelve months into the future.

It’s based on analytic models that show what is occurring in the business right now, why it’s happening, and what actions the company can take to mitigate the situation.

By providing the “why,” the company can take a more appropriate action.

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The Business Sphere interactive system reveals insights, trends and opportunities for leaders, and prompts them to ask focused business questions that can be addressed with the right data on the spot. Thousands of algorithms and analytical models aggregate data, organize them appropriately and then monitor trends. Everyone in the meeting or organization sees the same information.

The Decision Cockpit eliminates time spent by employees debating the validity of competing data versions. Employees are able to focus instead on decisions for improving the business. The Business Sphere and Decision Cockpits encourage P&G employees and managers to manage by exception and devote their time and energy where it is most needed.

3. How are these systems related to P&G’s business strategy?

Managers and employees are able to make faster and better decisions than were previously possible. The company enjoys a reduced complexity involved in generating a statistical report, as well as cost reductions from maintaining one standardized set of data across the enterprise instead of duplicated, redundant data.

Employee-generated emails have dropped sharply since more workers can answer their own questions and obtain their own information. The company is also able to better anticipate future events affecting the business and more quickly respond to market stimuli.

Section 2.3 “Systems for Collaboration and Teamwork” 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 (page 60) emphasizes the benefits of collaboration while Figure 2-7 (page 62) 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.

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Because most of the online collaborative tools listed in Table 2-5 (page 66) are relatively unknown, you can have teams of students explore one or two of them and then present to the class a list of characteristics, capabilities, advantages and disadvantages, for each one.

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 (page 67) and the information in the section “Checklist for Managers: Evaluating and Selecting Collaboration Software Tools” (page 67) to help select the best tool.

Have students explore the use of business wikis first-hand by visiting SAP’s Enterprise Solution Wiki at http://wiki.sdn.sap.com/wiki/display/ESpackages/ES+Wiki+Home, or IBM’s LotusNotes 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. The home page of IBM’s LotusNotes Wiki also has a great list of how to perform various wiki tasks. Students can see how easy it is to navigate wikis by reading these instructions.

Section 2.4. “The Information Systems Function in Business.” If possible, arrange a session with the school’s information systems department to allow students to see firsthand how such a center works and who is responsible for running the systems. Have the IS 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 IS staff is responsible for the wellbeing of all users in an organization. Users and the IS staff are teammates not polarizing opposites.

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

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

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

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

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.

2. How do systems serve the different management groups in a business?

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

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

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

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

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

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

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.

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• • • • •

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.

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.

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

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

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

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• •

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

3. How do systems that link the enterprise improve organizational performance?

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.

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

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

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

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

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

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

In short, supply chain management (SCM) systems help businesses better manage relationships with their suppliers. 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 provide information to help suppliers, purchasing firms, distributors, and logistics companies share information about orders, production, inventory levels, and delivery of products and services so that 2-12 ..

they can source, produce, and deliver goods and services efficiently. SCM helps organizations achieve great efficiencies by automating parts of these processes or by helping organizations rethink and streamline these processes. SCM is important to a business because through its efficiency it can coordinate, schedule, and control the delivery of products and services to customers.

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

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

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

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

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

Knowledge management systems (KMS) enable organizations to better manage processes for capturing and applying knowledge and expertise. These systems collect all relevant knowledge and experience in the firm, and make it available wherever and whenever it is needed to improve business processes and management decisions.

They also link the firm to external sources of knowledge.

Business benefits include:

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• •

•

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.

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.

4. 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.

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, 2-14 ..

• • • • •

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

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

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

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

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 (page 61): • 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.

Describe a supportive organizational culture and business processes for collaboration.

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

A collaborative culture relies on teams of employees to implement and achieve results for goals set by senior managers. Policies, products, designs, processes, and systems are much more dependent on teams at all levels of the organization to devise, to create, and to build. Rather than employees being rewarded for individual results, 2-15 ..

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.

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 Lotus Notes, Groove, 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 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.

• Google Apps/Google sites and cloud collaboration allow users to quickly create online group-editable Web sites 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.

5. 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.

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

• •

• • •

•

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

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

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

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

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

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.

Discussion Questions 1. 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.

Today’s systems are built to electronically coordinate all the business functions in an enterprise. The sales function begins the process by completing a sales order, electronically inputting the data into the system. The sales system updates daily sales totals and decreases inventory. The accounting department electronically receives the order and runs a credit check. If the credit is not approved, the system sends an exception notification to an accounting specialist and the sales person. If credit is approved, the order is sent to the manufacturing and production system and product assembly begins. When the product is completed, electronic shipping documents are prepared and logistics is notified. When the product is shipped, electronic notifications are sent to Sales, Manufacturing and Production, Accounting, and the customer. The system electronically bills the customer.

2. 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 2-17 ..

improved to improve the performance of your library or your school? Diagram the improved process.

Students should rely on information from Section 2-1, Business Processes and Information Systems, and specifically the information from “Business Processes,” to answer this question. Figure 2-2 (page 47) should serve as a guide for diagramming the library fulfillment process as it currently may exist. Information from “How Information Technology Enhances Business Processes” can help students diagram the improved process.

3. Use the Time/Space Collaboration and Social Tool Matrix to classify the collaboration and social technologies used by TELUS? First, students should use Table 2-5 (page 66) to evaluate various enterprise social networking software capabilities, and Figure 2-8 (page 67) to help them choose the most appropriate collaboration and social tools for the tasks. They should then use the “to-do” list (page 68) to make sure they choose the correct collaboration software at an affordable price and within the team's risk tolerance.

TELUS employees can take advantage of these social networking capabilities to learn at their own pace and time: • Profiles • Content sharing • Feeds and notifications • Tagging and social bookmarking

Hands-on MIS Projects Management Decision Problems 1. Don’s Lumber Company: The price of lumber and other building materials are constantly changing. When a customer inquiries 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 necessary, sales reps consult the most current information immediately. That leads to faster sales and more satisfied customers. Necessary decisions include how much 2-18 ..

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.

2. 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.

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.

Although the format of the student’s answers will vary, a suggested solution can be found in the Microsoft Excel File named: MIS13ch02_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 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 2-19 ..

sorted by item cost and vendor number.

Achieving Operational Excellence: Using Internet Software to Plan Efficient Transportation Routes 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!)

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

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Video Case Questions You will find a video case illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the case.

Collaboration and Teamwork: Describing Management Decisions and Systems With a team of three or four other students, find a description of a manager in a corporation in Business Week, Fortune, the Wall Street Journal, or another business publication or do your research on the Web. Gather information about what the manager’s company does and the role he or she plays in the company. Identify the organizational level and business function where this manager works. Make a list of the kinds of decisions this manager has to make and the kind of information that manager would need for those decisions. Suggest how information systems could supply this information. If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments. Try to use Google Docs to develop a presentation of your findings for the class.

Group answers will vary because students will select different companies and different managerial levels. The major element of this project is to make sure the students select the appropriate type of information system for the level of management that they are evaluating.

Clearly, students would not list TPS as a system that would be used by a senior manager.

It would be acceptable if they suggested a senior manager using an MIS, DSS, or ESS. What should be apparent in the answer is that an executive senior manager is mainly focused on the long-term direction and viability of the company. A few things that students might mention would be that a senior executive would be concentrating on issues such as plant expansion or closures, foreign market opportunities, or new markets at home, changes in market trends and interest rates, overall economic outlook, changes in stocks prices, threats, or opportunities that may be taking place in the market, and political changes.

Case Study: Should Companies Embrace Social Business?

1. Identify the management, organization, and technology factors responsible for slow adoption rates of internal corporate social networks.

Management: Employees that are used to collaborating and doing business in more traditional ways need an incentive to use social software. Most companies are not providing that incentive: Only 22 percent of social software users believe the technology to be necessary to their jobs.

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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. About half of the survey respondents said that internal social networks had “very little impact” on employee retention, the speed of decision-making, or the reduction of meetings.

Technology: Ease of use and increased job efficiency are more important than peer pressure in driving adoption of social networking technologies. A majority of IT professionals consider their own internal social networks to be merely average or below average and the biggest reason they cite is low adoption rates on the part of employees. 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.

2. Why have each of the companies described in this case been successful in implementing internal social networks? Explain your answer.

One company, CSC, took a very passive approach when it implemented its social business networking software platform. The company allowed users to form groups on their own. Group presidents and other executives set an example by blogging with the social tool. The company also offered a “virtual water cooler” for non-workrelated topics to help employees try out the tool in a more relaxed setting. Employee adoption is now at 100 percent, with significant amounts of frequently sought intellectual property generated within the network’s communities and groups.

Yum! Brands, the world’s largest restaurant company, took the opposite implementation approach by marketing the network to its own employees as it would with any of its products. It expects 100 percent adoption within the first year of its rollout. The system has helped eliminate redundant resources and allows users to upload and download documents.

The third company, Red Robin hamburger restaurant chain, took a viral approach to drive adoption of its social networking system. The company’s CIO sees a movement away from email and collaboration portals like SharePoint toward social networking and texting. He wants to let people create conversations, perform status updates, upload and share files, and set up workgroups for small project teams. Although usage is not as high as executives would like, people are experimenting with the system.

3. 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 2-22 ..

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.

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Chapter 3 Information Systems, Organizations, and Strategy Learning Objectives 1.

2.

3.

4.

5.

Which features of organizations do managers need to know about to build and use information systems successfully? What is the impact of information systems on organizations?

How does Porter’s competitive forces model help companies develop competitive strategies using information systems?

How do the value chain and value web models help businesses identify opportunities for strategic information system applications?

How do information systems help businesses use synergies, core competencies, and network-based strategies to achieve competitive advantage?

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

Chapter Outline 3.1

3.2

3.3

3.4

Organizations and Information Systems What Is an Organization?

Features of Organizations How Information Systems Impact Organizations and Business Firms Economic Impacts Organizational and Behavioral Impacts The Internet and Organizations Implications for the Design and Understanding of Information Systems Using Information Systems to Achieve Competitive Advantage Porter’s Competitive Forces Model Information System Strategies for Dealing with Competitive Forces The Internet’s Impact on Competitive Advantage The Business Value Chain Model Synergies, Core Competencies, and Network-Based Strategies Using Systems for Competitive Advantage: Management Issues Sustaining Competitive Advantage Aligning IT with Business Objectives Managing Strategic Transitions

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

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Agency theory, 90 Benchmarking, 103 Best practices, 103 Business ecosystem, 108 Competitive forces model, 94 Core competency, 107 Disruptive technologies, 87 Efficient customer response system, 96 Mass customization, 97 Network economics, 107 Organization, 82

Primary activities, 102 Product differentiation, 95 Routines, 84 Strategic transitions, 112 Support activities, 102 Switching costs, 98 Transaction cost theory, 89 Value chain model, 101 Value web, 105 Virtual company, 108

Teaching Suggestions The opening case, “Will Sear’s Technology Strategy Work This Time?” illustrates some of the ways that information systems help businesses compete and also the challenges of sustaining a competitive advantage. However, it also points out that technology alone will not save a company. Organizations that have lost their competitive edge and market share must also evaluate their core competencies and strategies and improve those also.

At one time, Sears spent more on information technology and networking than all other non-computer firms in the United States. Still, it lost customers and sales to other retailers because many of its brick-and-mortar stores were in undesirable locations and others had not been physically renovated. Sears’ cost structure is also one of the highest in its industry.

Its current technology-based effort to revive sales and increase market share is based on a customer loyalty program called Shop Your Way Rewards that promotes repeat purchases provided a customer is willing to share personal data. It also uses in-store global positioning systems that allow store employees to greet customers at the door and assist them. It is also changing how its sales floors are arranged and how promotions are designed based on collected customer data.

Retail industry experts are skeptical of these efforts because the rewards program is not that different from Sears’ competitors and “programs alone cannot turn a company around. Even the best loyalty programs can’t fix a fundamentally broken brand.”

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 who were once the most successful in their industry must continually change their core strategy in response to changes brought about by their internal and external environment.

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Section 3.1, “Organizations and Information Systems” 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, “How information Systems Impact Organizations and Business Firms” By understanding that information systems impact organizations two ways, economically and behaviorally, students can understand that technological change is much more than just updating computer hardware and software. Technology becomes a substitute for traditional capital like labor, buildings, and machinery. The transaction cost theory says that firms and individuals seek to economize on transaction costs much as they do on production costs. Information technology helps lower transaction costs by making it cheaper and easier to communicate and collaborate with external suppliers instead of trying to do everything in-house. The agency theory says that a firm is viewed as a “nexus of contracts” among self-interested individuals rather than as a unified, profitmaximizing entity. Information technology reduces agency costs by reducing the number of managers necessary to supervise the individual agents (employees). The impact of information technology on both of these theories shows why firms can reduce the number of employees while maintaining or increasing the levels of production.

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

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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 a good fit. In those cases, the organization must align itself with the information system rather than the other way around.

Section 3.3, “Using Information Systems to Achieve Competitive Advantage” 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: Technology Helps Starbucks Find New Ways to Compete

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Case Study Questions 1. Analyze Starbucks using the competitive forces and value chain models.

Starbucks uses a product differentiation and customer intimacy competitive forces to set itself apart from others by offering a unique experience of high-end specialty coffees and beverages, friendly and knowledgeable servers, and customer-friendly coffee shops.

It uses its information systems and wi-fi networks to enable it to offer new services to customers like the smartphone apps that allow customers to pay with their phones.

The card is coupled with the Starbucks Card system which allows regular customers to pay with a pre-paid and rechargeable card. Customers like paying with the app saying that it’s much faster.

The company has made a concerted effort to become more efficient, reduce waste, and use the time saved to provide better customer service. It improved the way baristas make and serve coffee. The company can make more drinks with the same number of workers or with fewer workers. Baristas can also use the extra time to interact with customers.

It has enhanced its core competencies and strategic competitiveness by offering free wi-fi services to customers. It’s also used that same network to improve the way its managers oversee their stores.

2. What is Starbucks business strategy? Assess the role played by technology in this business strategy.

Starbucks business strategy is product differentiation. It offers a unique experience of high-end specialty coffees and beverages, friendly and knowledgeable servers, and customer-friendly coffee shops. The company revamped its in-store technology and sought to integrate its business processes with wireless technology and the mobile digital platform. Its strategy emphasizes the high quality of its beverages and efficient and helpful customer service.

Technology gives the company the edge by allowing it to offer customers free wi-fi service in all its stores. That keeps customers in the store, hopefully purchasing additional products.

3. How much has technology helped Starbucks compete? Explain your answer.

Starbucks launched what it calls the “Starbucks Digital Network,” a portal designed specifically for mobile devices as opposed to traditional Web browsers. The site is optimized for all major smartphone operating systems and responds to the multitouch capability of devices like the iPad.

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The site functions as a content portal where customers can receive free Wall Street Journal access, select free iTunes downloads and other content. The site is integrated with Foursquare giving users the ability to check in and receive award points using Starbucks site.

The site is free of advertising; Starbucks hopes that deals with content providers will make it a profitable venture. The site is an effective way for Starbucks to improve its relationship with its most valuable customers and a creative use of the mobile digital platform that enhances customer satisfaction.

District managers also use the in-store wireless networks to run store operations and to connect to the company’s private corporate network and systems. Before, managers had to visit each store, review its operations, develop a list of items on which to follow up, and then drive to a regional office to file reports and send email.

Now, managers can do most of their work sitting at a table in one of the stores they oversee. Implementing wi-fi technology enabled Starbucks to increase the in-store presence of district managers by 25 percent without adding any extra managers.

Interactive Session: Technology: Auto Makers Become Software Companies Case Study Questions 1. How is software adding value to automakers’ products?

Many auto makers are enhancing their vehicles with on-board software that improves the customer experience. Some are working on technology that will allow cars to be managed via the cloud. Software is a way to add more “value” and freshness to new vehicles without having to invest so heavily in new vehicle production. Automakers can create a new software interface for a car within months and update it again and again over the life of the car without much lead time.

Ford’s “MyFord Touch” interface is an in-dash touch screen available for select vehicles with controls for navigation, music, phone integration, and temperature.

Other technology will respond to problems created by traffic in the biggest cities.

Theoretically, technology might help cars avoid traffic jams, reserve parking spaces in advance, and possibly even drive themselves. Google is exploring ways to make this last feature a reality.

2. How are the automakers benefiting from software-enhanced cars? How are customers benefiting?

Cars need to be connected to some kind of central system, which would coordinate with public transit and other transportation methods. To do that, cars need to be equipped with software that can monitor and enhance vehicle functions at the most basic levels. Eventually, cars will feed increasing amounts of information to systems 3-6 ..

whose purpose would be to minimize highway congestion. Presumably, automakers would be able to tap into the data collected from these systems to improve their vehicles’ operability and maintenance.

Customers will benefit by being able to avoid congested areas and areas under construction. That will help them get to their destination faster and easier. Vehicle-tovehicle communication systems will allow vehicles to communicate with one another on the road to avoid collisions.

GM, Daimler, and others are developing new features for their cars that operate online in the cloud. Users will remotely track their cars and diagnose problems with the car. Corporations will be able to track employee use of company cars.

Manufacturers will be able to aggregate and analyze data from customers’ cars to identify quality problems.

3. What value chain activities are involved in enhancing cars with software?

Primary activities involved in enhancing cars with software include sales and marketing, and service. That includes promoting and selling the new products and features and perhaps enticing customers to upgrade their vehicles before they really intended to. That could possible increase new vehicle sales. Service will improve because more data and information can be captured by on-board software programs that will help make it faster and easier to diagnose and repair vehicles. That reduces the time and manpower automakers invest in services and reduces the time customers are without their vehicles.

Support activities in the value chain focus mainly on technology, improving products and the production process. Automakers can use data collected on vehicles already in use to help design its cars for the future. It will take less time and effort to collect data that can easily and quickly be used for new product designs.

4. How much of a competitive advantage is software providing for automakers?

Explain your answer.

Although privacy concerns are key for some vehicle owners, automakers are hoping that younger customers who have grown up using Facebook are less likely to care about privacy and features that collect highly targeted information about a car’s location and driving habits.

BMW is investing a whopping $100 million in mobile apps, hoping to market them to their customers as “premium services.” BMW believes that mobile apps will become an increasingly attractive selling point for customers of its BMWi electric and hybrid cars. Although the future of cars sharing information with other nearby cars is still years away, automakers are excited by the possibilities afforded by smart software and apps.

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Section 3.4: “Using Systems for Competitive Advantage: Management Issues.” 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 1. Which features of organizations do managers need to know about to build and use information systems successfully? What is the impact of information systems on organizations?

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

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

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

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

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

The technical definition shows us how a firm combines capital, labor, and information technology. The behavioral definition examines how information technology impacts the inner workings of the organization.

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

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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.

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 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.

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 3-9 ..

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.

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.

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.

2. How does Porter’s competitive forces model help companies develop competitive strategies using information systems?

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

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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 Describe what the competitive forces model explains about competitive advantage.

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

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

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.

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

• • •

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.

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•

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.

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

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

3. How do the value chain and value web models help businesses identify opportunities for strategic information system applications?

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.

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.

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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.

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.

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. 4. How do information systems help businesses use synergies, core competencies, and network-based strategies to achieve competitive advantage?

Explain how information systems promote synergies and core competencies.

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

Describe how promoting synergies and core competencies enhances competitive advantages.

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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.

Explain how businesses benefit by using network economics.

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.

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

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

5. 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.

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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.

Explain how to perform a strategic systems analysis.

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

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

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

Discussion Questions 1. It has been said that there is no such thing as a sustainable competitive advantage. Do you agree? Why or why not?

Students will argue both sides, and there is no definite answer to the question. There is little that a company can do that cannot be duplicated over time. Citibank and its ATM machines and American Airlines and its reservation systems are good examples. Think about companies that had strategic advantages in the 1920s or 1940s that no longer exist. In contrast, some companies, such as Walmart, maintain a

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strategic advantage for a long time. Walmart maintains its lead by striving to advance even further its competitive advantage through efficient use of its IT systems.

New economy companies must master some virtues of the old economy. These companies are learning that scale, operational excellence, and global infrastructure are important. They can constitute hard-to-duplicate competitive advantages that allow them to capture the rents on their innovation. Many have been trained to think that there is no such a thing as sustainable competitive advantage. They have been trained to think about innovation in products and technology, not innovation in business models. They assume that being radical is risky and being incremental is safe. We have to rewire people with new thinking skills.

2. 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 will vary but here are some points their answers should include: • How well has each company, Dell and Walmart, used information systems to reduce transaction costs and agency costs?

• How well has each company used information systems to take advantage of Porter’s Competitive Forces model: o Keeping new market entrants out o Either preventing substitute products and services that may compete with their own, or introducing substitute products and services that pull customers away from their competitors o Holding onto customers by competing on prices alone when there is very little product differentiation o Exercising more control over suppliers • How well has each company’s management used information systems to enhance o Low-cost leadership—Walmart is the king at this; Dell sometimes uses this strategy o Product differentiation— Dell uses this strategy against Apple and HP (the two leading computer sellers) o Focusing on market niche—neither company uses this much o Strengthening customer and supplier intimacy—Walmart wrote the book on this one; Dell uses this strategy extensively 3. What are some of the issues to consider in determining whether the Internet would provide your business with a competitive advantage?

The Internet increases accessibility and distribution of information and knowledge while decreasing storage and transmission costs. Transaction and agency costs are much lower because of the Internet. Key business processes can be built or rebuilt based on Internet and networking technologies. Competitive rivalries are much more intense even though traditional competitive forces are still in play. Any 3-16 ..

company can use the universal standards built into Internet technologies.

Customers have much more information available to them because of the Internet which increases their bargaining power. While the bargaining power of businesses over suppliers increases due to Internet technologies, suppliers benefit from reduced barriers to entry and from the elimination of intermediaries. Table 3.5 (page 101) summarizes the impact of the Internet on competitive forces and industry structure.

Hands-On MIS Projects Management Decision Problems 1. 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.

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.

2. 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?

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•

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?

Improving Decision Making: Using a Database to Clarify Business Strategy Software skills: Database querying and reporting; database design.

Business skills: Reservation systems; customer analysis This exercise encourages students to develop queries and reports to help them make better use of transaction data to understand their business. From analyzing these data, the hotel owners should be able to find ways of generating more revenue. The 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: MIS13ch03solutionfile.mdb.

Improving Decision Making: Using Web Tools to Configure and Price an Automobile Software skills: Internet-based software Business skills: Researching product information and pricing 3-18 ..

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 Web sites. 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 Web sites with suggestions for improvement.

Video Case Questions You will find a video case illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the case.

Collaboration and Teamwork: Identifying Opportunities for Strategic Information Systems With your team of three or four students, select a company described in the Wall Street Journal, Fortune, Forbes, or another business publication. Visit the company’s Web site to find additional information about that company and to see how the firm is using the Web. On the basis of this information, analyze the business. Include a description of the organization’s features, such as important business processes, culture, structure, and environment, as well as its business strategy. Suggest strategic information systems appropriate for that particular business, including those based on Internet technology, if appropriate. If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop a presentation of your findings for the class.

Because students will select different companies, group answers will vary. General comments for facilitating the project preparation are provided below.

The groups can use the value chain to identify the primary and support activities that most directly create value for the company’s customers. The groups can then list and describe the information systems that would support or improve these activities, thus adding value to the chain.

The groups can select one or more of the basic competitive strategies described in the text to deal with the competitive forces, adapting the strategy to their company. The groups

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should list and describe the information systems that will contribute to their company’s ability to effectively execute the specific strategies.

Case Study: Can This Bookstore Be Saved?

1. Use the value chain and competitive forces models to evaluate the impact of the Internet on book publishers and book retail stores such as Barnes & Noble.

Under Porter’s Competitive Forces Model, B&N no longer has to worry about traditional competitors like B. Dalton, Borders, and small independent book stores.

However, it must now contend with many new competitors in the e-book marketplace. Suppliers are basically the same publishers who supply books to all the booksellers. However, pricing models are different for some publishers selling to B&N’s competitors. Substitute products for its traditional hardbound books are prevalent in the marketplace so it’s good that B&N is working so hard toward increasing its market share of e-books.

Primary activities in the value chain are much different for e-books than they are for traditional books. Inbound logistics no longer involve shipping and receiving products at set times. Rather, inbound logistics take place almost exclusively through the Internet and the Web. Sales and marketing and service take place both in stores and on the Web. As customers walk into a brick-and-mortar store with their Nook device, the store’s wi-fi network offers them instant connections to free extras in many apps and games. B&N has also expanded its in-store space for toys and games and added new display space for its Nook devices. Value chain support activities are focused on improved technology by improving products and the production process and by making procurement activities easier and quicker.

2. How are Barnes & Noble and the book publishers changing their business models to deal with the Internet and e-book technology?

Publishers are doing anything they can to support B&N’s efforts to stay afloat, because the survival of physical book retailers is important to effectively market and sell books. Bookstores spur publisher sales with the “browsing effect.” Surveys have shown that only one-third of the people visiting a bookstore and walk out with a book actually arrived with the specific desire to purchase one. According to Madeline McIntosh, Random House president of sales, digital, and operations, a bookstore’s display space is “one of the most valuable places that exists in this country for communicating to the consumer that a book is a big deal.” Brick-and-mortar retail stores are not only essential for selling physical books, but also stimulate sales of ebooks and audio books. The more visibility a book has, the more likely readers will want to purchase it. With the demise of B. Dalton, Crown Books, and Borders, B&N is the only retailer offering an extensive inventory of physical books. Book publishers need a physical presence.

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However, there is tremendous pressure on publishers to cooperate with other e-book sellers because no one really knows who the winners and losers will be at this point.

Amazon created quite a stir when it developed a different pricing model than what the publishers wanted. Now with the U.S. Justice Department’s lawsuit settlement that charged e-book sellers with price fixing, publishers and Apple have agreed to an ‘agency pricing’ model in which publishers set the price and retailers take a commission.

3. Will Barnes & Noble’s new strategy be successful? Explain your answer.

It’s going to be a tough uphill climb for B&N to make its new strategy successful. It’s helpful to partner with Microsoft and include an e-reading app in the new Windows 8 operating system. That will increase its exposure to computer users and make it easier for them to purchase books and products from B&N. However, Apple and Amazon have made tremendous strides in the e-book marketplace making it difficult for B&N to compete.

B&N must also contend with the fact that its market capitalization is only $1 billion compared to Amazon’s market capitalization of $98 billion. Apple’s market capitalization is even higher. Those companies have more leeway to make mistakes and still recover than B&N does.

B&N must also support the overhead from its brick-and-mortar stores that the other two don’t have to. Can e-books continue to drive sales for traditional print books? As the text says, “even though B&N has made a spirited effort to revamp its business and go toe-to-toe with several tech titans, it’s possible that it might be too tall an order for the storied bookseller.”

4. Is there anything else Barnes & Noble and the book publishers should be doing to stimulate more business?

Partnering with Microsoft was a good first step toward widening B&N’s reach toward customers. It needs to expand its richness and perhaps partner with publishers to continually offer more features and services to readers that other competitors don’t or can’t. It could possibly partner with Google to provide special features on search services and Google’s Chrome operating system that the other e-book sellers can’t or won’t. Apple has made a similar move in its integration across all product lines.

It could also focus on market niches like children’s books that offer special interactive features in books targeted towards that market. It could build a special, stripped-down version of the Nook that is specifically built for children with built-in controls parents want most.

It could also strike special pricing models with publishers that will provide discounts for traditional books if a certain number of e-books are purchased. That will help drive sales for both types of books.

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5. What competitive forces have challenged the television industry? What problems have these forces created?

The competitive forces that challenge the television industry include: a. Traditional competitors: Television networks and content producers are continuously devising new, more efficient ways to increase the number of viewers and increase the amount of revenue gained from advertisers. The cable industry that relies on a captured audience of viewers who pay a monthly subscription for television content is most threatened by these changes. b. New market entrants: Web sites like Hulu.com, YouTube.com, Facebook, CBS’s TV.com, and Joost are all new avenues for people wanting to access television content on their own time schedule, with a reduced amount of advertising. Advertising dollars must now be redistributed from traditional content providers to these new market entrants. c. Substitute products and services: Television viewers no longer have to rely on just a few ways to access television shows. Fiber-optic telephone lines to the home can substitute for cable TV lines and satellite TV service. If people can download their favorite television show to their iPhone and view it according to their time schedule and not someone else’s, why shouldn’t they? These changes pose a threat to the steady advertising income stream traditional television companies have enjoyed.

6. Describe the impact of disruptive technology on the companies discussed in this case.

Downloading video content from movies and television shows is faster and easier than ever thanks to high-speed Internet access, powerful PCs with high-resolution display screens, iPhones and other mobile handheld computing devices, and Webenabled televisions just coming into the market. Free and often illegal downloads of some TV shows are abundant. The Internet is also providing new ways for television studios to distribute and sell their content. The television industry is embracing the Internet as another delivery system for its content. Several television broadcast networks set up Hulu.com to stream television shows and movies to viewers. The basic site is free to viewers and supported by advertising commercials. Hulu.com began a subscription service in 2010 that requires users to pay a monthly fee to enjoy advanced services. The networks and producers gain revenues from online advertising aimed at people who actively seek out the Web site. The technology threatens the cable companies if too many viewers cancel their subscriptions.

7. How have the cable programming and delivery companies responded to the Internet?

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The cable companies are being forced to go where the customers are and not wait for the customers to come to them. By making more television shows available online, but only for cable subscribers, the cable networks hope to preserve and possibly expand the cable TV subscription model in an increasingly digital world. The system used in the Comcast–Time Warner trial is interoperable with cable service providers’ systems to authenticate subscribers. The same technology might also allow cable firms to provide demographic data for more targeted ads and perhaps more sophisticated advertising down the road. Cable programmers also stand to earn more advertising revenue because viewers can’t skip ads on TV programs streamed from the Web as they do with traditional TV. Cable companies must be careful not to cannibalize TV subscriptions or viewership ratings that generate advertising revenue.

8. What management, organization, and technology issues must be addressed to solve the cable industry’s problems?

Management: Customers accustomed to YouTube and Hulu may rebel if too many ads are shown online. If people can’t access content delivered by the cable industry from any device they want, they will find alternate companies that can deliver what they want, when they want it, and how they want it. Customers will continue to drive the competitive forces for and against the cable industry.

Organization: Cable companies will start feeling the impact of customers canceling subscriptions to view online video and TV by 2012. Hulu and other Web TV and video sites will have much deeper content, and the technology to deliver that content to home viewers will be more advanced by then. Cable companies, television content producers, and advertisers must continue to devise new strategies for dealing with this shifting practice.

Technology: Cable companies and television content producers must continue to improve the technologies they use to deliver content in both traditional avenues and new Internet-related streams. If the cable companies fail to improve the traditional avenues, subscribers will increasingly find new methods for accessing content. If cable companies fail to improve and increase the number of ways subscribers can access content using Internet-related technologies like computers and cellphones, customers will go somewhere else.

9. Have the cable companies found a successful new business model to compete with the Internet? Why or why not?

Student answers will vary depending on their personal experiences and exposure to new avenues of accessing television content. Students may want to include how well or how poorly cable companies are using information system strategies for dealing with competitive forces. For instance, are they choosing to be low-cost providers, differentiating their products, focusing on market niches, or strengthening their customer and supplier intimacies?

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10. If more television programs were available online, would you cancel your cable subscription? Why or why not?

Highly individualized answers will abound from this question. Many students may relate their opinion to the issue of resistance to change. Changes in personal, individual routines may be too much for some people thereby influencing whether they make the move from traditional viewing habits or stick with what's most comfortable for them. Those people who are comfortable with new technologies will probably make the switch to non-conventional television viewing sooner than others.

Opinions may be framed in the context of the effects of disruptive technologies on the advertising and marketing industries, the television industry, the cable industry, and the Internet industry. Students should also focus on which firms may benefit the most from this trend—first movers, second movers, or innovative followers.

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Chapter 4 Ethical and Social Issues in Information Systems Student Learning Objectives 1.

2.

3.

4.

What ethical, social, and political issues are raised by information systems?

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

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

How have information systems affected everyday life?

Chapter Outline 4.1

4.2

4.3

Understanding Ethical and Social Issues Related to Systems A Model for Thinking about Ethical, Social, and Political Issues Five Moral Dimensions of the Information Age Key Technology Trends That Raise Ethical Issues Ethics in an Information Society Basic Concepts: Responsibility, Accountability, and Liability Ethical Analysis Candidate Ethical Principles Professional Codes of Conduct Some Real-World Ethical Dilemmas The Moral Dimensions of Information Systems Information Rights: Privacy and Freedom in the Internet Age Property Rights: Intellectual Property Accountability, Liability, and Control System Quality: Data Quality and System Errors Quality of Life: Equity, Access, and Boundaries

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

Accountability, 130 Carpal tunnel syndrome (CTS), 152

Liability, 130 Nonobvious relationship awareness (NORA), 128 Opt-in, 138 Opt-out, 138 Patent, 142 Privacy, 132 Profiling, 127

Computer abuse, 149 Computer crime, 148 Computer vision syndrome (CVS), 152 Cookies, 136 Copyright, 142 4-1 ..

Descartes’ rule of change, 131 Digital divide, 150 Digital Millennium Copyright Act, (DMCA), 144 Due process, 130 Ethical “no free lunch” rule, 131 Ethics, 125 Fair Information Practices (FIP), 133 Golden Rule, 131 Immanuel Kant’s Categorical Imperative, 131 Information rights, 126 Informed consent, 135 Intellectual property, 139

Repetitive stress injury (RSI), 150 Responsibility, 129 Risk Aversion Principle, 131 Safe harbor, 135 Spam, 149 Spyware, 137 Technostress, 153 Trade secret, 139 Utilitarian Principle, 131 Web beacons, 137

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, “Behavioral Targeting: Your Privacy Is the Target” shows that technology can be a double-edged 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. It has also created struggles between businesses and users regarding the vast amounts of data that are collected from Web surfing. The misuse and abuse of data also creates moral and ethical dilemmas that students are likely to face in the workplace. You might ask students two questions: Which is more important to you from an individual standpoint—the monetary interests of online advertisers and search engines or protecting personal data as much as possible? Or, which is more important to you from a business standpoint if you were paying for Web advertising placements—the monetary interests of online advertisers and search engines or protecting personal data as much as possible?

In November, 2009, Google released a dashboard application that allows users to access the search engine’s database and discover some of the data that have been accumulated over the years. You may want to encourage students to use this service so they can get a first-hand account of some of their online activities. If you have a Google account, log into it, and then look in the upper right hand side for “My Account.” Click on that and the account page comes up. Look for the dashboard link.

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Section 4.1, “Understanding Ethical and Social Issues Related to 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 such as the ClickPoint data compromise that happened several years ago. 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 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 as follows: (1) information rights and obligations, (2) property rights and obligations, (3) system quality, (4) quality of life, (5) accountability and control.

Section 4.2, “Ethics in an Information Society” 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 five-step process outlined in the subsection “Ethical Analysis” leads the way to abiding by the ethical principles. You may want to review how codes of conduct apply to each information system user and manager.

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

Section 4.3, “The Moral Dimensions of Information Systems” 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.

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 4-3 ..

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. 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 opinion.

Interactive Session: Technology: Life on the Grid: iPhone Becomes iTrack Case Study Questions: 1. Why do mobile phone manufacturers (Apple, Google, and BlackBerry) want to track where their customers go?

There is a great deal of money to be made knowing where people are at any given time. Mobile technologies based on the smartphone make it possible to locate people throughout the day, to report this information to corporate data bases, retain and analyze the information, and then sell it to advertisers and others.

Location data gathered from cell phones has extraordinary commercial value because advertising companies can send you advertisements, coupons, and flash bargains, based on where you are located. The market for location-based services is expected to reach $3.8 billion by the end of 2012, and will rise to $10.3 billion in 2015.

2. Do you think mobile phone customers should be able to turn tracking off?

Should customers be informed when they are being tracked? Why or why not?

Student answers will vary based on personal preference and experiences. The drawback of turning tracking capabilities off is that people may not get the 4-4 ..

opportunity to receive coupon and other money-saving offers. Their friends will not be able to find out where they are and join them for dinner or at a club. A lot of instantaneous opportunities that tracking capabilities provide will be lost to them.

Most students will probably agree that customers should be informed when they are being tracked for privacy reason. It’s possible some students and users won’t care whether they are being tracked or not.

3. Do you think mobile phone tracking is a violation of a person’s privacy? Why or why not?

Privacy concerns are growing with the proliferation of location-based services like Foursquare that allows users to check in to a restaurant or other location and the app automatically lets friends on Facebook and other programs learn where the person is.

Many observers fear these services will operate automatically, without user permission or awareness.

Most cell phone users are unaware that their locations and travels are readily available to law enforcement agencies through a simple e-mail request, and without judicial review, and at the expense of the carriers. That violates basic Constitutional rights and should be of concern to everyone.

Interactive Session: Organizations: Wasting Time: The New Digital Divide Case Study Questions: 1. How does information technology affect socioeconomic disparities? Explain your answer.

The largest increase in the amount of time that young people spend with entertainment media has occurred among minority youth. The increase has been driven by the proliferation and improved functionality of mobile phones and smartphones. Young people now spend more time consuming media on their phones than they do talking on them. Emerging technology usage patterns among different social groups suggest that there is a new divide: Technology users from poorer and less educated backgrounds are using technology to reinforce rather than eliminate socio-economic disparities.

2. Why is access to technology insufficient to eliminate the digital divide?

Simply having a mobile device does not improve one’s socio-economic disparity.

Improvement comes more from how a device is used and what content is accessed.

More important than access to technology is parental guidance and oversight of the technology’s usage. The vast majority of young people have no rules about how much

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time they can spend using electronic devices. There are significant differences between the school grades of heavy and light media users.

3. How serious a problem is the “new” digital divide? Explain your answer.

Some studies have suggested that technologies are fundamentally changing the way we think. Other studies have suggested that digital technology has damaged our ability to think clearly and focus. Technologies feature the ability to multitask, and involve interruptions and constant updates with up-to-the-minute information. These factors, along with the increased emphasis on visual processing abilities rather than critical thinking information retention are affecting our cognitive patterns. Multitaskers are more easily distracted as well as less productive than normal task performs.

4. Why is the digital divide problem an ethical dilemma?

If the academic achievements of heavy media users are severely affected, which studies suggest is the case, then those users will continue to suffer from the socioeconomic divide. Many companies report that their efforts to go social have offered employees new ways to waste time at work rather than to improve efficiency. That doesn’t bode well for upward mobility in the work place.

Review Questions 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.

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

Table 4-2 summarizes the four key technological trends responsible for heightening ethical concerns. These trends include: • Computing power doubles every 18 months • Data storage costs rapidly declining • Data analysis advances • Networking advances and the Internet 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.

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.

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 include: • 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.

Identify and describe six ethical principles.

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

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

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

• Utilitarian Principle—Take the action that achieves the higher or greater value 4-7 ..

• •

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.

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.

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 Web site visitors can be closely tracked using cookies, Web beacons, and other Web monitoring tools. Not all Web sites have strong privacy protection policies, and they do not always allow for informed consent regarding the use of personal information.

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, 4-8 ..

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.

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

Intellectual property is subject to a variety of protections under three different legal traditions: • Trade secrets • Copyright • Patent law Traditional copyright laws are insufficient to protect against software piracy because digital material can be copied so easily. Internet technology also makes intellectual property even more difficult to protect because digital material can be copied easily and transmitted to many different locations simultaneously over the Net. Web pages can be constructed easily using pieces of content from other Web sites without permission.

4. How have information systems affected 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 4-9 ..

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.

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.

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

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

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

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• •

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

Computers can create health problems, such as repetitive stress injury, computer vision syndrome, and technostress.

Define and describe technostress and RSI and explain their relationship to information technology.

Technostress is defined as stress induced by computer use; symptoms include aggravation, hostility toward humans, impatience, and fatigue.

Repetitive stress injury (RSI) is avoidable. Three management actions that could reduce RSI injuries include: • 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.

Discussion Questions 1. Should producers of software-based services, such as ATMs, be held liable for economic injuries suffered when their systems fail?

If a system fails, it is foreseeable that the producers of the software-based services could potentially be held liable for economic injuries. This could even extend to systems that have been managed poorly and implemented unsuccessfully. They, too, have the potential to impact the company’s bottom line and subject producers of software-based services to liability. While the general rule is that they cannot be held liable for matters beyond their knowledge or control, this defense may not be available in some software guideline compliance programs. Thus, producers of software-based services need to be aware of and involved in the software compliance program. In addition, software vendors may face liability if they fail to advise licensees of latent problems in their software.

Software compliance is also an issue to be considered in due diligence conducted by any company involved, directly or indirectly, in investing or making loans to businesses with computer systems. Financial advisors, in particular, may be held liable even if they are unaware that a company is not in compliance when making financial recommendations. In connection with mergers or acquisitions of companies using date-sensitive software (as almost all are), software compliance is also a factor in due diligence. Basically, software compliance raises technical, contractual, and managerial issues. For a complete solution, the strategies for responding to them must be handled on a coordinated basis.

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2. Should companies be responsible for unemployment caused by their information systems? Why or why not?

Answers for this question will vary, as will student discussions of the ethics of various issues in information systems, including social responsibility, environmental protection, privacy, individual rights, occupational safety and health, product liability, equality of opportunity, and the morality of capitalism.

This question provides an excellent opportunity for students to discuss American economist, Milton Friedman’s (Nobel Prize for economics, 1976, currently, senior research fellow at the Hoover Institution at Stanford University) famous statement that a business is in business to: “maximize shareholder wealth.”

Ask your students to discuss the following questions. What is the corporation? Do corporations, and more particularly the managers who represent them, have any responsibilities beyond seeking to maximize shareholder wealth? Is the term “business ethics” an oxymoron? What is the source of moral truth? These and other related questions provide the “grist” for the answer to this question.

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

The pros of this issue include: • The FTC is trying to extend the principles of fair information practices to behavioral targeting through voluntary industry participation.

• The Network Advertising Initiative has published its own self-regulating principles.

• Individual firms have recently adopted their own policies to address concerns about tracking people.

• Many times the data serve to help users find products and services they are interested in more easily and quickly.

The cons of this issue include: • Most Internet businesses do very little to protect individual user privacy.

• Users do very little to protect their own privacy and data. The majority of users claim to be concerned about online privacy but less than half have read the privacy statements on Web sites.

• People feel they have no control over the information collected about them, and they don’t know who to complain to.

• Web sites collect vast amounts of data and information but don’t let users have access; the site policies are unclear; they share data with “affiliates” but never identify who the affiliates are and how many there are.

• Web beacons and bugs are ubiquitous and users are not informed they are on the pages they visit.

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Hands-on MIS Projects Management Decision Problems 1. USAData’s Web site: This Web site sells personal data on millions of people without much prior vetting. That is, just about anyone can purchase the data in whatever organized way they want. Do data brokers such as USAData 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?

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.

2. 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.

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User Name

Total minutes

Legitimate minutes

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

248 127 155 40 260 38

96 44

35 15

Suspect minutes 152 83 155 40 225 23

Although it appears that most of the employees are using the Internet for non-business reasons, managers must be cautious about making accusations based on raw data. For instance, while Talbot may clearly be visiting personal, non-business Web sites 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 Web site.

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.

Achieving Operational Excellence: Creating a Simple Blog Software skills: Blog creation Business skills: Blog and Web page design 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

•

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 4-14 ..

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.

Improving Decision Making: Using Internet Newsgroups for Online Market Research Software skills: Web browser software and Internet newsgroups Business skills: Using Internet newsgroups to identify potential customers Students are asked to explore the use of newsgroups to help sell products. By completing this exercise, students should understand that newsgroups are just another outlet that businesses can use to reach potential customers.

Answers will vary considerably depending on how deeply students go into the Google site. They should notice however, that the site contains a list of “Sponsored Links,” and this could be an alternative to marketing their boots. Of course, there would be a fee, but they will pay for advertising eventually, and they would be attracting people directly interested in hiking boots.

Video Case Questions You will find a video case illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

Collaboration and Teamwork: Developing a Corporate Ethics Code With three or four of your classmates, develop a corporate ethics code on privacy that addresses both employee privacy and the privacy of customers and users of the corporate Web site. Be sure to consider email privacy and employer monitoring of worksites, as well as corporate use of information about employees concerning their off-the-job behavior (e.g., lifestyle, marital arrangements, and so forth). If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop your solution and presentation for the class.

There are a vast number of examples students can access on existing corporate Web sites to use as models. Elements they should include are: • •

Email privacy and employer monitoring of Web surfing Corporate use of information about employees’ off-the-job behavior 4-15 ..

Other items you may want to require for inclusion in the ethics code include: • • •

Protecting and using company intellectual property—trade secrets, copyrights, and patents Protecting and using corporate data—employees, customers, suppliers, and business partners Ensuring data quality and system quality

Answers will vary by individual groups, but should reflect the concepts presented in this chapter. The purpose of the exercise is to cause students to struggle with difficult, but vital, issues of privacy. They should view these issues not only as personal (privacy for themselves and their families) but also for our society (whichever country you are in) and for the world in general.

Students should both understand that rights do not end when they walk through the door of their workplace, and they should also gain an appreciation of the complexities of these issues. In writing the code, students must remember to include the accountability and control dimension.

Case Study: Facebook: It’s about the Money 1. 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.

2. 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 4-16 ..

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.

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

Management: 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.

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

Opinions will vary on this question. Certainly, Facebook’s ability to leverage as much as possible from advertisers may be diminished if it cannot collect every nugget of information about its users to sell to advertisers. However, it could make up some of 4-17 ..

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.

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.

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Chapter 5 IT Infrastructure and Emerging Technologies Learning Objectives 1.

2.

3.

4.

5.

What is IT infrastructure and what are its components?

What are the stages and technology drivers of IT infrastructure evolution?

What are the current trends in computer hardware platforms?

What are the current trends in software platforms?

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

Chapter Outline 5.1

5.2

5.3

5.4

5.5

IT Infrastructure Defining IT Infrastructure Evolution of IT Infrastructure Technology Drivers of Infrastructure Evolution Infrastructure Components Computer Hardware Platforms Operating System Platforms Enterprise Software Applications Data Management and Storage Networking/Telecommunications Platforms Internet Platforms Consulting and System Integration Services Contemporary Hardware Platform Trends The Emerging Mobile Digital Platform Grid Computing Consumerization of IT and BYOD Virtualization Cloud Computing Green Computing High-Performance and Power-Saving Processors Autonomic Computing Contemporary Software Platform Trends Linux and Open-Source Software Software for the Web: Java, HTML, and HTML5 Web Services and Service Oriented Architecture Software Outsourcing and Cloud Services Management Issues Dealing with Platform and Infrastructure Change Management and Governance Making Wise Infrastructure Investments 5-1 ..

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

Android, 177 Application server, 170 Apps, 195 Autonomic computing,188 Blade servers, 177 Chrome OS, 177 Client/server computing, 169 Clients, 169 Cloud computing, 170 Consumerization of IT, 180 Extensible markup language (XML), 191 Green computing, 186 Grid computing, 181 HTML5, 190 Hybrid cloud, 186 Hypertext markup language (HTML), 190 iOS, 178 Java, 189 Legacy systems, 179 Linux, 177 Mainframe, 167 Mashup, 195 Minicomputers, 167 Moore’s Law, 171 Multicore processor, 186 Multitiered (N-tier) client/server architecture, 169 Multitouch, 178 Nanotechnology, 172 On-demand computing, 185

Open-source software, 189 Operating system, 177 Outsourcing, 194 Private cloud, 185 Public cloud, 185 SaaS (Software as a Service), 194 Scalability, 196 Server, 169 Service level agreement (SLA), 194 Service-oriented architecture (SOA), 191 Software package, 193 Storage area networks (SANs), 178 Tablet computers, 180 Technology standards, 175

Total cost of ownership (TCO), 197 UNIX, 177 Utility computing, 185 Virtualization, 181 Web browser, 190 Web hosting service, 179 Web server, 169 Web services, 191 Windows, 170 Windows 8, 178 Wintel PC, 167

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

The opening case about “The Army Recasts Its IT Infrastructure,” demonstrates that sooner or later every information system needs a major overhaul to keep up with the changes and advances in hardware and software. Experts believe that many of the federal government data centers are underutilized and over budget. The Army was ordered to close 185 of its data centers as were several of the other military branches. The Army has also been instructed to eliminate 50 percent of existing software applications. Those numbers point to gross duplication of both hardware and software capabilities. But first, the Army had to count its data centers and computing equipment. They also had to identify applications and resources that could be shared among all branches of the military There are very few businesses or organizations that use 100 percent of their server computing capacity 100 percent of the time. Many of the Army’s servers only handled one application. Virtualization allows more than one application to run on a server at the same time. Using cloud computing and virtualization, the Army was able to reduce the number of hardware pieces and software applications they once used. It has been able to reduce costs without compromising operational effectiveness.

Section 5.1, “IT Infrastructure” Introduces students to essential computer hardware terminology and concepts. The trek through the five evolutionary stages in computing 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.

5-3 ..

Section 5.2, “Infrastructure Components” 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 “Contemporary Hardware Platform Trends” 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: People: Should You Use Your iPhone for Work?

Case Study Questions 1. What are the advantages and disadvantages of allowing employees to use their personal smartphones for work?

Advantages: Employees using their own smartphones would allow companies to enjoy all of the same benefits of a mobile workforce without spending company funds on the devices. Mobility experts can help a company leverage mobility more effectively.

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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.

2. 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 still able to remain productive.

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

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

Technology: The 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.

3. 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 are able to use the same programs on the road that they use in the office. Placing virtualization software on employees’

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personal tablets is less expensive than outfitting them with company-purchased laptops.

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

Interactive Session: Organizations: Green Data Centers: Good for Business?

Case Study Questions 1. What business and social problems does data center power consumption cause?

Excessive power consumption uses vast amount of electricity that must be generated through hydroelectric plants or coal-fired power plants. While hydroelectric generation plants are less stressful on the environment than coal-fired, nevertheless, they do pull resources from more useful purposes. Coal-fired power plants generate huge amounts of carbon dioxide into the atmosphere, which some scientists and politicians claim is a major cause of global warming. Social implications of increased power consumption point to global warming.

Businesses must pay to power their servers and then pay again to keep them cool and operational. Cooling a server requires roughly the same number of kilowatts of energy as running one.

2. What solutions are available for these problems? Are they management, organizational, or technology solutions? Explain your answer.

Some of the solutions to cut power consumption discussed in the case study are a good beginning.

Management: Employee telecommuting; users understanding and abiding by policies in which they turn PCs off when not in use.

Organizational: Building data centers that take advantage of hydroelectric power generation rather than coal-fired power plants; renewable energy projects; alternative energy; better management of computing resources.

Technology: Thin client computers, software that automatically turns computers off; more efficient chips. Perhaps the most environment-friendly solutions are those that control the hardware and software, thereby controlling the problem at its source.

Virtualization holds great promise as a way to reduce power requirements by reducing the number of servers required to run applications.

3. What are the business benefits and costs of these solutions?

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Even though it may cost a business up-front money to install hardware and software that reduces power requirements, it will save a business a lot of money in the long run by reducing the amount it pays for electricity to run the equipment and cool it at the same time. Businesses that reduce their power needs help the environment and can promote themselves as environment-friendly.

4. Should all firms move toward green computing? Why or why not?

All firms should make some effort to reduce their power requirements and promote green computing. From a business standpoint it makes sense to reduce costs, both short term and long term.

Section 5.4, “Contemporary Software Platform 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 Web sites they use the most. If any students use MySpace, 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.

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

Section 5.5 “Management Issues.” 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. 5-7 ..

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 1. What is IT infrastructure and what are its components?

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

•

•

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.

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 connect employees, customers, and suppliers into a coherent digital environment.

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

• Data management: Store, manage and analyze data.

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

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

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

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

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

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

2. What are the stages and technology drivers of IT infrastructure evolution?

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

Five stages of IT infrastructure evolution include: • 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 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.

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.

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.

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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.

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

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

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

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

3. What are the current trends in computer hardware platforms?

Describe the evolving mobile platform, grid 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.

Grid computing: Connects geographically remote computers into a single network to create a “virtual supercomputer” by combining the computational power of all computers on the grid. Because most computers use their central processing units only about 25 percent of the time, they can be used for other tasks.

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 5-10 ..

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.

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

Autonomic computing Benefits of autonomic computing include systems that automatically do the following: • Configure themselves • Optimize and tune themselves • Heal themselves when broken • Protect themselves from outside intruders and self-destruction • Reduce maintenance costs • Reduce downtime from system crashes Virtualization Benefits of server virtualization include: • Run more than one operating system at the same time on a single machine.

• Increase server utilization rates to 70 percent or higher.

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

• Mask server resources from server users.

• Reduce power expenditures.

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

• Facilitates centralization of hardware administration.

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

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

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

• Performance and productivity benefits beyond the capabilities of today’s single-core processors.

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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.

4. What are the current trends in software platforms?

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 Web sites.

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.

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.

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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.

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 Web sites with external Web sites creating an apparently seamless experience for users. The benefit derives from not having to recreate applications for each business partner or specific functions within a single company.

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

XML allows computers to manipulate and interpret data automatically and perform operations on data without human intervention.

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.

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Outsourcing custom application development: An organization contracts its custom software development or maintenance of existing legacy programs to outside firms, frequently firms that operate offshore in low-wage areas of the world An outsourcer often has the technical and management skills to do the job better, faster, and more efficiently. Even though it’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.

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 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 re-invent the wheel. Apps have already been developed by someone else and a business can use them for its own purposes. Mashups let a business combine previously developed Web applications into new ones with new purposes. They don’t have to re-invent the previous applications from scratch—merely use them in the new processes.

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 5-14 ..

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.

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 is the organization’s information technology (IT) strategy, infrastructure, and costs? Has the organization performed an IT assessment? What technology services do competitors offer to their customers, suppliers, and employees? How much does the organization’s competitors spend on IT infrastructure?

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

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

Discussion Questions 1. 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?

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As computer hardware and software significantly impact an organization’s performance, the selection of IT assets is critical to the organization’s operations and ultimate success. Issues, include capacity planning and scalability, making decisions regarding the required computer processing and storage capabilities, computer and computer processing arrangements, kinds of software and software tools needed to run the business, determining the criteria necessary to select the right software, the acquisition and management of the organizations hardware and software assets, and what new technologies might be available and beneficial to the firm.

2. 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?

The answer to the first question is very dependent upon the organization and its processing, storage, and business needs. When evaluating software service providers, the organization should examine such factors as availability and reliability, technology, fees and how the fees are assessed, and available applications. Managers should compare the costs and capabilities of using software service providers to the organization’s costs and capabilities of operating and owning its own hardware and software assets. The organization should examine how using the service will impact organizational culture and how using an outside vendor addresses organizational and business needs. The technology factors include examining how well usage of the service fits with the firms IT infrastructure, as well as examining the appropriateness of using a software service provider to address the current problem.

3. What are the advantages and disadvantages of cloud computing?

Cloud computing is the idea of making computing resources available based on what a user really needs instead of what they might need.

The advantages include: • Not dependent on physical location of either resources or users.

• Users access computing resources on their own not necessarily dependent on IT staff.

• Based on standard network and Internet devices.

• Resources serve multiple users with computing virtually assigned according to need.

• Resources are increased or decreased according to demand.

• Charges are based on the amount of resources actually used.

• Large investments in IT infrastructure are not necessarily needed or investments are significantly reduced.

• Firms can shift additional processing requirements to cloud computing during peak business periods.

• It allows a more flexible IT infrastructure.

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

• Security risks and chances of data compromises are increased.

• Risk diminishing system reliability.

• Increase dependency on a third party making everything work.

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

Hands-On MIS Projects Management Decision Problems 1. 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.

2. 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.

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Improving Decision Making: Using a Spreadsheet to Evaluate Hardware and Software Options Software skills: Spreadsheet formulas Business skills: Technology pricing 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’ Web sites 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.

An example solution file can be found in the Microsoft Excel file named: MIS13ch05solutionfile.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 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’ Web sites 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 Web site in their report as well.

An example template can be found in the Microsoft Excel file named: MIS13ch05 electronic business project template.xls.

Video Case Questions You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

Collaboration and Teamwork: Identifying Management Decisions and Systems Form a group with three or four of your classmates. Choose server or mobile operating systems to evaluate. You might research and compare the capabilities and 5-18 ..

costs of Linux versus the most recent version of the Windows operating system or UNIX. Alternatively, you could compare the capabilities of the Android mobile operating system with the most recent version of the iPhone operating system (IPhone OS). If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop a presentation of your findings for the class.

Answers for this project will vary as students will select different sources from which to gather the information. Information is readily available on the Web to help students complete this project.

Elements students should consider in their evaluation include: • • • • • • •

Is the software restricted to one type of hardware or computing device? If so, what are the ramifications of that?

What are the costs for the system? Even if the software is free, are there associated costs to consider?

How well does the software connect with other pieces of software or user apps?

How well does the system allow users to migrate or sync data and apps between devices?

How reliable and scalable is the system?

How much drain and strain does the system place on hardware resources?

Where are the programs and data stored—on in-house servers, cloud computing services, individual computing devices? What is the impact of that on users and IT staff?

Case Study: Should Businesses Move to the Cloud?

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-scene software updates.

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

2. What are the disadvantages of cloud computing?

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

• Security risks and chances of data compromises are increased.

• Risk diminishing system reliability.

• 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. How do the concepts of capacity planning, scalability, and TCO apply to this case? Apply these concepts both to Amazon and to subscribers of its services.

Businesses should assess the costs and benefits of the service, weighing all people, organization, and technology issues. Does the software-as-a-service applications integrate well with the existing systems? Does it deliver a level of service and performance that’s acceptable for the business? Does the SaaS fit with the business’s overall competitive strategy and allow the company to focus on core business issues instead of technology challenges?

Capacity planning predicts when a computer hardware system becomes saturated and how that affects performance measures such as minimum response time for processing business transactions. Business managers need to determine acceptable levels of computer response time and availability for the firm’s mission-critical systems to maintain the level of business performance they expect.

Scalability requires businesses to determine how well a computer, product, or system can expand to serve a large number of users without breaking down.

Many large firms are saddled with redundant, incompatible hardware and software because of poor planning. These firms could reduce their TCO through greater centralization and standardization of their hardware and software resources and also by using cloud computing.

4. 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.

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As the case study points out, companies like Zynga are good candidates for cloud computing. The company needs to scale up when it releases a new game but it can't determine exactly how much capacity it needs to make available. Rather than purchase hardware that it may not need, or not purchase enough, it relies on cloud providers to give it just the right amount of capacity.

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Chapter 6 Foundations of Business Intelligence: Database and Information Management Learning Objectives 1. What are the problems of managing data resources in a traditional file environment and how are they solved by a database management system?

2. What are the major capabilities of database management systems (DBMS) and why is a relational DBMS so powerful?

3. What are some important principles of database design?

4. What are the principal tools and technologies for accessing information from databases to improve business performance and decision making?

5. Why are information policy, data administration, and data quality assurance essential for managing the firm’s data resources?

Chapter Outline 6.1

6.2

6.3

6.4

Organizing Data in a Traditional File Environment File Organization Terms and Concepts Problems with the Traditional File Environment The Database Approach to Data Management Database Management Systems Capabilities of Database Management Systems Designing Databases Using Databases to Improve Business Performance and Decision Making The Challenge of Big Data Business Intelligence Infrastructure Analytical Tools: Relationships, Patterns, Trends Managing Data Resources Establishing an Information Policy Ensuring Data Quality

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, 226 Attribute, 211 Big data, 224 Data administration, 235 Data cleansing, 237

Field, 211 File, 211 Foreign key, 217 Hadoop, 225 In-memory computing, 226 5-1 ..

Data definition, 219 Data dictionary, 219 Data governance, 236 Data inconsistency, 213 Data manipulation language, 220 Data mart, 225 Data mining, 228 Data quality audit, 237 Data redundancy, 213 Data warehouse, 225 Database, 214 Database administration, 236 Database management system (DBMS), 214 Database server, 233 Entity, 211 Entity-relationship diagram, 223

Information policy, 235 Key field, 217 Non-relational database management systems, 217 Normalization, 222 Online analytical processing (OLAP), 227 Primary key, 217 Program-data dependence, 214 Record, 211 Referential integrity, 223 Relational DBMS, 216 Sentiment analysis, 230 Structured Query Language (SQL), 220 Text mining, 230 Tuple, 217 Web mining, 230

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, “Banco de Credito del Peru Banks on Better Data Management,” describes the difficulties the organization experienced trying to provide its managers and employees with accurate, current, and complete information. Most of the trouble was a result of having isolated systems that were time-consuming and expensive to update and use. Because the data were not consolidated into one system, many times the same piece of data were entered multiple times without any consistency. That led to conflicts and inaccurate reporting.

Only by consolidating and integrating the data were the problems resolved. Most of the problems this organization faced are common throughout the business world. This chapter explores how to correct and prevent these kinds of situations and how digital firms can use database technologies to increase their competitive advantages.

Section 6.1, “Organizing Data in a Traditional File Environment,” introduces basic key terms like field, record, file, database, entity and attribute. Try using a simple spreadsheet print-out to demonstrate these terms. The section points out the drawbacks and difficulties organizations experience with traditional methods of file management.

They are: systems grow independently without a company-wide plan; data redundancy 5-2 ..

(duplicate data in multiple data files) and data inconsistency (the same attribute may have different values); program-data dependence, lack of flexibility in delivering information when it’s needed; poor security, and the lack of being able to share data and have it easily available to users.

Section 6.2, “The Database Approach to Data Management” 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, “Using 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, and 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.

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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: Technology: Big Data, Big Rewards Case Study Questions: 1. Describe the kinds of “big data” collected by the organizations described in this case.

British Library: It collects data from typical library resources like books, periodicals, and newspapers. In addition, it must store and collect data from Web sites that no longer exist but must be preserved for historical purposes. Data from over 6 billion searches must also be stored.

Law enforcement agencies: Collect data on criminal complaints, national crime records, and public records.

Vestas Wind Energy: Collects data from 43,000 turbines in 66 countries; collects location-based data to help determine the best location for turbines; currently stores 2.8 petabytes of data and includes approximately 178 parameters, such as barometric pressure, humidity, wind direction, temperature, wind velocity, and other company historical data; plans to add global deforestation metrics, satellite images, geospatial data, and data on phases of the moon and tides.

Hertz: Gathers data from Web surveys, emails, text messages, Web site traffic patterns, and data generated at all of Hertz’s 8300 locations in 146 countries.

2. List and describe the business intelligence technologies described in this case.

The British Library and Vestas use Hadoop so it can process large amounts of data quickly and efficiently. Hertz uses sentiment analysis to determine customer satisfaction. Law enforcement agencies use Web mining techniques to help determine potential criminal acts. They also use analytics to predict future crime patterns.

New text-mining software described in the case can shorten data analysis to hours or minutes and produce better results. Businesses can react faster to solve problems, satisfy customers, and change work processes. Managers can detect emerging issues 5-4 ..

and pinpoint troubled areas of the business at many different managerial levels.

Managers can discover patterns and relationships in the data and summarize the information more quickly and more easily thereby saving time and money.

3. Why did the companies described in this case need to maintain and analyze big data? What business benefits did they obtain?

The British Library is able to maintain historical records of events and provide users with more information about its past. It can now process information requests more quickly and easily. The technology it uses provides an insight engine that helps extract, annotate, ad visually analyze vast amounts of unstructured Web data, delivering the results via a Web browser.

Criminals and criminal organizations are increasingly using the Internet to coordinate and perpetrate their crimes. New tools allow agencies to analyze data from a wide array of sources and apply analytics to predict future crime patterns.

Vestas is able to collect more data that can reduce the resolution of its grid patterns from 17 x 17 miles to 32 x 32 feet to establish exact wind flow patterns at particular locations. That further increases the accuracy of its turbine placement models.

Hertz stores all of its data centrally instead of within each branch, reducing time spent processing data and improving company response time to customer feedback and changes in sentiment.

4. Identify three decisions that were improved by using “big data.”

Vestas used its big data to help find the best places to install its wind turbines. It is able to manage and analyze location and weather data with models that are much more powerful and precise. The new technology enables the company to forecast optimal turbine placement in 15 minutes instead of three weeks, saving a month of development time for a turbine site and enabling customers to achieve a return on investment much more quickly.

Hertz used it data analysis generated from different sources to determine the cause of delays at its Philadelphia locations and adjusted staffing levels during peak times and ensuring a manager was present to resolve any issues.

Law enforcement agencies use their data analysis to predict future crime patterns and become more proactive in its efforts to fight crime and stop it before it occurs.

5. What kinds of organizations are most likely to need “big data” management and analytical tools? Why? Organizations that have an active presence on the Web or on social media sites need to use big data management and analytical tools to process the numerous unstructured 5-5 ..

data that can help them make better, more timely decisions. Businesses that generate big data from manufacturing, retailing, and customer service need the tools that the technology can provide.

Interactive Session: Organizations: Controversy Whirls Around the Consumer Product Safety Database Case Study Questions 1. What is the value of the CPSC database to consumers, businesses, and the U.S. government?

Consumers: The database provides the public with access to the full repository of product safety complaints the agency has received. Users can submit complaints online directly into the database. Visitors to the database can search for products, read other complaints, and view safety warnings. Complaints in the database include a description of the product, the harm or risk from the product, the name of the manufacturer, contact information, and an affirmation that the submitter is telling the truth.

Businesses: S business can access the database to determine if any of its products are listed or to follow what consumers are saying about its competitors' products.

U.S. Government: It’s cheaper for the government to have consumers enter the data rather than its own employees. It provides a consolidated location for all the information about consumer product complaints. It is expensive though for the government to monitor and track data input.

2. What problems are raised by this database? Why is it so controversial? Why is data quality an issue?

The database is open to abuse from customers with an axe to grind, or trial lawyers seeking to tarnish a product or manufacturer’s reputation for personal gain.

Manufacturing companies and members of Congress oppose the open database because it could contain inaccurate and misleading information and “fictitious slams” against products. Competitors could enter false claims against company products in an effort to tarnish the other company's reputation.

Keeping the database free of inaccurate reports is likely to require more time and hours than the Consumer Product Safety Commission staff will be able to provide.

3. Name two entities in the CPSC database and describe some of their attributes.

Two possible entities in the database are:

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• •

Products: Attributes could include the name, serial number, model number, manufacturer, and the year it was manufactured.

Manufacturer: Attributes could include company name, company headquarters location, similar products it makes, where its factories are located, and complaints it has received for other products.

4. When buying a crib, or other consumer product for your family, would you use this database? Why or why not?

Answers will vary based on personal experiences and preferences. However, it’s likely this kind of database would prove valuable to those consumers who want an easy, quick way to research products they are contemplating on purchasing.

Section 6.4, “Managing 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.

Review Questions 1. What are the problems of managing data resources in a traditional file environment and how are they solved by a database management system?

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 5-7 ..

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.

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.

List and describe the problems of the traditional file environment.

Problems with the traditional file environment include data redundancy and confusion, program-data dependence, lack of flexibility, poor security, and lack of data sharing and availability. Data redundancy is the presence of duplicate data in multiple data files. In this situation, confusion results because the data can have different meanings in different files. Program-data dependence is the tight relationship between data stored in files and the specific programs required to update and maintain those files. This dependency is very inefficient, resulting in the need to make changes in many programs when a common piece of data, such as the zip code size, changes. Lack of flexibility refers to the fact that it is very difficult to create new reports from data when needed. Ad-hoc reports are impossible to generate; a new report could require several weeks of work by more than one programmer and the creation of intermediate files to combine data from disparate files. Poor security results from the lack of control over data. Data sharing is virtually impossible because it is distributed in so many different files around the organization.

Define a database and a database management system and describe how it solves the problems of a traditional file environment.

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 5-8 ..

security.

2. What are the major capabilities of DBMS and why is a relational DBMS so powerful?

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.

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.

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.

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.

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They can process structured and unstructured data captured from Web sites, 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.

3. What are some important database design principles?

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.

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.

4. 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 5-10 ..

exabyte range. It includes structured and unstructured data captured from Web traffic, email messages, and social media content like tweets and status messages. It also includes machine-generated data from sensors.

Big data contains more patterns and interesting anomalies than smaller data sets. That creates the potential to determine new insights into customer behavior, weather patterns, financial market activity and other phenomena.

Hadoop: Open-source software framework that enables distributed parallel processing of huge amounts of data across inexpensive computers. The software breaks huge problems into smaller ones, processes each one on a distributed network of smaller computers, and then combines the results into a smaller data set that is easier to analyze. It uses non-relational database processing and structured, semi-structured and unstructured data.

In-memory computing: rather than using disk-based database software platforms, this technology relies primarily on a computer’s main memory for data storage. It eliminates bottlenecks that result from retrieving and reading data in a traditional database and shortens query response times. Advances in contemporary computer hardware technology makes in-memory processing possible.

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.

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.

Describe the capabilities of online analytical processing (OLAP).

Data warehouses support multidimensional data analysis, also known as online 5-11 ..

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. 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.

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 Web site, or quantify the success of a marketing campaign. Web mining looks for patterns in data through: • Web content mining: Extracting knowledge from the content of Web pages.

• Web structure mining: Examining data related to the structure of a particular Web site.

• Web usage mining: Examining user interaction data recorded by a Web server whenever requests for a Web site’s resources are received

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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 Web site 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.

5. 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 information policy, as well as for data planning, data dictionary development, and monitoring data usage in the firm.

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 5-13 ..

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.

Discussion Questions 1. It has been said that there is no bad data, just bad management. Discuss the implications of this statement.

Just because a company has a lot of data doesn’t mean it has a lot of information.

Rows and columns of numbers don’t mean much if a company cannot use the data to its competitive advantage. If data are poorly organized and maintained, a business may use them poorly and make bad decisions. For instance, if ABC Widgets, Inc., doesn’t maintain accurate supply costs, it may over- or under-budget its costs for making purple widgets. Financial reports become useless if that’s the case. If the company doesn’t maintain accurate customer records, it may end up shipping products to the wrong address at the wrong time. That could result in losing the customer account. If the company doesn’t mine its data to find out that customers in the Southwest want different products at different times than customers in the Northeast, it could lose valuable sales.

Good data requires good management of it.

2. To what extent should end users be involved in the selection of a database management system and database design?

End users should be integral players in the selection of a database management system and the database design. Developing a database environment requires much more than just selecting the technology. It requires a change in the organization’s attitude toward information. The organization must develop a data administration function and a data planning methodology. End-user involvement can be instrumental in mitigating the political resistance organizations may have to many key database concepts, especially to sharing information that has been controlled exclusively by one organizational group.

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3. What are the consequences of an organization not having an information policy?

Without an information policy anyone could: • Reorganize data.

• Maintain it in non-conforming ways that would make it difficult to use the data throughout the organization.

• View data even if their job didn’t require it—that leads to data compromise, misuse, and abuse.

• Change data even if they don’t have a viable reason to.

Well-constructed information policies specify the rules for sharing, disseminating, acquiring, standardizing, classifying, and inventorying information. Information policies lay out specific procedures and accountabilities, identifying which users and units can share information, where information can be distributed, and who is responsible for updating and maintaining the information. Overall, information policies can protect one of an organization’s most valuable resources.

Hands-On MIS Projects Management Decision Problems 1. 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 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.

2. Industrial supply company: The company wants to create a single data warehouse by combining several different systems. The sample files from the two systems that would supply the data for the data warehouse contain different data sets.

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1. 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.

2. How easy would it be to create a database with a single standard format that could store the data from both systems? Identify the problems that would have to be addressed.

It may not be too hard to create a database with a single standard format if the company used middleware to pull both data sets into the consolidated database.

The company should use specialized data-cleansing software that would automatically survey data files, correct errors in the data, and integrate the data in a consistent company-wide format. Problems that may occur would stem from inconsistent data names like the Territory and Customer ID in the old sets and data element names like Division in the new set. Data administrators, managers, and employees may have to track the data conversion and manually convert some data.

3. Should the problems be solved by database specialist 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.

4. 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.

Achieving Operational Excellence, Building a Relational Database for Inventory Management Software skills: Database design, querying and reporting Business skills: Inventory management

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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: MIS13ch06solutionfile.mdb.

1. Prepare a report that identifies the five most expensive bicycles. The report should list the bicycles in descending order from most expensive to lease expensive, the quantity on hand for each, and the markup percentage for each.

2. 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.

3. 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.

4. 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?

Improving Decision Making: Searching Online Databases for Overseas Business Resources Software skills: Online databases Business skills: Researching services for overseas operations 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 Web site contains a fair amount of economic information. However, it may be simpler to direct your students to go to www.aol.com.

The Web site for the Nationwide Business Directory of Australia is www.nationwide.com.au.

What does this exercise tell you about the design of databases?

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Students may not understand that the World Wide Web is one massive data warehouse, but in nontechnical terms that is exactly what it is. Remind them of this when they are completing this assignment. This assignment may best be accomplished in groups, where they can consolidate their findings into a written or oral presentation.

Video Cases You will find a video case illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the case.

Collaboration and Teamwork: Identifying Entities and Attributes in An Online Database With your team of three or four students, select an online database to explore, such as AOL Music, iGo.com or the Internet Movie Database. Explore one of these Web sites to see what information it provides. Then list the entities and attributes that the company running the Web site must keep track of in its databases. Diagram the relationship between the entities you have identified. If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop a presentation of your findings for the class.

There are hundreds of Internet Movie Databases so students will have to select the one that interests them. The Web sites for AOL Music and iGo.com are: http://music.aol.com/ http://igo.com/

In their analysis, students should explain that many of these sites use the same entities and attributes to keep track of their data. Some of the entities that AOL Music tracks include artists, videos, songs, radio, pictures, news, lyrics, and concerts. The Web site tracks the following attributes for the artist entity: popularity ranking of each artist, number of people that have viewed a particular album by the artist, the genre (country, pop, rock, etc.), a biography, who the artist is most influenced by, photos, videos, all the albums the artist has published, lyrics of each song, and ringtones users can send to their cellphones.

Case Study: Asking the Customer by Asking the Database 1. Why would a customer database be so useful for the companies described in this case? What would happen if these companies had not kept their customer data in databases?

Monster uses personalized email, direct mail, social engagement, and prioritized telemarketing using IBM’s Unica enterprise marketing management tools. The 5-18 ..

database maintains data on when the email campaigns ran, email recipients, who responded to the email messages, and who clicked through to its Web site from the emails. The technology generates mailing lists based on certain criteria that promise greater returns on marketing efforts.

By not using these tools Monster would probably waste a lot of its marketing dollars targeting customers who typically wouldn’t respond to its advertising efforts.

Diapers.com began its business without any historical data upon which it could mine its best, most profitable customers. Rather, it relied on first-hand knowledge of pregnant women and what products they are most interested in. Over time, the company gathered sales data and demographic information about its customers and began using predictive analytics to calculate how much each buyer will spend over that person’s lifetime as a customer. The analytic data drive the company’s marketing budget for different customer demographics.

If the company didn’t use proper data analysis it would use scarce marketing dollars trying to attract customers that would not return a profit.

Target retail chain uses predictive analysis to incorporate scientific findings about habit formation. It gathers data about customer coupon and credit card use, refunds, surveys, email responses, Web site visits, or calls to customer help lines. Data shows that 45 percent of choices people make every day are based on habits rather than conscious decision-making. However, when a customer makes a major life change, like moving or switching jobs, their shopping habits become more flexible and open to intervention. It’s helpful to Target to know when those events happen so the retailer can push new products to the customer.

Without the data analysis Target could miss opportunities to market new products to customers or to increase its sales of regularly purchased products.

2. How did better data management and analytics improve each company's business performance? Give examples of two decisions that were improved by mining these customer databases.

Monster’s sales force targets prioritized telemarketing follow-up calls to customers who have opened and clicked on more than one email knowing that the customer is probably more receptive to a sales pitch because he has shown interest in the company’s services.

Diapers.com uses its data to determine which customers are more likely to continue purchasing products through their lifetime. A customer generally costs the company $40 to acquire, but that person would contribute an average of $70 to the company’s bottom line over the lifetime of purchases from the company. Not knowing which customers are the most profitable could have a serious detrimental effect on the company’s profit margins.

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3. Are there any ethical issues raised by mining customer databases? Explain your answer.

Sometimes companies can learn too much about customers and end up making them feel their privacy has been compromised. That’s what happened when Target mined its data so closely that it could predict when a woman became pregnant. Rather than making blatant sales pitches to potential customers and increasing customer concerns over privacy issues, it “hides” the knowledge by including advertisements for products other than what a pregnant woman is most interested in.

Concerns over privacy issues are increasing with the more sophisticated data mining and analysis tools available to marketers. So while companies may know quite a bit about their customers they may not want to exploit it too much and turn customers away.

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Chapter 7 Telecommunications, the Internet, and Wireless Technology Learning Objectives 1.

2.

3.

4.

5.

What are the principal components of telecommunications networks and key networking technologies?

What are the different types of networks?

How do the Internet and Internet technology work, and how do they support communication and e-business?

What are the principal technologies and standards for wireless networking, communication, and Internet access?

Why are radio frequency identification (RFID) and wireless sensor networks valuable for business?

Chapter Outline 7.1

7.2

7.3

7.4

Telecommunications and Networking in Today’s Business World Networking and Communication Trends What Is a Computer Network?

Key Digital Networking Technologies Communications Networks Signals: Digital vs. Analog Types of Networks Transmission Media and Transmission Speed The Global Internet What Is the Internet?

Internet Addressing and Architecture Internet Services and Communication Tools The Web The Wireless Revolution Cellular Systems Wireless Computer Networks and Internet Access RFID and Wireless Sensor Networks

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

3G networks, 277 4G networks, 277

Personal-area networks (PANs), 278 Protocol, 254 6-1 ..

Bandwidth, 258 Blog, 274 Blogosphere, 274 Bluetooth, 278 Broadband, 250 Bus topology, 254 Cable Internet connections, 258 Chat, 264 Digital subscriber line (DSL), 258 Domain name, 259 Domain name systems (DNS), 259 Email, 264 File Transfer Protocol (FTP), 264 Hertz, 257 Hotspots, 280 Hubs, 251

Radio frequency identification (RFID), 280 Router, 251 RSS, 274 Search engine marketing , 272 Search engine optimization (SEO), 272 Search engines, 270 Semantic Web, 276 Shopping bots, 274 Smart phones, 277 Social networking, 275 Social search, 273 Software-defined networking, 251 Switch, 251 T1 lines, 258 Telnet, 264 Transmission Control Protocol/Internet Protocol (TCP/IP), 254 Unified communications, 268 Uniform resource locator (URL), 269 Virtual private network (VPN), 268 Voice over IP (VoIP), 265 Web 2.0, 274 Web 3.0, 276 Web site, 269 Wide-area networks (WAN), 257 Wi-fi, 279 Wiki, 275 WiMax, 280 Wireless sensor networks (WSNs), 283

Hypertext Transfer Protocol (HTTP), 269 Instant messaging, 264 Internet Protocol (IP) address, 258 Internet service provider (ISP), 258 Internet2, 261 IPv6, 261 Local-area network (LAN), 256 Metropolitan-area network (MAN), 257 Microblogging, 274 Modem, 255 Network operating system (NOS), 251 Packet switching, 253 Peer-to-peer, 256

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 and Wireless Technology Speed Up Production at Continental Tires,” illustrates some of the new capabilities and opportunities provided by contemporary networking technology.

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Prior to installing a new radio frequency identification (RFID) system, workers had to manually track components Continental AG used in manufacturing tires. That was not only time-consuming and inaccurate, but employees often lost track of tire components altogether.

After the new RFID system was installed and workers trained on how to use it, the manufacturing plant in Sarreguemines, France, increased production from 33,000 to 38,000 tires per day. Using a wi-fi wireless network and RFID tags, the company installed the tags on each of its carriers. As the carts move about the manufacturing floor, location information is transmitted to the wireless network. Handheld computers are used to confirm that the carriers have been loaded with components or have arrived at a specific workstation.

The small trucks used for hauling the carriers around the plant also have mobile computers that allow drivers to quickly and easily locate a component’s carrier. Bar code labels attached to each component and carrier allows the system to track each component as soon as it is placed in a carrier. The bar code labels are scanned and the data stored in a material inventory tracking system. The information system is continually updated so workers and managers have a real-time snapshot of the manufacturing floor.

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, “Telecommunications and Networking in Today’s Business World” 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 Web site, 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 6-3 ..

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, emails, and IM messages they either sent or received in the last 24 hours or the last week. You could even go so far as to ask them to not send or receive any of these communications for a day to prove how reliant we’ve become on telecommunications.

Section 7.2, “Communications Networks” It may help for you to bring several props to show the different transmission media explained in this section. For example, bring twisted wire, coaxial cable, and fiber-optic cable to show to the class and discuss the advantages and disadvantages of each type of media. Students should note the different ranges (frequencies) of wireless media. Also, you should discuss bandwidth and its connection to frequencies, as this is a critical concept today. Table 7-1 compares the range of four different area networks.

This section describes the different network topologies and how they pass data across a network. If you have students working in business, ask them to identify the network topologies used in their organizations.

Section 7.3, “The Global Internet” 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 email, chatting, instant messaging, newsgroups, telnet, file transfer protocol, and the Web. Most students will probably be familiar with these services, having used them in their personal life. What they may not understand or relate to quite yet, is how effective the tools are in a business setting. These tools reduce time and cost when firms must manage organizational activities and communicate with many employees. If you have students working in businesses, ask them to discuss the communications tools their organization uses. This section introduces a fairly new concept of unified communications. 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.

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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? 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 50 percent 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.

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3. What would be the impact on individual users, businesses, and government if Internet providers switched to a tiered service model?

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. 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: Management: Monitoring Employees on Networks: Unethical or Good Business?

Case Study Questions 1. Should managers monitor employee email and Internet usage? Why or why not?

Answers will vary on this question. The case study statistics show that corporate misuse and abuse of email for personal reasons is exploding. Simply stated, employees who use company resources for personal use not related to the company are, in essence, engaged in “service theft.” They are being paid to work for the 6-6 ..

company, and this does not include abusing corporate resources for personal time.

Companies are in business to generate profits for their shareholders. Managers certainly should be concerned with the loss of time and employee productivity, the additional traffic it creates on their networks that inhibits the efficiency for real business purposes, lost revenue or missed opportunities, as well as overcharging clients because of lost employee efficiencies. The company itself is responsible for the use of its resources and what employees do while using them. Adverse publicity can seriously affect a company and could even result in expensive lawsuits.

Companies also fear email leakage of trade secrets. Other legal and regulatory problems involve the safe keeping of all emails that are generated on corporate equipment. This information must be retained for specific time periods and may be requested as evidence in a lawsuit.

2. Describe an effective email and Web use policy for a company.

Like all policies an effective email and Web use policy must be carefully designed and clearly communicated to all persons who use these corporate resources. There are a number 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 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 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 email and Internet use. The policies should include explicit ground rules that state, by position or level, under what circumstances employees can use company facilities for email, blogging, or Web surfing. The policies should also inform employees whether these activities are monitored and explain why.

Section 7.4, “The Wireless Revolution” 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.

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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 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 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 Web site, 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.

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.

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2. What are the main telecommunications transmission media and types of networks?

Name the different types of physical transmission media and compare them in terms of speed and cost.

Typical speeds and costs for several of the transmission media are provided below.

Medium Speed Cost Twisted wire up to 100 Mbps Low Microwave up to 600+ Mbps Satellite up to 600+ Mbps Coaxial cable up to 1 Gbps Fiber-optic cable up to 6+ Tbps High Define a LAN, and describe its components and the functions of each component?

A LAN is a telecommunications network that is designed to connect personal computers and other digital devices within a half-mile or 500-meter radius. LANs typically connect a few computers in a small office, all the computers in one building, or all the computers in several buildings in close proximity. LANs require their own dedicated channels.

Components of a typical LAN consists of: computers (dedicated server and clients), a network operating system (NOS) residing on a dedicated server computer, cable (wiring) connecting the devices, network interface cards (NIC), switches or a hub, and a router.

• NIC each computer on the network contains a network interface device.

• Connection medium—for linking network components; can be a telephone wire, coaxial cable, or radio signal in the case of cell phone and wireless localarea networks (wi-fi networks).

• NOS routes and manages communications on the network and coordinates network resources.

• Dedicated server provides users with access to shared computing resources in the network. The server determines who gets access to data and in what sequence.

• Client computers are connected to one another.

• Switches or hub act as a connection point between the computers. Hubs are very simple devices that connect network components and send data packets to other connected devices. A switch has more intelligence than a hub and can filter and forward data to a specified destination.

• Router a special communications processor used to route data packets through different networks, ensuring messages are sent to the correct address.

Name and describe the principal network topologies.

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The principal network topologies include: • Star topology: All devices on the network connect to a single hub and all network traffic flows through the hub.

• Bus topology: One station transmits signals, which travel in both directions along a single transmission segment. All of the signals are broadcast in both directions to the entire network, with special software to identify which components receive each message.

• Ring topology: Connects network components in a closed loop. Messages pass from computer to computer in only one direction around the loop and only one station at a time may tansmit.

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 nationstates 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 Web site. 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 over night 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.

Explain how the Domain Name System (DNS) and IP addressing system work.

The Internet is based on the TCP/IP networking protocol suite. Every computer on the Internet is assigned a unique Internet Protocol (IP) address, which currently is a 32-bit number represented by four strings of numbers ranging from 0 to 255 separated by periods.

A domain name is the English-like name that corresponds to the unique 32-bit numeric IP address for each computer connected to the Internet. The Domain Name 6-10 ..

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 orginal message.

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.

Define and describe VoIP and virtual private networks and explain how they provide value to businesses.

•

•

Voice over Internet Protocol (VoIP) enables Internet technology to be used for telephone voice transmission over the Internet or private networks. VoIP offers the advantage of avoiding tolls charged by local and long-distance telephone networks. VoIP provides businesses an opportunity to reduce costs because they no longer have to maintain separate networks or provide support services and personnel for each different type of network. It gives organizations flexibility because phones can be added or moved to different offices without rewiring or reconfiguring networks.

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.

List and describe alternative ways of locating information on the Web. •

Search engines are a facility on the Web that helps you find sites with the information and/or services you want. Examples: Google, Yahoo!, and MSN.

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• • •

• •

•

Intelligent agent shopping bots use intelligent agent software for searching the Internet for shopping information. Examples: MySimon and Froogle.

Blogs are informal yet structured Web sites where subscribing individuals can publish stories, opinions, and links to other Web sites of interest.

Rich Site Summary or Really Simple Syndication (RSS) is a simple way for people to have content they want pulled from Web sites and fed automatically to their computers, where it can be stored for later viewing. It’s commonly used with blogs.

Wikis are collaborative Web sites 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.

Compare Web 2.0 and Web 3.0.

Web 2.0 refers to second-generation interactive Internet-based services that enable people to collaborate, share information, and create new services online. Web 2.0 is distinguished by technologies and services like cloud computing, software mashups and widgets, blogs, RSS, and wikis. These software applications run on the Web itself instead of the desktop and bring the vision of Web-based computing closer to realization. Web 2.0 tools and services have fueled the creation of social networks and other online communities where people can interact with one another in the manner of their choosing.

Web 3.0 focuses on developing techniques to make searching Web pages more productive and meaningful for ordinary people. Web 3.0 is the promise of a future Web where all digital information and all contacts can be woven together into a single meaningful experience. Sometimes referred to as the semantic Web, Web 3.0 intends to add a layer of meaning atop the existing Web to reduce the amount of human involvement in searching for and processing Web information. It also focuses on ways to make the Web more “intelligent,” with machine-facilitated understanding of information promoting a more intuitive and effective user experience. Web 3.0 will use cloud computing, software-as-a-service, ubiquitous connectivity among mobile platforms and Internet access devices, and transformation of the Web into a more seamless and interoperable whole.

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.

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Standards for wireless computer networks include Bluetooth (802.15) for small personal-area networks (PANs), wi-fi (802.11) for local-area networks (LANs), and WiMax (802.16) for metropolitan-area networks (MANs). Bluetooth can link up to eight devices within a 10-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-ofservice 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 highquality streaming video will be available to users anywhere, anytime.

Describe the capabilities of each and for which types of applications each is best suited.

• • • • •

Bluetooth: Access very limited; useful for creating small personal-are 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.

5. Why are RFID and wireless sensor networks (WSNs) valuable for business?

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Define RFID, explain how it works and describe how it provides value to businesses.

Mobile wireless technology facilitates supply chain management by capturing data on the movement of goods as these events take place and by providing detailed, immediate information as goods move among supply chain partners. Radio frequency identification (RFID) systems provide a microchip that contains data about an item and its location. The tags transmit radio signals over a short distance to special RFID readers. The RFID readers then pass the data over a network to a computer for processing.

RFID gives businesses an opportunity to further automate their supply chain networks. The technology allows more data on an RFID chip than typical barcodes.

RFID systems track each pallet, lot, or unit item in a shipment. The technology helps companies improve receiving and storage operations by improving their ability to “see” exactly what stock is stored in warehouses or on retail store shelves.

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.

Discussion Questions 1. It has been said that within the next few years, smartphones will become the single most important digital device we own. Discuss the implications of this statement.

Cell phones and smartphones are morphing into portable computing platforms that allow users to perform some computing tasks that previously could only be accomplished on a desktop computer. Smartphones enable digital capabilities like email, messaging, wireless access to the Internet, voice communication, and digital cameras. They also allow users to view short video clips, play music and games, surf the Web and transmit and receive corporate data. New generations of mobile processors and faster mobile networks enable these devices to function as digital computing platforms allowing users to perform many of the tasks of today’s PCs on smartphones. Storage and processing power continue to increase thereby rivaling

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those of the typical PC. That allows users to run key applications and access digital content through smartphone technologies.

Managers and employees will be able to break the tether to the desk and desktop computer because of smartphones. Users can more easily stay in touch with customers, suppliers, employees, and business partners and provide more flexible arrangements for organizing work.

On the downside, smartphones can potentially increase the amount of time workers spend “on the job” by making communication and computing possible anytime, anywhere. That may increase the amount of technostress employees and managers experience by not allowing them any free time or claim to their own personal space.

2. Should all major retailing and manufacturing companies switch to RFID? Why or why not?

RFID systems are complex and, in the past, expensive to implement. Now the cost of RFID tags is approaching $0.10 per passive tag in the United States. As the price decreases, RFID is starting to become cost-effective for some applications.

Businesses that will most likely benefit from RFID technology are those that frequently track the movement of goods through supply chains. In inventory control and supply chain management, RFID systems capture and manage more detailed information about items in warehouses or in production than bar coding systems.

Major retailing and manufacturing companies will no doubt switch to RFID technology as costs continue to fall and applications increase. Whether or not all major retailing and manufacturing companies should switch to RFID is a matter of choice. They will no doubt go this way in the near future. By doing so, they will increase their operational efficiencies thereby increasing profits or gaining a competitive advantage by lowering overall costs to consumers. Ask your students to review the information in the following Web site: www.epic.org/privacy/rfid/ and develop some ideas from there.

3. Compare wi-fi and high-speed cellular systems for accessing the Internet. What are the advantages and disadvantages of each?

Wi-fi allows users to access the Internet from numerous locations that could not be covered by traditional wired Internet services. The technology reduces costs for both personal users and businesses by providing a way to share peripheral devices like printers and servers among many computing devices. There’s no need for separate printers for each computer or hard-wiring each computer to peripheral devices.

Bluetooth-enabled wireless technology provides an easy way to connect devices. Wifi speeds and transmission capacity continue to improve and expand enabling users to access videos, audio files, Web sites, and even video-conferencing through hotspots located in public and private areas. Security continues to improve for wi-fi access points protecting users from unauthorized access although the technology still poses threats from intruders.

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High-speed cellular systems provide a way for users to access the Internet from virtually anywhere at any time. More powerful cellular networks based on 3G, and now 4G, technology are expanding the amount and types of data users can access.

The continued expansion of cellular systems enables a wider range of broadband Internet access. Voice, data, and high-quality streaming video opens up a wider range of services for users. Cellular systems supporting smartphones, tablet computers, and mobile computing devices break the tether formerly holding users to desktop and laptop computers. Security issues exist for cellular systems similar to wi-fi systems.

Hands-On MIS Projects Management Decision Problems 1. 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 6-16 ..

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 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 realtime 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 2. 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 6-17 ..

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.

• 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.”

Improving Decision Making: Using Spreadsheet Software to Evaluate Wireless Services Software skills: Spreadsheet formulas, formatting Business skills: Analyzing telecommunications services and costs You would like to equip your sales force of 35 who are based in Cincinnati, Ohio, 6-18 ..

with mobile phones that have capabilities for voice transmission, text messaging, and taking and sending photos. Use the Web to select a wireless service provider that provides nationwide service as well as good service in your home area. Examine the features of the mobile handsets offered by each of these vendors. Assume that each of the 35 salespeople will need to spend three hours per day during business hours (8 A.M. to 6 P.M.) on mobile voice communications, send 30 text messages per day, and five photos per week. Use your spreadsheet software to determine the wireless service and handset that will offer both the best pricing per user over a twoyear 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 MIS13ch07solutionfile.xls.

Achieving Operational Excellence: Using Web Search Engines for Business Research Software skills: Web search tools Business skills: Researching new technologies You want to learn more about ethanol as an alternative fuel for motor vehicles. Use the following search engines to obtain that information: Yahoo!, Google, and MSN. 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 what 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?

Video Case You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the case.

Collaboration and Teamwork: Evaluating Smartphones Form a group with three or four of your classmates. Compare the capabilities of Apple’s iPhone with a smartphone handset from another vendor with similar 6-19 ..

features. Your analysis should consider the purchase cost of each device, the wireless networks where each device can operate, service plan and handset costs, and the services available for each device. You should also consider other capabilities of each device, including the ability to integrate with existing corporate or PC applications. Which device would you select? What criteria would you use to guide your selection? If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments, to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop a presentation of your findings for the class.

In their analysis, students should set up a table for each of the two devices that they selected and demonstrate how they made their comparision. What features did they consider the most valuable. They may use a weighted factor scale and assign weights to each capability to determine which product best fits their needs.

Ensure students explore not just the phones themselves, but also the support networks.

That may be a bigger satisfaction factor than the phone. Cost factors associated with the support networks may also prove to be the decisive factor in choosing one phone over another.

The following Web sites may help students conduct their search for this project: www.verizon.com/ www.apple.com/ www.nokia.com/ www.samsung.com/ www.motorola.com/

Case Study: Apple, Google, and Microsoft Battle for Your Internet Experience 1. Define and compare the business models and areas of strength of Apple, Google, and Microsoft.

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.

Google: Its business model has always focused on the Internet and the Web. It began as one of many search engines. It quickly ran away from the pack with its copyrighted PageRank search algorithm which returns superior search results for Web users. It also has developed 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 6-20 ..

and software tools.

Microsoft: Its business model originally focused on the desktop computer running the Windows operating system and Office desktop productivity applications. The company and its products are staples for businesses and consumers looking to improve their productivity with computer-based tasks. While it is trying to expand its presence on the Internet, it still must try to keep customers bound to the desktop computer.

2. Why is mobile computing so important to these three firms? Evaluate the mobile platform offerings 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. This environment is projected to be a $400 billion ecommerce marketplace where the major access device will be a mobile smartphone or tablet computer. 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.

Apple is by far the current leader in the number of apps users can download—over 250,000. Apple takes a 30 percent cut of every app purchased. Uses a closed proprietary system and apps that only provide “one way in.”

Google is aggressively following the 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. Uses an open non-proprietary system that allows users to grab apps from any source.

Microsoft is trying to partner with Apple and make Bing the default search engine on both the iPhone and Apple’s Web browser. That would provide Microsoft with a much needed boost to its fledgling search service. Otherwise, Microsoft doesn’t bring much to the table in mobile computing.

3. What is the significance of applications and app stores, and closed vs. open app standards to the success or failure of mobile computing?

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.

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Apple makes money on each app sold through its App store. That’s worth billions of dollars to the company. Even if an app is free, Apple still has an advantage because users must visit Apple’s App Store and the company is betting consumers will buy something else, other apps or entertainment services, while visiting the store.

However, app developers have complained that making money is too difficult. Apple has blocked some apps from its mobile devices, namely Google’s voice mail management program, Google Voice. Apple claimed it violated user privacy.

Apps for the Android system used on non-Apple devices are available from many different sources. Google has worked very hard to increase the number of apps available for Droid-based mobile devices by encouraging developers to increase the number of apps. Google also makes money by embedding advertising in some of the apps used on Droid-based devices.

4. Which company and business model do you believe will prevail in this epic struggle? Explain your answer.

Students should consider these principles in their answers: • The size, complexity, and bureaucracy of organizations affect the ability of any company to continue to innovate, grow, and expand its reach (see Chapter 3). As all three companies try to expand into mobile computing, their ability to “turn on a dime” in the face of other competitors may be in serious jeopardy.

• Google currently has the major share of the Web-based advertising market, however Microsoft and other market entrants will be a major threat to them.

The Microsoft corporation have very “deep pockets” and will stop at nothing to overturn and destroy Google’s competitive advantage. Apple has had a significant lead in mobile computing for several years. However, as more companies, Google, Microsoft, 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?

5. What difference would it make to a business or to an individual consumer if Apple, Google, or Microsoft 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 6-22 ..

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.

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Chapter 8 Securing Information Systems Learning Objectives 1.

2.

3.

4.

Why are information systems vulnerable to destruction, error, and abuse?

What is the business value of security and control?

What are the components of an organizational framework for security and control?

What are the most important tools and technologies for safeguarding information resources?

Chapter Outline 8.1

8.2

8.3

8.4

System Vulnerability and Abuse Why Systems are Vulnerable Malicious Software: Viruses, Worms, Trojan Horses, and Spyware Hackers and Computer Crime Internal Threats: Employees Software Vulnerability Business Value of Security and Control Legal and Regulatory Requirements for Electronic Records Management Electronic Evidence and Computer Forensics Establishing a Framework for Security and Control Information Systems Controls Risk Assessment Security Policy Disaster Recovery Planning and Business Continuity Planning The Role of Auditing Technologies and Tools for Protecting Information Resources Identity Management and Authentication Firewalls, Intrusion Detection Systems, and Antivirus Software Securing Wireless Networks Encryption and Public Key Infrastructure Ensuring System Availability Security Issues for Cloud Computing and the Mobile Digital Platform Ensuring Software Quality

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

Acceptable use policy (AUP), 312 Antivirus software, 318 Application controls, 310 Authentication, 316 Biometric authentication, 316 Botnet, 301 Bugs, 305 Business continuity planning, 314 Click fraud, 304 Computer crime, 302 Computer forensics, 309 Computer virus, 298 Controls, 295 Cybervandalism, 300 Cyberwarfare, 304 Deep packet inspection, 322 Denial-of-service (DoS) attack, 301 Digital certificates, 320 Disaster recovery planning, 314 Distributed denial-of-service (DDos) attack, 301 Downtime, 321 Drive-by download, 298 Encryption, 319 Evil twin, 303 Fault tolerant computer systems, 321 Firewall, 317 General controls, 310 Gramm-Leach-Bliley Act, 309 Hacker, 300 High-availability computing, 321 HIPAA, 308 Identity management, 312

Identify theft, 302 Intrusion detection systems, 318 Key loggers, 300 Malware, 298 Managed security service providers (MSSPs), 322 MIS audit, 314 Online transaction processing, 321 Password, 316 Patches, 307 Pharming, 303 Phishing, 303 Public key encryption, 320 Public key infrastructure (PKI), 320 Recovery-oriented computing, 321 Risk assessment, 311 Sarbanes-Oxley Act, 309 Secure Hypertext Transfer Protocol (S-HTTP), 319 Secure Sockets Layer (SSL), 319 Security, 295 Security policy, 312 Smart card, 316 Sniffer, 301 Social engineering, 305 Spoofing, 301 Spyware, 300 SQL injection attack, 300 Token, 316 Trojan Horse, 299 Unified threat management (UTM), 319 War driving, 297 Worms, 298

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Teaching Suggestions The opening case, “You’re on LinkedIn? Watch Out!,” describes several different ways information systems become vulnerable to malicious software— individual user’s computers, their friends’ computers, and computers of LinkedIn-participating businesses.

Because of its huge user base, an easy-to-use Web site, and a community of users easily linked to dozens or hundreds of other users, the popular business networking site has become a huge security risk to individuals and businesses.

This case also shows that no single approach to securing information systems is sufficient. Businesses must continually upgrade their security software and try to stay one step ahead of hackers and computer criminals. Securing information systems from unauthorized access, abuse, destruction, or tampering of assets requires a combination of training, procedures, and technologies. The cost and difficulty of using all of these must be balanced with the net benefits they provide the business in the form of greater customer trust, uninterrupted operations, compliance with government regulations, and protection of financial assets. However, as the text states, developing a secure password system would only have cost the company a minimal amount of money, in the low six figures. After the hacking incident, the company faces a $5 million dollar class-action lawsuit.

Section 8.1, “System Vulnerability 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 Web sites or simply using a search engine such as Google to research this request. www.symantec.com/index.htm www.mcafee.com www.pandasecurity.com

Interactive Session: Organizations: Stuxnet and the Changing Face of Cyberwarfare Case Study Questions: 1. Is cyberwarfare a serious problem? Why or why not?

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Cyberwarfare is becoming a very serious problem. Attacks have become much more widespread, sophisticated, and potentially devastating. The U.S. Department of Defense networks experience 250,000 probes every hour and cyberattacks on U.S. federal agencies in general have increased 150 percent since 2008.

Cyberwarfare comes in the form of distributed denial-of-service attacks that have taken down Web sites at the White House, the Treasury, the Federal Trade Commission, the Defense Department, the Secret Service and many others. The attacks slowed down most of the U.S. sites and forced several sites in foreign countries to stop operating altogether. Other the years, hackers have stolen plans for missile tracking systems, satellite navigation devices, surveillance drones, and leading-edge jet fighters. In April 2009, cyberspies used weak points in the U.S. electrical grid to plant software programs whose purpose is still unclear.

2. Assess the management, organizational, and technology factors that have created this problem.

Management: Most attacks are the work of highly skilled professionals. “I view Stuxnet as a weapons delivery system, like the B-2 Bomber,” said Michael Assante, president and CEO at the National Board of Information Security Examiners.

Organization: It’s suspected that some of the cyberwarfare attacks have been orchestrated by governments, including the Stuxnet worm that was launched with nation-state support (probably from Israel and the United States). In each cyberwarfare incident, the governments suspected to be responsible have roundly denied the charges with no repercussions. Organizations, public and private, continually do not adequately plan for security before building any kind of computer system thus opening the way for cyberattacks.

Technology: Tracing the identities of specific attackers through cyberspace is next to impossible. Damage from the Stuxnet worm is irreparable and is believed to have delayed Iran's ability to make nuclear arms by as much as five years.

Some experts who examined the Stuxnet software code believe it contains the seeds for more versions and attacks.

3. What makes Stuxnet different from other cyberwarfare attacks? How serious a threat is this technology?

To date, Stuxnet is the most sophisticated cyberweapon ever deployed. Stuxnet’s mission was to activate only computers that ran Supervisory Control and Data Acquisition software used in Siemens centrifuges to enrich uranium. The Windows-based worm had a “dual warhead.” One part was designed to lay dormant for long periods, then speed up Iran’s nuclear centrifuges so that they spun wildly out of control. Another secretly recorded what normal operations look like and then played those recordings back to plant operators so it would appear 8-4 ..

that the centrifuges were operating normally when they were actually tearing themselves apart.

4. What solutions have been proposed for this problem? Do you think they will be effective? Why or why not?

The United States has no clear strategy about how the country would respond to various levels of cyberattacks. Mike McConnell, the former director of national intelligence, stated that if even a single large American bank were successfully attacked, “it would have an order-of-magnitude greater impact on the global economy” than the World Trade Center attacks, and that “the ability to threaten the U.S. money supply is the equivalent of today’s nuclear weapon.”

Many security experts believe that U.S. cybersecurity is not well-organized.

Cybercom was activated in May 2010 in the hope of resolving the organizations tangle of agencies struggling to become the leading agency in the ongoing efforts to combat cyberwarfare.

Section 8.2, “Business Value of Security and Control” Security and control are important but often neglected areas for information systems investments. The majority of 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 were able to solve it.

Section 8.3, “Establishing a 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 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.

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Interactive Session: Technology: How Secure Is Your Smartphone?

Case Study Questions 1. It has been said that a smartphone is “a microcomputer 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 116 million smartphone users in the United States, 122 million people accessing the Internet from mobile devices, business firms increasingly switching their employees to the mobile platform, consumers using their phones for financial transactions, paying bills, and shopping, the size and richness of the smartphone target for hackers is growing.

2. What management, organization, and technology factors must be addressed by smartphone security?

Management: Apple cannot effectively review new apps prior to their use.

Thousands of apps arrive each week at Apple. The iPhone does not inform users what information apps are using, but does restrict the information that can be collected by any app. Google takes preventive steps to reduce malware apps such as vetting the backgrounds of developers, and requiring developers to register with its Checkout payment service.

Organization: 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: Botnet code is easily wrapped inside the app code making it much harder to detect. Apple, Google and Rim (BlackBerry) offer over 1.25 million apps collectively. 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.

3. What problems do smartphone security weaknesses cause for businesses?

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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. Unfortunately, cryptologists in 2010 discovered a flaw in the public key encryption procedures that permit remote server access to iPhones. The result: “There is absolutely no reason for an iPhone/iPod to trust root Certificate Authorities which are the foundation for public key encryption of files for over-the-air mobile configuration downloads.”

Phishing is also a growing smartphone problem. Mobile users are believed to be three times more likely to fall for scams luring them to bogus Web sites where they reveal personal data: Why? Because mobile devices are activated all the time, and smallscreen formatting makes the fraud more difficult to detect.

4. What steps can individuals and businesses take to make their smartphones more secure?

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.

Section 8.4, “Technologies and Tools for Protecting 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 the Web site below: www.sun.com/blueprints/1201/secpolicy.pdf

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Review Questions 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 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.

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.

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 Web sites 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 Web site or corporate information system.

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Define computer crime. Provide two examples of crime in which computers are targets and two examples in which computers are used as instruments of crime.

The Department of Justice defines computer crime as “any violations of criminal law that involve a knowledge of computer technology for their perpetration, investigation, or prosecution.” Computer crime is defined as the commission of illegal acts through the use of a computer or against a computer system. Table 8-2 provides examples of computer crimes.

Computers as targets of crime: • Breaching the confidentiality of protected computerized data • Accessing a computer system without authority • Knowingly accessing a protected computer to commit fraud • Intentionally accessing a protected computer and causing damage, negligently or deliberately • Knowingly transmitting a program, program code, or command that intentionally causes damage to a protected computer • Threatening to cause damage to a protected computer Computers as instruments of crime: • Theft of trade secrets • Unauthorized copying of software or copyrighted intellectual property, such as articles, books, music, and video • Schemes to defraud • Using email for threats or harassment • Internationally attempting to intercept electronic communication • Illegally accessing stored electronic communications, including email and voice mail • Transmitting or processing child pornography using a computer 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 Web site 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.

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Phishing involves setting up fake Web sites 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 Web site. New phishing techniques such as evil twins and pharming are very hard to detect.

Describe the security and system reliability problems created by employees.

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.

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.

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.

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Controls consist of all the methods, policies, and organizational procedures that ensure the safety of the organization’s assets; the accuracy and reliability of its account records; and operational adherence to management standards.

The business value of security and control: • Firms relying on computer systems for their core business functions can lose sales and productivity.

• Information assets, such as confidential employee records, trade secrets, or business plans, lose much of their value if they are revealed to outsiders or if they expose the firm to legal liability.

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.

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 8-11 ..

processes, and administrative controls. Table 8-3 describes each type of general control.

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.

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.

Define and describe the following: security policy, acceptable use policy, and identity management.

A security policy consists of statements ranking information risks, identifying 8-12 ..

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.

Explain how MIS 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.

4. What are the most important tools and technologies for safeguarding information resources?

Name and describe three authentication methods.

Authentication refers to the ability to know that a person is who he or she claims to be. Some methods are described below: • What you know: Passwords known only to the authorized users.

• What you have: o Token is a physical device that is designed to provide the identity of a single user. o Smart card is a device that contains a chip formatted with access permission and other data.

• What you are: Biometrics is based on the measurement of a physical or behavioral trait that makes each individual unique.

Describe the roles of firewalls, intrusion detection systems, and antivirus software in promoting security.

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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.

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.

Describe the role of encryption and digital certificates in a public key infrastructure.

Digital certificates combined with public key encryption provide further protection of electronic transactions by authenticating a user’s identify. Digital certificates are data fields used to establish the identity of the sender and to provide the receiver with the means to encode a reply. They use a trusted third party known as a certificate authority to validate a user’s identity. Both digital signatures and digital certificates play a role in authentication. Authentication refers to the ability of each party to know that the other parties are who they claim to be.

Distinguish between fault-tolerant and high-availability computing, and between disaster recovery planning and business continuity planning.

Fault-tolerant computer systems contain redundant hardware, software, and power supply components that can back the system up and keep it running to prevent system failure. Some systems simply cannot be allowed to stop, such as stock market systems 8-14 ..

or some systems in hospitals. Fault-tolerant computers contain extra memory chips, processors, and disk storage devices to backup a system and keep it running. They also can use special software routings or self-checking logic built into their circuitry to detect hardware failures and automatically switch to a backup device.

High-availability computing, though also designed to maximize application and system availability, helps firms recover quickly from a crash. Fault tolerance promises continuous availability and the elimination of recovery time altogether.

High-availability computing environments are a minimum requirement for firms with heavy electronic commerce processing requirements or for firms that depend on digital networks for their internal operations.

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.

Identify and describe the security problems posed by cloud computing.

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?

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 measurements. Metrics allow an information systems department and end users to jointly measure the performance of a system and identify problems as they occur.

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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.

Discussion Questions 1. Security isn’t simply a technology issue, it’s a business issue. Discuss.

Computer systems, of course, are composed of a number of technological marvels. As with any asset in an organization, they need to be kept secure. A company’s core capabilities and business processes are vital in today’s digital world. Technology plays an increasing and vital role in our daily life and firms need to make these systems secure. Securing these systems refer to the policies, procedures, and technical measures used to prevent unauthorized access, alteration, theft, or physical damage to the information systems. On the other hand, technology is not the key issue in information systems security and control. The technology provides a foundation, but in the absence of intelligent management policies, even the best technology can be easily defeated. Protection of information resources requires a sound security policy and set of controls. A business policy specifies best practices in information systems security and control, including security policy, business continuity planning, physical security, access control, compliance, and creating a security function within the organization. Without secure systems, no business will function for very long.

2. If you were developing a business continuity plan for your company, where would you start? What aspects of the business would the plan address?

Business managers and information technology specialists need to work together to determine which systems and business processes are most critical to the company.

They must conduct a business impact analysis to identify the firm’s most critical systems and the impact a systems outage would have on the business. Management must determine the maximum amount of time the business can survive with its systems down and which parts of the business must be restored first.

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Students should be encouraged to search the Internet for examples of business continuity plans. An example of what topics need to be covered in developing a business continuity plan can be found at the following Web site: www.yourwindow.to/business-continuity/bcpindex.htm

3. Suppose your business had an e-commerce Web site where it sold goods and accepted credit card payments. Discuss the major security threats to this Web site and their potential impact. What can be done to minimize these threats?

The first major threat to an e-commerce Web site is hackers who could infiltrate the system through the Internet. Hackers could steal credit card and personal information of customers using the site. Not only would it be expensive to re-create the records and data, but the company could also face costly litigation for data exposure of theft.

The retailer, T.J. Maxx, spent over $200 million on legal fees and other problems after its security breach.

The second major threat to an e-commerce Web site comes from worms, viruses, and Trojan horse infections. A hacker could plant one of these in the software coding for the Web site and anyone that visited the site could ultimately become infected. If the site uses Web 2.0 applications, then it becomes vulnerable to malware and spyware.

Not only can these problems infect computers within the company but also affect computers of people visiting or using the site.

The third and perhaps biggest malware threat comes from SQL injection attacks.

These attacks take advantage of vulnerabilities in poorly coded Web application software to introduce malicious program code into a company’s systems and networks. The vulnerabilities occur when a Web application fails to properly validate or filter data entered by a user on a Web page. An attacker uses the input validation error to send a rogue SQL query to the underlying database to access the database, plant malicious code, or access other systems on the network.

Using the proper security tools, like antivirus software, spyware detection systems, identity management systems, general and applications controls, and properly coding Web pages is the first line of defense against these problems. Vigilant employees and IT staff are also important.

Hands-On MIS Projects Management Decision Problems 1. K2 Network: 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 Web sites and continuing operations?

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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. Although 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.

2. Security analysis statistics: Analyze high risk, medium risk, and low risk vulnerabilities by type of computing platform.

SECURITY VULNERABILITIES BY TYPE OF COMPUTING PLATFORM PLATFORM

NUMBER OF COMPUTERS

Windows Server (corporate applications)

1

HIGH RISK 11

Windows Vista Ultimate (high-level administrators)

3

56

242

87

1155

Linux (email and printing services)

1

3

154

98

255

Sun Solaris (UNIX) (e-commerce and Web servers)

2

12

299

78

778

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

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MEDIUM RISK 37

LOW RISK 19

TOTAL VULNERABILITIES 67

1. 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.

2. 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 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.

3. Identify the types of control problems illustrated by these vulnerabilities and explain the measures that should be taken to solve them.

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•

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)

•

Application controls: Specific controls unique to each computerized application, such as payroll or order processing. They include both automated and manual procedures that ensure that only authorized data are completely and accurately processed by that application. Application controls can be classified as input controls, processing controls, and output controls. o Windows Server (corporate applications) o Linux (email and printing services) o Sun Solaris (UNIX) (e-commerce and Web servers) o Windows Vista Ultimate user desktops and laptops

•

Measures that should be taken to solve them include: o Create a security policy and an acceptable use policy. o Use authorization management systems. o Create a business continuity plan. o Complete an MIS audit that includes a security audit. o Apply access controls, firewalls, antivirus/antispyware to system. o Install an intrusion detection management system. o Determine if fault-tolerant or high availability computing is necessary.

4. What does your firm risk by ignoring the security vulnerabilities identified?

Information systems are vulnerable to technical, organizational, and environmental threats from internal and external sources. Managers at all levels must make system security and reliability their number one priority. They must also impress upon all employees how important security is throughout the system. There are several ways the business value of security and control can be measured: • The dollars a company spends to secure system.

• The amount of money spent to recover from system fraud and abuse.

• The lost revenue from system downtime.

• The amount of money spent on legal claims against a company if it experiences security breaches.

• The damage done to a company’s reputation.

Improving Decision Making: Using Spreadsheet Software to Perform a Security Risk Assessment Software skills: Spreadsheet formulas and charts 8-20 ..

Business skills: Risk assessment 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 MIS13ch08solutionfile.xls.

Improving Decision Making: Evaluating Security Outsourcing Services Software skills: Web browser and presentation software Business skills: Evaluating business outsourcing services • • •

Present a brief summary of the arguments for and against outsourcing computer security for your company.

Select two firms that offer computer security outsourcing services, and compare them and their services.

Prepare an electronic presentation for management summarizing your findings. Your presentation should make the case on whether or not your company should outsource computer security. If you believe your company should outsource, the presentation should identify which security outsourcing service should be selected and justify your selection.

Your students will provide several pros and cons to outsourcing. Most of them will conclude that the major pro would be a financial savings. As a con, they may say that 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.

Video Cases You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

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Collaboration and Teamwork: Evaluating Security Software Tools With a group of three or four students, use the Web to research and evaluate security products from two competing vendors, such as antivirus software, firewalls, or antispyware software. For each product, describe its capabilities, for what types of businesses it is best suited, and its cost to purchase and install. Which is the best product? Why? If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop a presentation of your findings for the class.

There are literally dozens of products from different vendors that can be researched in answering this question. Below are some links to some of the more popular vendors and their product offerings. http://antivirussoftware.6starreviews.com/?Refer=Goog&Keyword=antivirus%20software www.symantecstore.com www.mcafee.com www.pandasecurity.com www.trendmicro.com

Case Study: Sony: The World’s Largest Data Breach 1. List and describe the security and control weaknesses at Sony that are discussed in this case.

Hackers corrupted Sony’s servers, causing them to mysteriously reboot. The program deleted all log files to hide its operation. Once inside Sony’s servers, the rogue software transferred personal and credit card information on millions of PlayStation users.

Most computer security breaches are the result of fairly simple tactics, management failure to anticipate well-known security risks, unwillingness to spend resources on expensive security measures, sloppy procedures, lack of training, carelessness, and outdated software. Many hacking attacks use simple, well-known approaches that seem obvious.

2. What management, organizational, and technology factors contributed to these problems?

Management: The Sony data breach was apparently the result of a “revenge hacking,” the use of the Internet to destroy or disrupt political opponents, or to punish organizations for their public behavior. According to Sony, hackers left a text file 8-22 ..

named Anonymous on Sony’s server with the words “We are legion.” Anonymous is the name of an Internet collective of hackers and vigilantes whose motto is “We are Anonymous. We are Legion. We do not forgive. We do not forget. Expect us.”

Organizational: Sony apparently chose not to encrypt its personal user and credit card data because it was too expensive and would decrease the speed of its technology and the user experience. The group that launched the second attack on Sony Pictures claimed the company’s lax security allowed a standard SQL injection attack on a primitive security hole that enabled the hackers to access whatever information they wanted. The fact that dozens of Sony Web sites and servers had been breached are a sure sign of a company-wide problem.

Technology: Sony’s PlayStation Network was using an older version of Apache Web server software which has well-known security issues. In addition, Sony’s Web site had very poor firewall protection. Once hackers are on the inside, critical personal information and credit information are usually not encrypted.

3. What was the business impact of the Sony data losses on Sony and its customers?

Data encryption of the sort needed for an operation like Sony’s could easily require a doubling of computing capacity at Sony. That would significantly impact the company's profits. However, Sony’s brand is at stake and its security problems could take years to fix, potentially costing the company more in the long run than it would have originally. The total Sony data breach now numbers over 100 million customers.

The company anticipated that it would have to pay $170 million in the 2011 financial year for everything it had to do after the security hack plus associated legal costs.

4. What solutions would you suggest to prevent these problems?

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. The Data Accountability and Trust Act of 2011 being considered by Congress requires firms to establish security requirements and policies, notify potential victims of a data loss “without unreasonable delay,” and notify a major media outlet and all major credit reporting agencies within 60 days if the credit card data on more than 5,000 individuals are at risk. Currently, 46 states have such legislation. In the past, many organizations failed to report data breaches for fear of harming their brand images. It is unclear if the proposed legislation would reduce the incidence of data breaches.

There are other measures every organization, public and private can and should take to secure their systems and information. Section 7.4, Technologies and Tools for Protecting Information Resources, of this chapter provides a list:

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• • • • •

Use appropriate identity management and authentication procedures and processes.

Use adequate firewalls, intrusion detection systems, and antivirus software Secure wireless networks.

Use adequate encryption and public key infrastructures—this alone would have saved Sony a lot of grief and money.

Control Network Traffic with Deep Packet Inspection technology.

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Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications Learning Objectives 1.

2.

3.

4.

5.

How do enterprise systems help businesses achieve operational excellence?

How do supply chain management systems coordinate planning, production, and logistics with suppliers?

How do customer relationship management systems help firms achieve customer intimacy?

What are the challenges posed by enterprise applications?

How are enterprise applications taking advantage of new technologies?

Chapter Outline 9.1

9.2

9.3

9.4

Enterprise Systems What Are Enterprise Systems?

Enterprise Software Business Value of Enterprise Systems Supply Chain Management Systems The Supply Chain Information Systems and Supply Chain Management Supply Chain Management Software Global Supply Chains and the Internet Business Value of Supply Chain Management Systems Customer Relationship Management Systems What Is Customer Relationship Management?

Customer Relationship Management Software Operational and Analytical CRM Business Value of Customer Relationship Management Systems Enterprise Applications: New Opportunities and Challenges Enterprise Application Challenges Next-Generation Enterprise Applications

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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, 356 Bullwhip effect, 344 Churn rate, 357 Cross-selling, 354 Customer lifetime value (CLTV), 356 Demand planning, 346 Employee relationship management (ERM), 352 Enterprise software, 340 Just-in-time strategy, 344

Operational CRM, 356 Partner relationship management (PRM), 352 Pull-based model, 349 Push-based model, 349 Social CRM, 359 Supply chain, 342 Supply chain execution systems, 346 Supply chain planning system, 346 Touch point, 351

Teaching Suggestions The opening case, “Technology Helps Nvidia Anticipate the Future” illustrates how accurately forecasting customer demand and adjusting inventory levels is of key importance. Production planners must estimate how much material the company will need and how much production time they need to schedule.

The chip operations group within Nvidia which was responsible for actual production did not receive production forecasts and could only see existing inventory. Inventory forecast spreadsheets weren’t constructed in a way that managers could drill down through the data, sort and re-sort the data, make inventory comparisons, or view data by business segments.

When Nvidia switched its old manufacturing process to a newer one, management discovered that the current system lacked the ability to handle the complexity of two separate sets of inventory. It was unable to balance supply and demand for its new products and existing products. The company built a customized interface on top of its existing system for a new inventory forecasting solution. It also created state-of-the-art supply and demand dashboards for executives to access high-level inventory data.

With the new system, the company was able to forecast inventory levels for the next four quarters as well as view six months’ worth of current inventory. Error rates were reduced to 3 percent or less compared to the previous 5 percent error rate. That saved the company $25 million. The old manual system required 140 hours to prepare a quarterly forecast; the new system reduced that to only 30 hours.

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Section 9.1, “Enterprise Systems.” 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, “Supply Chain Management Systems.” 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: Land O’Lakes Butter Becomes Fresher with Demand Planning Case Study Questions: 1. Why are inventory management and demand planning so important for Land O’Lakes? What is the business impact of not being able to manage inventory or predict demand for this company?

Supply chain efficiency and inventory management is important to Land O’Lakes because its products are perishable and sales volume and product mix change greatly from season to season. The company must be prepared to adjust production and inventory according to seasonal demand without incurring unnecessary costs.

2. What management, organization, and technology issues had to be considered when selecting Oracle’s Demantra as a solution for Land O’Lakes?

Management: Because of fluctuations in demand and short product shelf life, managers need to take special care to plan product inventory so that it can handle customer needs that fluctuate each season without incurring unnecessary costs.

Managers need to effectively plan production on a weekly, monthly, and seasonal basis.

Organization: After products are made, the company ships them to one of its distribution centers and then on to the distribution centers of its customers. Then the product travels to retail supermarkets and grocery store locations, restaurants, and food service companies. The product must arrive when they are still fresh.

Technology: The company wanted a demand-sensing solution to help predict and adjust to shifts in demand. It relied on Demantra to extend the functionality of its ERP solution. The system analyzes the best way to manage raw materials. It helps 9-3 ..

company managers determine how much milk is turned into butter, how much is turned into cheese, what types of cheese, and so forth.

3. How did implementing Demantra change management decision making and the way that Land O’Lakes ran its business?

Managers can use sophisticated statistical modeling and algorithms that calculate consumption, order lead time, and consumption allocation to create accurate forecasts, especially for the next four weeks. The systems allows managers to plan production of all of its goods to maintain a “just enough” inventory and keep costs as low as possible while ensuring that the right product is available for the right customer at the right time.

4. Describe two decisions that were improved by implementing Demantra.

Supply chain managers rely on the new system for a combination of reports to determine which facility should be assigned to produce and distribute products.

Reducing the distance between the factory and the customer lowers costs for fuel, transportation and overall production.

Land O’Lakes also relies on Oracle Transportation Management systems to plan its transportation, execution, freight payment, and business process automation. When trucks are loaded and ready to go, they have to get to the right destination as quickly and efficiently as possible. Shipments going bad because of inefficient routes or other unforeseen issues also hurt the company’s bottom line.

Demantra has helped Land O’Lakes cut their total inventory of finished product on hand by four full days, resulting in millions of dollars on savings.

In Section 9.3, “Customer Relationship Management Systems” 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.

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Section 9.4, “Enterprise Applications: New Opportunities and Challenges” 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 enterprisewide 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 Web site has an excellent demonstration of the product that you can direct students to at www.salesforce.com/products/ideas/.

Interactive Session: Technology: Customer Relationship Management Heads to the Cloud Case Study Questions 1. What types of companies are most likely to adopt cloud-based CRM software services? Why? What companies might not be well-suited for this type of software?

Small to mid-size companies that lack the know-how or financial resources to successfully build and maintain CRM applications in-house are most likely to use cloud-based CRM software services. Smaller companies are moving toward opensource cloud computing that lets them make their own changes to the application source code to fit their particular situation. When using this type of software service, small- and mid-size companies can customize applications by creating, modifying or deleting business logic without extensive programming.

Large companies may not want to take advantage of cloud-based CRM software services if they are concerned about maintaining control of their data and security.

Most cloud-based computing services do not make a guarantee that data will be available 100 percent of the time. There are also service-level agreement issues that larger companies may want to avoid.

2. What are the advantages and disadvantages of using cloud-based enterprise applications?

Advantages: Reduced costs; access to software that may be too sophisticated or cumbersome for in-house development; access to best practices industry-wide; ability to merge legacy systems with newer systems or merge databases together.

Disadvantages: Security risks; risk of losing control of data; availability issues; service-level agreement issues.

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3. What management, organization, and technology issues should be addressed in deciding whether to use a conventional CRM system versus a cloud-based version?

Management: Employee training; number of employees needed for each system type; switching costs associated with each system type.

Organization: Costs associated with each system type; organizational changes in the way the business will operate under each system type; changes in employee job functions and responsibilities that may require new organizational learning.

Technology: Degree of complexity involved in each system type; technological changes involved with each system type; changes in data management; ability or inability to customize each system type.

Visit the Web sites of Salesforce.com, RightNow, or another competing company offering a cloud-based version of CRM. Then answer the following questions: (Information provided in these answers was copied from www.rightnow.com Nov 2010) 1. What CRM capabilities does the company offer? Describe some of the features.

The RightNow CX Cloud Platform is the first platform to be purpose-built for customer experience. The critical elements for building, leveraging, and delivering great customer experiences are surfaced with the Platform pillars of “RightNow App Builder,” “RightNow Knowledge Foundation,” and “RightNow Mission Critical Operations.”

In this complex ever-changing world where every interaction matters, to deliver customer experience excellence you need to rapidly adapt to evolving business needs, provide consistent and insightful interactions, and have the confidence of proven, reliable delivery.

The RightNow App Builder is a complete suite of tools to rapidly configure, extend, and integrate customer experience apps on the RightNow CX Cloud Platform.

Get Knowledge Anywhere, Know Everything: The RightNow Knowledge Foundation is intelligent authoring, collaboration, and access for delivering up-todate, consistent and relevant knowledge across all customer interactions.

Access Anytime, Everywhere: The RightNow Mission Critical Operations is a cloud delivery platform that provides the reliability, security, and scalability demanded for mission-critical business.

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Key Highlights of the RightNow CX Cloud Platform Features: Mission Critical Operations • • •

Reliable: Disaster recovery, data redundancy, guaranteed SLA Secure: PCI, DSS, SAS70, SAS16, NIST FISMA, HIPAA Scalable: Operational visibility, multi-tenant /multi-version, elasticity

App Builder • • •

Extensible: Customizable business objects Integrated: Open standards based architecture Configurable: Multi-channel experience design tools

Knowledge Foundation • • •

Collaborative: Socially Infused, collaborative knowledge Intelligent: Patented, self-learning, native multi-channel access Syndicated: Search engine optimized, knowledge syndication

2. Toward what types of companies is the company marketing its services?

RightNow lists government agencies (Air Force Personnel Center and Army Training), passenger airlines (Air New Zealand and British Airways), educational institutions (DeVry University and Imperial College London), and online retailers (Overstock.com and Sony Online Entertainment) among its customers.

3. What other services does the company offer?

Web Experience: RightNow Web Experience gives your customers always available access to your organization with a feature rich, branded online customer experience solution from their desktop or smartphone. Web Experience allows your customers to serve themselves, receive online agent assistance or seamlessly transition to agent voice assisted channels based on their needs.

Social Experience: RightNow Social Experience offers a two-pronged approach to the social Web. First, RightNow Cloud Monitor allows you to monitor conversations on Twitter, YouTube, RSS feeds, your Facebook fan page, and other social channels, and then helps you respond quickly and appropriately. Second, RightNow communities enable you to integrate social media as a seamless part of your overall brand strategy. Together, they allow you to engage your customers in authentic conversations that increase customer satisfaction, build loyalty, and drive your business goals.

Contact Center: As part of RightNow CX, our contact center experience applications empower both customers and agents to find what they need quickly.

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Over the phone, customers can find information 24 x 7 or to be intelligently routed to an agent, based on their personal needs and preferences. They can also choose to interact with agents via email or chat. Most importantly, with any transition across channels, including the Web, the customer interaction thread is maintained with RightNow’s contact center applications to ensure a consistent cross-channel customer experience. Agents provide a great customer experience by presenting timely, contextually relevant information based on the interaction at hand.

Engage: As part of RightNow CX, RightNow Engage helps to integrate your service, sales, marketing, and feedback functions, with the external experience channels customers use to interact with you. RightNow Engage also provides a powerful set of analytical tools and applications that deliver deep, actionable customer experience insight. Build loyalty and drive revenue by communicating the right message, to the right person, at the right time across your Web, social, and contact center experiences with RightNow’s customer experience applications.

Review Questions 1. How do enterprise systems help businesses achieve operational excellence?

Define an enterprise system and explain how enterprise software works.

Enterprise software consists of a set of interdependent software modules that support basic internal business processes. The software allows data to be used by multiple functions and business processes for precise organizational coordination and control.

Organizations implementing this software would have to first select the functions of the system they wish to use and then map their business processes to the predefined business processes in the software. A particular firm would use configuration tables provided by the software to tailor a particular aspect of the system to the way it does business. Table 9.1 describes some of the major business processes supported by enterprise software. These include financial and accounting processes, human resources processes, manufacturing and production processes, and sales and marketing processes.

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.

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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 2. How do supply chain management systems coordinate planning, production, and logistics with suppliers?

Define a supply chain and identify each of its components.

A supply chain is defined as a network of organizations and business processes for procuring materials, transforming raw materials into intermediate and finished products, and distributing the finished products to customers. It links suppliers, manufacturing plants, distribution centers, retail outlets, and customers to supply goods and services from source through consumption. Supply chain management is the integration of supplier, distributor, and customer logistics requirements into one cohesive process.

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.

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 9-9 ..

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.

Describe the challenges of global supply chains and how Internet technology can help companies manage them better.

Firms use intranets to improve coordination among their internal supply chain processes, and they can use extranets to coordinate supply chain processes shared with their business partners. Using intranets and extranets (both based on Internet technology), all members of the supply chain can instantly communicate with each other, using up-to-date information to adjust purchasing, logistics, manufacturing, packaging, and schedules. A manager can use a Web interface to tap into suppliers’ systems to determine whether inventory and production capabilities match demand for the firm’s products. Business partners can use Web-based supply chain management tools to collaborate online with suppliers and customers. Sales representatives can access suppliers’ production schedules and logistics information to monitor customers’ order status. The Internet has introduced new ways of managing warehousing, shipping, and packaging based on access to supply chain information that can give companies an edge in delivering goods and services at a reasonable cost.

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.

3. How do customer relationship management systems help firms achieve customer intimacy?

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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 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.

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.

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 9-11 ..

the business processes that CRM software supports for sales, marketing, and service.

Capabilities include the following: 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.

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

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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.

4. What are the challenges posed by enterprise applications?

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.

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.

5. How are enterprise applications taking advantage of new technologies?

How are enterprise applications taking advantage of SOA, Web services, open source software, and wireless technology?

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.

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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.

Discussion Questions 1. Supply chain management is less about managing the physical movement of goods and more about managing information. Discuss the implications of this statement.

The information obtained through a supply chain management system can be used to make better decisions regarding purchasing, production, and logistics. Information helps to reduce the bullwhip effect that comes about from not having enough information or accurate information. Information can help supply chain planning systems generate forecasts and supply chain execution systems manage the flow of products through the supply chain to delivery. Supply chain management systems facilitate communication with all members of the chain.

2. If a company wants to implement an enterprise application, it had better do its homework. Discuss the implications of this statement.

Most students should agree that adopting an enterprise system is a key business decision first and foremost. CEOs and top executives must lead the change in the cultural climate. A firm understanding of business processes and the reorganization of those processes is essential to a successful implementation. Involving all parties, including end users, is also crucial to the success of such an undertaking. Creating a collaborative working environment is a key component. Also, the organization must realize how much time, money, and personnel resources will be required by the implementation of an enterprise application.

3. Which enterprise application should a business install first: ERP, SCM, or CRM? Explain your answer.

Because each of these applications are so powerful in changing the way an organization works implementation is an extreme challenge for any business. The decision about which to install first depends on individual organizations. A business may decide to go with just a CRM system or a SCM system first to gain experience in the implementation process. Some issues a business or organization needs to consider include: 9-14 ..

• • • • • • • •

Expenses associated with purchase and implementation Deep-seated technological changes Fundamental changes in the way the business operates New organizational learning Understanding just how much organizational change is required Determining possible switching costs should the organization change to a different vendor Understanding how the organization uses its data and how it will be organized under the new system Keeping customizations to a minimum

Section 9.5, “Hands-On MIS” Management Decision Problems 1. Toronto-based Mercedes-Benz Canada: Fifty-five car dealers provided customer data on an ad hoc basis. No real incentive for dealers to share information with the company. How could customer relationship management (CRM) and partner relationship management (PRM) systems help solve this problem?

Comprehensive CRM packages contain modules for partner relationship management (PRM) and employee relationship management (ERM). PRM uses many of the same data, tools, and systems as CRM to enhance collaboration between a company and its selling partners. If a company does not sell directly to customers but rather works through distributors or retailers, like Mercedes-Benz Canada does, PRM helps these channels sell to customers directly. It provides the ability to trade information and distribute leads and data about customers, integrating lead generation, pricing, promotions, order configurations, and availability. It also provides tools to assess its partners’ performances so it can make sure its best partners receive the support they need to close more business.

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 Web site, email, or online audio- and videoconferencing.

2. 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 9-15 ..

systems help Office Depot minimize costs and any other benefits they provide.

Identify and describe other supply chain management applications that would be especially helpful to Office Depot.

Supply chain management systems provide organizations with more information and tighter controls over the upstream and downstream portions of the supply chain. The information can alert managers and executives to those areas of the supply chain that may bog down the rest of the channels. Because Office Depot receives effective information through its supply chain management system and passes that to suppliers, it knows how many units of product customers want, when they want them, and when they can be produced. Components arrive at the moment they are needed for production (at suppliers), and finished goods are shipped as they leave the assembly line. Office Depot’s SCM system also helps it avert the bullwhip effect because information about product demand is less distorted. That reduces the chances of holding excess inventory, warehousing, and shipping costs.

SCM applications that would be especially helpful to Office Depot are: • Demand planning: Determines how much product Office Depot needs to have suppliers produce to satisfy all of its customers’ demands.

• Supply chain execution system: Manage the flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner. Information from this system can be shared with logistics and transportation partners to improve shipping and reduce costs.

Improving Decision Making: Using Database Software to Manage Customer Service Requests Software skills: Database design; querying and reporting Business skills: Customer service analysis 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: MIS13ch9solutionfile.mdb.

Achieving Operational Excellence: Evaluating Supply Chain Management Services 9-16 ..

Software skills: Web browser and presentation software Business skills: Evaluating supply chain management services Trucking companies no longer merely carry goods from one place to another. Some also provide supply chain management services to their customers and help them manage their information. In this project you’ll use the Web to research and evaluate two of these business services.

Investigate the Web sites of two companies, J. B. Hunt (www.jbhunt.com) and Schneider Logistics (www.schneiderlogistics.com), to see how these companies’ services can be used for supply chain management. Then, respond to the following questions: 1. What supply chain processes can each of these companies support for their clients?

J. B. Hunt Taken from the J. B. Hunt Web site: J. B. Hunt has long been recognized as a leader in providing transportation logistics technology. The myJ.B.Hunt customer portal provides customers with a secure, personalized environment to conduct ebusiness. With myJ.B.Hunt you can select from a suite of e-Business tools and customize those tools to suit the way you need to view information and conduct business. J. B. Hunt continues to invest aggressively in e-Business solutions that will reduce their costs, improve their information visibility, and assist them in better serving the customer.

Services Offered: • Book a Load: Enter Your Shipments Online • Mileage on Demand: Use Rand McNally Mileage Calculator • Documents Online: Find the Freight Documents You Need • Rates Online: View Your Published Rates • Order Tracking: Track and Trace Your Shipments Real-Time

Schneider Taken from the Schneider Web site: You have a set of logistic challenges.

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

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2. How can customers use the Web site of each company to help them with supply chain management?

“At J.B. Hunt, we forge long-term partnerships with key customers that include supply chain management as an integral part of their strategy. Working in concert, we will drive out cost, add value and function as an extension of their enterprise.”

At this site, customers can use the Web site to conduct business. There are a number of modules that can be accessed, and they have made it very easy to use with a number of supply chain demos including: Supplier Outbound, Distribution Center Outbound, Small Business/Home Delivery Service, Cross Dock Outbound, EBusiness, and Manufacturer Outbound. Each of these modules outlines a very comprehensive tutorial on how to complete each process.

“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.

3. 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 J. B. Hunt 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.

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Video Cases You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

Collaboration and Teamwork: Analyzing Enterprise Application Vendors In MyMISLab you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Sites, Google Docs, and other open-source collaboration tools to complete the assignment.

Case Study: Summit Electric Lights Up with a New ERP System 1. Which business processes are the most important at Summit Electric Supply?

Why? Most importantly, Summit had to be able to rapidly handle a high volume of transactions and swift inventory turnover. The old system was beginning to prevent that. The manual system for processing chargebacks was taking too long and was filled with errors and potential loss of revenue. By automating the system, Summit increased its claims by 118 percent thereby impacting the bottom line.

By tracking wire purchases better, Summit was able to determine which customers purchased wire from bulk roles and was able to trace the wire back to the manufacturer. Nightly inventory and financial updates were processed faster under the new system. The new system also increased the range of document numbers available so the company doesn't have to re-use the same number so frequently, if at all.

2. What problems did Summit have with its old systems? What was the business impact of those problems?

One system was used for sales entries and purchase orders. A separate system was used for back-end reporting. Integration between the two systems was done manually in batches. Only a fixed number of locations and a limited range of numbers could be used on documents so the IS department had to reuse the same range of document numbers over again every few months. The company could no longer process its nightly inventory and financial updates in the amount of time available.

As noted in question 5. below, the manual system of reconciling chargebacks was costing the company a lot of man hours and personnel costs not to mention the lost revenue.

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3. How did Summit’s ERP system improve operational efficiency and decision making? Give several examples.

Summit used a “batch management” solution in SAP’s ERP materials management software that treats a wire reel as a “batch” rather than as a single product. Every time a customer buys a length of wire, the length can be entered into the system to track how much of the “batch” was sold. Summit is able to use this capability to find which other customers bought wire from the same reel and trace the wire back to the manufacturer.

In 2010, Summit implemented SAP’s NetWeaver BW data warehouse and business intelligence solution to make better use of the data in its ERP system. These tools have helped the company evaluate the profitability of its sales channels, using what-if scenarios. For instance, Summit is now able to analyze profitability by sales person, manufacturer, customer, or branch. Business intelligence findings have encouraged Summit to focus more attention to areas such as sales order quotations and to supplier performance and delivery times. Management has much greater visibility into how the organization is operating and is able to make better decisions.

4. Describe two ways in which Summit’s customers benefit from the new ERP system.

To accommodate large customers with long-term job sites, Summit sets up temporary warehouses on-site to supply these customers with its electrical products. Summit still owns the inventory, but it’s dedicated to these customers and can’t be treated as standard inventory in the ERP system. SAP’s ERP software didn’t support that way of doing business. Summit used some of the standard functionality in the SAP software to change how it allocated materials into temporary storage locations by creating a parent-child warehouse relationship. If, for instance, Summit’s Houston office has several temporary on-site warehouses, the warehouses are managed as subparts of its main warehouse. That prevents someone from selling the consigned inventory in the warehouse.

The company needed a system that would handle orders and inventory as it continued its rapid pace of growth. In the distribution business, the lead times for fulfilling an order can be only minutes: A Summit customer might call to place an order while driving to pick up the order, so the company has to know immediately what product is available at what location. Because the new system processes data and transactions much faster and more efficiently, it can fulfill customer orders more rapidly.

5. Diagram Summit’s old and new process for handling chargebacks.

Old process: Processing chargebacks required a great deal of manual work and often took months to resolve.

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• • • •

Employees review customer invoices for specific manufacturers to identify which chargebacks Summit could claim.

Manually input the data into a Microsoft Excel spreadsheet.

Vendors responded to the chargeback invoices, often taking two or three months.

Inevitably some chargebacks were missed for which Summit was eligible, resulting in lost revenue opportunities.

New Process: As part of its ERP solution, Summit implemented the SAP Paybacks and Chargebacks application, which was developed specifically for the distribution industry.

• Application automatically reviews Summit’s billing activity at the end of each day and compares it to all chargeback agreements loaded in the SAP system.

• Where there is a match, a chargeback can be claimed, and the application creates a separate chargeback document outside of the customer invoice.

• Depending on the type of vendor, the application consolidates identified chargebacks by vendor daily or monthly, and automatically submits the information to the vendor along with the chargeback document.

• The vendor can then approve the chargeback or make changes, which are reconciled against individual chargeback documents.

The new system processes chargebacks much more quickly and also makes it possible for Summit to review them more frequently. Where vendors are exchanging data with Summit electronically, Summit is able to make a chargeback claim and obtain vendor approval the same day. By fully automating the chargeback process, the company has increased its chargeback claims by 118 percent over its legacy systems, thereby boosting chargeback revenue as a percentage of sales. Summit is now able to see which vendors, customers, and products are producing the most chargeback revenue.

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Chapter 10 E-Commerce: Digital Markets, Digital Goods Learning Objectives 1.

2.

3.

4.

5.

6.

What are the unique features of e-commerce, digital markets, and digital goods?

What are the principal e-commerce business and revenue models?

How has e-commerce transformed marketing?

How has e-commerce affected business-to-business transactions?

What is the role of m-commerce in business, and what are the most important mcommerce applications?

What issues must be addressed when building an e-commerce Web site?

Chapter Outline 10.1

10.2

10.3

10.4

E- Commerce and the Internet E-Commerce Today Why E-commerce Is Different Key Concepts in E-commerce: Digital Markets and Digital Goods in a Global Marketplace E-Commerce: Business and Technology Types of E-Commerce E-Commerce Business Models E-Commerce Revenue Models Social Networking and the Wisdom of Crowds E-Commerce Marketing B2B E-Commerce: New Efficiencies and Relationships The Mobile Digital Platform and Mobile E-Commerce Location-based Services and Applications Other Mobile Commerce Services Building an E-Commerce Presence Pieces of the Site-Building Puzzle Business Objectives, System Functionality, and Information Requirements Building the Web Site: In-House Versus Outsourcing

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

Advertising revenue model, 386 Affiliate revenue model, 390

Long tail marketing, 391 Market creator, 385

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Behavioral marketing, 391 Business-to-business (B2B), 383 Business-to-consumer (B2C), 383 Co-location, 407 Community providers, 386 Consumer-to-consumer (C2C), 383 Cost transparency, 378 Crowdsourcing, 390 Customization, 379 Digital goods, 381 Direct goods, 400 Disintermediation, 380 Dynamic pricing, 380 Electronic data interchange (EDI), 399 E-tailer, 384 Exchanges, 401 Free/freemium revenue model, 389 Geoadvertising, 403 Geoinformation services, 403 Geosocial services, 403 Indirect goods, 400 Information asymmetry, 379 Information density, 378 Intellectual property, 385 Location-based services, 402

Market entry costs, 378 Marketspace, 375 Menu costs, 380 Micropayment systems, 389 Mobile commerce (m-commerce), 383 Net marketplaces, 400 Personalization, 378 Podcasting, 385 Prediction market, 391 Price discrimination, 378 Price transparency, 378 Private exchange, 400 Private industrial networks, 400 Revenue model, 386 Richness, 378 Sales revenue model, 388 Search costs, 378 Social graph, 395 Social shopping, 390 Streaming, 385 Subscription revenue model, 389 Transaction costs, 375 Transaction fee revenue model, 389 Wisdom of crowds, 390

Teaching Suggestions The opening case, “Groupon’s Business Model: Social and Local,” 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. It also shows how 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.

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.

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Section 10.1, “E-Commerce and the Internet” This part of the text stresses the use of the Internet and the World Wide Web for electronic commerce and business. Ask your students to identify several of the many benefits that the Internet offers to organizations. Ask them to provide specific examples that they have read about in the text or have personally observed. If you have a student in your class who works for a company that participates in electronic business and electronic commerce ask him/her to explain the company’s activities.

Section 10.1 discusses the importance of e-commerce in the business world today. It discusses the benefits of using Internet technology to lower transaction and agency costs, bypass intermediaries, allow trading partners to directly communicate with each other and connect disparate systems, reduce delivery time for goods and services, make e-commerce available 24 hours a day, and replace existing distribution channels.

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 Web site 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, “E-Commerce: Business and Technology” Students are introduced to electronic commerce categories and related terminology. Even though millions of people use the Web everyday, 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 Web sites 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) Web site 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. The section about 10-3 ..

social networking and the wisdom of crowds helps students understand the most popular Web 2.0 service—social networking. Rather than looking at social networking sites from a personal, user point of view, students should explore the business opportunities these kinds of Web sites provide. Students will understand behavioral targeting techniques businesses use to market their products more effectively and at lower costs. They should pay close attention to the section of business-to-business e-commerce because most of them will probably use some form of it in their careers.

Interactive Session: Organizations: Walmart, Amazon, and eBay: Who Will Dominate Internet Retailing?

Case Study Questions 1. Analyze each of these companies using the value chain and competitive forces models.

Walmart arguably wins over Amazon and eBay in the Traditional Competitor category of Porter’s Competitive Forces Model. However, Amazon could be classified as a traditional competitor in e-commerce because it’s been around the longest and has the biggest presence and name-brand in online retailing. Because Amazon and eBay can draw from thousands of partner merchants through their online auction sites and general merchandise, they can compete effectively with Walmart in the Substitute Products and Services category. All three compete head-to-head for customers but Walmart probably wins the Supplier category in Porter’s model with its legendary continuous inventory replenishment system. Amazon is doing a better job than in the past with its increased focus on faster delivery times and its same-day delivery in select cities and its Saturday delivery offer. eBay needs to improve its delivery system and time-to-customer but that may prove difficult because the company only holds so much control over its partner merchants who are often responsible for shipping.

Amazon and eBay probably have done more to extend the value chain to the value Web. Along with their strategic partners they have made it easy for suppliers to display goods and open storefronts on their sites. Because these partners can use Amazon’s own payment system it’s easy for customers to pay for goods even if the products are from different sellers. eBay owns PayPal, one of the most popular payment systems on the Web so it has a leg up on the other two. Amazon coordinates the shipment of goods to customers along with shipment tracking systems for customers. That relieves the individual merchants from bombarding customers with different shipment messages and processes. On the other hand, Walmart doesn’t have to go to great lengths to build the kind of systems that Amazon has because all products come from a single supply chain.

2. Compare the three companies’ e-commerce business models. Which is strongest?

Explain your answer.

Amazon primarily uses an e-tailer business model. Walmart combines the traditional bricksand-mortar model with an e-tailer model. eBay primarily uses the Market Creator business model although it is moving more toward the e-tailer business model with its fixed-prices feature. However, Amazon adds to its mix a Market Creator business model that provides a 10-4 ..

digital environment in which buyers and sellers can meet, display products, search for products, and establish prices. By partnering with other businesses and acting as a middleman for other sellers, Amazon and eBay can offer a wider variety of products/services than Walmart. That gives both of them a slight lead in e-commerce. Amazon also uses a Service Provider business model with its cloud computing service. Walmart has some presence in this category by offering photo sharing services and in-store pickup of photo prints.

Determining which is the strongest model may actually lie in the eye of the beholder. Some customers absolutely swear by one over the others based on their personal preferences, past experiences, and expectations. The important thing to remember is that all three of these online giants are continually refining their business model to maintain a healthy lead over competitors and new market entrants.

3. Which company is likely to have the strongest retail e-commerce growth in the future?

Why? All three companies are considered huge success stories in the history of online e-commerce.

And all of them have had their rough spots, only to come through stronger and better.

However, when people think of online shopping, Amazon and eBay are the companies that come to mind, not Walmart. But Walmart provides more convenience for customers who return purchases by allowing them to take items to the brick-and-mortar stores. Neither Amazon nor eBay can offer that option.

On the other hand, when it comes to selection and wide array of product offerings, Walmart can’t match the other two. With eBay’s acquisition of GSI Commerce, it can expand its product lines to match or beat the other two. Amazon is spending much of its cash building more fulfillment centers, expanding its technology offerings, and building data centers.

Walmart sees highly competitive price cuts as a way to gain market share quickly as it enters the online marketplace.

Interactive Session: People: Social Commerce Creates New Customer Relationships Case Study Questions 1. Assess the management, organization, and technology issues for using social media to engage with customers.

Management: Levi’s creating a “Levi’s Guy” to help build interest in the company’s brand.

Personalizing the company was a huge success. The company also created a personalized Friends Store where shoppers can see what their friends “Liked” and bought.

Organization: Best Buy uses a dedicated team of Twitter responders to answer user questions and respond to complaints. The company then mines the data through text mining and converts the data to useful information about the company’s products. The company uses 10-5 ..

the information to gauge the success of promotions, which products are hot and which are duds, and the impact of advertising campaigns.

Technology: The online ad for the Mrs. Meyers cleaning brand used a different kind of technology in which viewers placed their cursor over the ad, exposing an area that display Facebook wall posts, Twitter postings, or a company video, all without leaving the Web page being visited. Consumers were also more likely to click on a “learn more” button to go to Mrs. Meyers’ own Web site, with 35 of every 1,000 users clicking through, compared with an average of just one in 1,000 for traditional online ads. Those kinds of technical tricks differentiate a company from its competitors.

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: The Levi’s Facebook page has 500,000 “Like” messages posted by friends sharing their favorite jeans.

Market research: Wrigleyville Sports has been building a Facebook following for over three years. It also uses email campaigns and Twitter postings to announce promotions. It tracks purchases related to its promotions and is able to tell which promotions yield the most profitable new customers.

Customer service: Best Buy’s Twitter responders, called the “Twelp Force,” answer user questions and respond to complaints. That keeps customers satisfied and away from posting negative tweets on their own.

Disadvantages: •

Starbucks’s social media contest backfired on the company when people posted negative pictures of protesters holding signs criticizing its labor practices.

3. Give some examples of management decisions that were facilitated by using social media to interact with customers.

Wrigleyville knows which customers respond to its promotions, how much they spent, and what they purchased. It can measure conversion rates, the value of keyword buys, and the ultimate return on advertising campaigns. It knows exactly where and how to spend its advertising dollars most effectively.

Best Buy uses its central analytical platform to analyze unstructured data and make decisions about which products to promote, which are duds, and how effective its advertising campaigns are. JCD Repair encourages customers to post reviews of its service on Facebook,

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Yelp, and Google+. That helps the small company know what it’s doing right and when it makes a mistake that it can quickly rectify.

4. Should all companies use Facebook and Twitter for customer service and advertising?

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. Best Buy did it right by using a dedicated tame of Twitter responders. If the company’s employees are not available for the unanticipated response volume, the plan could backfire.

The same goes for advertising volume. Wrigleyville effectively uses Facebook and Twitter for product promotions and contests that draw customers in and makes the company’s offerings more interactive with customers.

Companies who interface directly with consumers are probably more suited to using Facebook and Twitter promotions. But, as Starbucks discovered, the promotions must be well-thought out.

Section 10.3, “The Mobile Digital Platform and Mobile E-Commerce” M-commerce consists of selling anything over a mobile wireless device or Net appliance. It is also a method used by marketers to target advertising more directly to consumers. Wireless mobile devices are turning up everywhere. The newer appliances integrate 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.

Section 10.4, “Building an E-Commerce Presence” This may be the first time students are exposed to the mechanics of designing and building an e-commerce Web site. No doubt they all have used e-commerce Web sites 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 Web site, it does outline some of the organizational and technological decisions that need to be made before the site goes live.

Successful e-commerce sites take into account business objectives and use the right technology to meet them. Table 10-7 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.

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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 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.

List and describe the eight unique features of e-commerce.

Table 10-2 outlines eight unique features of e-commerce which include: • E-commerce technology is ubiquitous, meaning that it is available just about everywhere a computer can connect to the Internet.

• It has global reach, permitting commercial transactions to cross cultural and national boundaries far more conveniently and cost effectively than is true in traditional commerce.

• It operates according to universal standards shared by all nations around the world, whereas most traditional commerce technologies differ from one nation to the next.

• It provides information richness, enabling an online merchant to deliver to an audience of millions complex and rich marketing messages with text, video, and audio in a way not possible with traditional commerce technologies, such as radio, television, or magazines.

• It is interactive, meaning it allows for two-way communication between merchant and consumer and enables the merchant to engage a consumer in ways similar to a face-to-face experience but on a much more massive, global scale.

• It increases information density (the total amount and quality of information available to all market participants).

• It permits personalization and customization—merchants can target their marketing messages to specific individuals by adjusting the message to a person’s name, interests, and past purchases.

• Social technology enables user content creation and distribution and supports social networks.

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 10-8 ..

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.

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.

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 Web site 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.

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• •

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.

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.

Define behavioral targeting and explain how it works at individual Web sites and on advertising networks.

Behavioral targeting refers to tracking the click-streams of individuals for the purpose of understanding their interests and intentions, and exposing them to advertisements which are uniquely suited to their behavior. Ultimately, this more precise understanding of the customer leads to more efficient marketing and larger sales and revenues. Behavioral targeting of millions of Web users also leads to the invasion of personal privacy without user consent.

Behavioral targeting takes place at two levels: at individual Web sites and on various advertising networks that track users across thousands of Web sites. Most e-commerce Web sites 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 Web site, 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.

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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.

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 Web site, 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 amount of money and time.

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.

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.

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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.

6. What issues must be addressed when building an e-commerce Web site?

List and describe each of the factors that go into the building of an e-commerce Web site.

• • • • • • •

Remain aware of the main areas that require decisions.

Form a team of individuals who possess the skill sets needed to make key decisions about technology, site design, and the social and information policies that will be applied at the site.

Managers must make decisions about hardware, software, and telecommunications infrastructure.

Customer demands should drive technology choices.

The technology should enable customers to find what they want easily, view the product, purchase it, and then receive it quickly from warehouses.

The site design must be carefully considered.

A project plan should then be developed.

List and describe four business objectives, four system functionalities, and four information requirements of a typical e-commerce Web site.

Table 10-8 lists nine business objectives with accompanying system functionalities and information requirements necessary for each. Four of the most common are: • Display goods (objective) using a digital catalog (system functionality) for dynamic text and graphics catalog (information requirements).

• Provide product information (objective) using a product database (system functionality) to provide a product description, stocking numbers, and inventory levels (information requirements).

• Execute a transaction payment (objective) using a shopping cart/payment system (system functionality) to provide secure credit card clearing (information requirements).

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•

Understand marketing effectiveness (objective) using a site tracking and reporting system (system functionality) to provide the number of unique visitors, pages visited, products purchased, and identified by the marketing campaign (information requirements).

List and describe each of the options for building and hosting e-commerce Web sites.

Figure 10-10 depicts the alternatives to consider when building and hosting an e-commerce site. They include: • Completely hosting and building the site in-house.

• Completely outsourcing the hosting and building functions.

• Hosting the site in-house and outsourcing the building function.

• Building the site in-house and outsourcing the hosting function.

Discussion Questions 1. How does the Internet change consumer and supplier relationships?

One clear change is that consumers can research products and services online and then make their purchases either on the Internet or in physical stores. As the Internet increases the richness and range of information that is available, it shrinks information asymmetry.

The Internet is responsible for creating new business models and promoting customercentered retailing, direct sales over the Web, interactive marketing and personalization, mcommerce, and customer self-service.

In today’s competitive environment, suppliers must increasingly offer consumers and businesses a variety of products and services offering mass customization and personalization without increased delivery times. However, delivery performance depends on many different factors, such as finished parts inventory levels and work-in-progress.

Suppliers can track these factors inexpensively through the use of information systems.

The Internet changes information density available to consumers. Price transparency and cost transparency disrupt the typical relationship between suppliers and customers, giving customers more power to control prices. On the other hand, the Internet gives suppliers more price discrimination over customers. Suppliers and customers can deal with each other directly over the Internet and cause disintermediation for the traditional middleman.

2. The Internet may not make corporations obsolete, but the corporations will have to change their business models. Do you agree? Why or why not?

Most students will probably agree, but whichever way they go, they must support their case.

If you have students on both sides of the issue, lead a discussion that challenges the position of both sides.

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The Internet is certainly driving tremendous changes, and it is important to note that these changes are self-perpetuating and happening much faster than ever before. There are seven megatrends where the Internet’s impact is changing how businesses operate. These trends are found in every industry and every country around the world.

The megatrends include: • • • • • • •

New channels are revolutionizing sales and brand management.

The balance of power may be shifting to the customer.

Competition is intensifying across all dimensions.

The pace of business is fundamentally accelerating.

Companies are transforming into extended enterprises.

Companies are re-evaluating how they, their partners, and their competitors add value.

Knowledge is becoming more of a key strategic asset.

Instead of inwardly-focused companies “sticking to their knitting,” we will see extended enterprises; instead of companies with circumscribed relationships with their suppliers and customers, we will see a myriad of electronic relationships and shared processes; instead of a hierarchical chain of command, we will see virtual teams, empowered to make decisions on behalf of the company. Without the Internet, none of this would be possible.

3. How have social technologies changed e-commerce?

The sheer numbers of people using social networking, over 120 million users every day in the United States, changes e-commerce business models and strategies. The 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 have begun establishing a prominent presence on social networking sites to market or sell products/services, gain insight into customer preferences, or engage customers in new ways not available through any other conduit. User-generated content sites provide new ways for companies to produce videos that advertise and promote their products. Social networks create a new “front door” for customers to reach businesses and either learn about or purchase products/services.

Online viral marketing provides new ways for people to obtain information— both positive and negative— about products/services.

The wisdom of crowds and crowdsourcing was not possible prior to the rise of social technologies. Now businesses can use both to interact with customers to discover who likes or hates their products, and to advertise and market products/services. By actively soliciting comments from customers, businesses can build trust and send the message that it cares what its customers think. Crowdsourcing allows customers to “help” companies solve problems or generate new ideas

Hands-On MIS Projects Management Decision Problems 10-14 ..

1. 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 Web site perform?

A Web site 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 Web site 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 Web site makes it easier for potential visitors to contact hotels and book accommodations. The Web site can connect with airlines and provide information about flights with the ability to purchase airline tickets on partnering Web sites. Potential business models, depending on the features available on the site, include information broker, transaction broker, and even a social network where people with similar interests in these kinds of destinations can meet and discuss.

2. Company-sponsored blog: Visit Blue Nile, J.Crew, Lowe’s, and Priceline. Determine which of these Web sites would benefit most from adding a company-sponsored blog to the Web site. List the business benefits of the blog. Specify the intended audience for 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.

•

•

•

•

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.

J.Crew: The Web site appears to market apparel to 20- and 30year old men and women who reside primarily in major metropolitan areas. A blog, dedicated to the social scene in various cities, written by employees or marketing managers, could address the best places to eat, meet other people, or attend nightclubs.

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.

Improving Decision Making; Using Spreadsheet Software to Analyze a Dot-Com Business Software skills: Spreadsheet downloading, formatting, and formulas Business skills: Financial statement analysis 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 10-15 ..

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 Web sites such as Ameritrade (www.ameritrade.com) or the Small Business Knowledge Base (www.bizmove.com/finance/m3b2.htm).

The suggested answer files are ch10_solutionfiles.ppt and ch10_solutionfiles.xls.

Achieving Operational Excellence: Evaluating E-Commerce Hosting Services Software skills: Web browser software Business skills: Evaluating e-commerce hosting services You would like to set up a Web site to sell towels, linens, pottery, and tableware from Portugal and are examining services for hosting small business Internet storefronts. Your Web site 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 Comcast 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 $50.00 setup fee

YAHOO! Small Business Merchant Solutions Standard Professional $99.95/month $299.95/month 1.0% transaction fee .75% transaction fee $50.00 setup fee $50.00 setup fee

Economy Plan 3 month:$4.99/month 12 month: $4.74/ month S AVE 5% 24 month: $4.50/ month SAVE 10% 36 month: $4.25/ month SAVE 15% ‡

‡

‡

Starter No extra charge

GoDaddy.com Deluxe Plan 1 month:$6.99/month 12 month: $6.64/ month SAVE 5% 24 month: $6.29/ month SAVE 10% 36 month: $5.94/ month SAVE 15% ‡

‡

‡

Comcast.com Business Commerce $19.95 $39.95

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Unlimited Plan 1 month:$14.99/month 12 month: $14.24/ month SAVE 5% 24 month: $13.49/ month SAVE 10% 36 month: $12.74/ month SAVE 15% ‡

‡

‡

Professional $79.95

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.

Video Cases You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

Collaboration and Teamwork: Performing a Competitive Analysis of E-Commerce Sites Form a group with three or four of your classmates. Select two businesses that are competitors in the same industry and that use their Web sites for electronic commerce.

Visit these Web sites. You might compare, for example, the Web sites for iTunes and Napster, Amazon and BarnesandNoble.com, or E*Trade and Scottrade. Prepare an evaluation of each business’s Web site in terms of its functions, user friendliness, and ability to support the company’s business strategy. Which Web site does a better job?

Why? Can you make some recommendations to improve these Web sites? If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop a presentation of your findings for the class.

Answers for this project will vary as students will select different businesses from which to complete the comparison. The simplest method would be to go directly to each of the company’s main Web page as listed in the question.

In their analysis, students could set up a spreadsheet table to evaluate each of the two businesses they are making their comparisons against. They should include fields for functions, user friendliness, and ability. By using a simple weighted factor scale and assigning weights to each feature in order of their perceived importance they will arrive at a score that they can use to determine which Web site they feel does a better job.

The main Web pages for the companies listed in the question are: www.apple.com/itunes www.napster.com www.amazon.com barnesandnoble.com/ http://etrade.com http://scottrade.com/

Here are some criteria for evaluating the Web sites: •

Richness—does the site include video, audio, and text message integrated into a single marketing message and consumer experience?

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• • • •

Interactivity—does the site engage the user in a dialog that dynamically adjusts the experience to the individual?

Information density— is the information on the site current, accurate, and timely?

Personalization/customization— are the products and services based on individual characteristics?

Social technology—does the site enable user content creation and distribution and support social networks?

Case Study: To Pay or Not to Pay: Zagat’s Dilemma Case Study Questions 1. Evaluate Zagat using the competitive forces and value chain models.

Zagat was the victim of two competitive forces, new market entrants and substitute products and services, when Yelp, Groupon, Google Places, and other similar services offering free content surpassed Zagat’s online content that stood behind a pay wall. Food blogs and similar sites abound on the Web but Zagat was in a unique position to get there first and establish itself as a market leader. It failed to do so.

Zagat’s primary activities remained mostly offline with its printed restaurant guide book.

Even though Zagat was one of the first companies to popularize user-generated content, it botched its well-established strategic advantage when it chose to establish a pay wall for its online content. Most people using the Web are used to getting free access and aren't yet willing to pay for content no matter how popular it is.

2. Compare Zagat’s and Yelp’s e-commerce business models. How have those models affected each company's Web strategy?

For much of 2011, Zagat trailed Yelp and other free review sites in the battle for eyeballs.

Yelp drew much greater traffic than Zagat.com. From January to April 2012, Zagat.com only had 310,000 while Yelp had 31 million. The Zagat Web site claims it has more users, but the disparity is still significant.

A quick visit to the two sites highlights some of the differences. Zagat.com’s home page is streamlined, with a minimal number of search boxes and links immediately available. Yelp’s front page is much busier and less streamlined than Zagat’s, but has a great deal more content available immediately. The front page has lists of the most popular restaurants, retail outlets, bars and clubs, and many other categories, all free to the user.

The main focus of Zagat's Web site is restaurant reviews organized by major “hub” cities. Its primary income stream is from customers paying for extra content associated with the reviews. Yelp focuses on more than just restaurants, including retail outlets, bars and clubs, and other categories in major cities and smaller cities and towns. Its primary income stream comes from advertisers.

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Many analysts believe that there is much more potential for growth with Yelp’s business model than with Zagat’s, because it is a useful advertising vehicle for small businesses everywhere, not just major cities. Zagat may also have hurt itself with its slow response to the emergence of the mobile digital platform.

3. Why was Zagat’s content well suited for the Web and for the mobile digital platform?

Zagat’s content is appealing to people on the move. When visiting major cities, people may not know the best places to eat, the kinds of food served in particular restaurants, or the hours of operations. Zagat’s mobile app features access to Zagat premium ratings and reviews and the ability to find nearby restaurants using geolocation. The latest version, released in early 2011, includes a full visual overhaul to increase ease of use and integration with Foodspotting and Foursquare and to provide photos of dishes and meal tips based on diners with tastes similar to the user’s own. These changes are intended to make the application more social. Another compelling feature of Zagat’s app is the ability to download its guides directly to phones. That way, users can access the information even if the Internet is unavailable or if they are outside the United States.

4. Do you think Zagat’s decision to use a pay wall for its Web site was a mistake? Why or why not?

In all likelihood, the decision to use a pay wall severely harmed Zagat’s position as the premier food and restaurant guide and gave its competitors an easy opportunity to infringe on its territory. People are used to getting free content and tend to bypass pay-for-view sites in favor of those providing content for free - even if it may be inferior.

Perhaps realizing this, in February 2011, Zagat Survey re-launched its Web site featuring more free content in response to the rising popularity of Yelp and similar sites. The site features revamped search tools that allow users to find restaurants in particular neighborhoods or near prominent landmarks. Members receive more recognition for being active and respected reviewers, including their own quotes in Zagat’s previously anonymous reviews. Users can now “like” reviews similarly to Facebook, and they can also upload their own photos to the site. Full access to the site, however, still costs $24.95 per year.

5. Will Zagat’s acquisition by Google make it more competitive? Explain your answer.

Google purchased Zagat.com in September, 2011. The acquisition strengthens Google’s position in mobile and local search, helping it to compete against Yelp for high-volume searches for restaurants and hotels. It also means that Google will own some of the media content it serves up for searches, and the content will be of higher quality than in the past.

So far, the pairing of Google and Zagat has been successful. Google hopes that incorporating Zagat’s user-generated content model into Google+ will help its fledgling social network to better compete with Facebook by providing uniquely valuable services to its users. From Zagat’s perspective, the Google acquisition represents another phase in a long e-commerce journey, and illustrates the difficulty of developing just the right business model.

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Chapter 11 Managing Knowledge Learning Objectives 1.

2.

3.

4.

What is the role of knowledge management and knowledge management programs in business?

What types of systems are used for enterprise-wide knowledge management and how do they provide value for businesses?

What are the major types of knowledge work systems and how do they provide value for firms?

What are the business benefits of using intelligent techniques for knowledge management?

Chapter Outline 11.1

11.2

11.3

11.4

The Knowledge Management Landscape Important Dimensions of Knowledge The Knowledge Management Value Chain Types of Knowledge Management Systems Enterprise-Wide Knowledge Management Systems Enterprise Content Management Systems Knowledge Network Systems Collaboration and Social Tools and Learning Management Systems Knowledge Work Systems Knowledge Workers and Knowledge Work Requirements of Knowledge Work Systems Examples of Knowledge Work Systems Intelligent Techniques Capturing Knowledge: Expert Systems Organizational Intelligence: Case-Based Reasoning Fuzzy Logic Systems Machine Learning Intelligent Agents

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, 431 Agent-based modeling, 443

Intelligent agents, 443 Intelligent techniques, 424 11-1 ..

Artificial intelligence (AI), 435 Augmented reality (AR), 433 Backward chaining, 437 Case-based reasoning (CBR), 437 Communities of practice (COPs), 423 Computer-aided design (CAD), 430 Data, 419 Digital asset management systems, 426 Enterprise content management systems, 425 Enterprise-wide knowledge management systems, 423 Expert systems, 435 Explicit knowledge, 420 Folksonomies, 426 Forward chaining, 435 Fuzzy logic, 439 Genetic algorithms, 442 Hybrid AI systems, 444 Inference engine, 435

Investment workstations, 434 Knowledge, 420 Knowledge base, 435 Knowledge discovery, 434 Knowledge management, 421 Knowledge network systems, 426 Knowledge work systems (KWS), 424 Learning management system (LMS), 428 Machine learning, 440 Neural networks, 440 Organizational learning, 421 Social bookmarking, 426 Structured knowledge, 425 Tacit knowledge, 420 Taxonomy, 426 Virtual Reality Modeling Language (VRML), 434 Virtual reality systems, 431 Wisdom, 420

Teaching Suggestions The opening case, “Designing Drugs Virtually,” demonstrates how an organization can improve its business performance by organizing knowledge more efficiently. Drug development was largely a matter of trial and error. While drug companies would occasionally develop a successful drug, the majority of their efforts failed. Way too much depended on chance. When researchers did come upon a new treatment that worked, they often had no idea why it did.

A scientist developed a structure-based design that focuses on figuring out what a “lock” looks like so it could fashion the right disease-fighting “key.” The new method relies on powerful computers to do much of the analysis. The computers help evaluate structures and properties of molecules and rapidly search large database libraries of chemical structures.

Researchers use computers to model compounds virtually and then make the compounds in test tubes for further study. Using computers and knowledge-based information systems to more effectively research and analyze potential drugs is bringing winning products to market sooner and much less expensive than before.

Section 11.1, “The Knowledge Management Landscape” Most students don’t think about the differences between data, information, knowledge, and wisdom. It may be 11-2 ..

helpful to follow pieces of sales data through each of the four entities. Data would be that five widgets sold. Information about the widget sales would be that all five widgets were sold in one month in the northwest region. Knowledge would extend the data and information to show that it is an extraordinary event to sell five widgets in the northwest region because the most that are ever sold in one month are two. Wisdom would tell managers and executives that the reason five widgets were sold in one month in the northwest region was because the newly-elected President of the United States once lived there. Students also need to understand the difference between tacit knowledge (residing in people’s minds) and explicit knowledge (documented). It becomes an important distinction throughout the chapter.

The knowledge management value chain helps businesses create, store, transfer, and apply knowledge across the organization. Value chains are aided by three types of knowledge management systems: enterprise-wide knowledge management system, knowledge work systems, and intelligent techniques. Figure 11-2 correlates information system activities with management and organizational activities in the knowledge management value chain.

Section 11.2, “Enterprise-Wide Knowledge Management Systems” 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 Web sites, bookmark the sites, and then share the tags with other students.

Interactive Session: Organizations: Denver Goes Alfresco Case Study Questions 1. What types of problems was the consolidated city-county government of Denver, Colorado experiencing with document management before instituting the Alfresco ECM system?

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Prior to the new system’s implementation, more than 70 agencies in the consolidated city-county government used 14 different document management systems. Of course, none of them could communicate or interact with each other. The Information Technology department supervised multiple autonomous IT units with their own systems and standards. The decentralization created problems with document sharing and security. Problems also existed with the ability to audit record keeping functions, particularly scanned contracts and financial records. All of these problems resulted in reduced employee productivity and efficiency.

2. How did the Alfresco ECM system provide a solution to these problems?

First, the new enterprise content management (ECM) system no longer required the city’s contract record system to reboot every night. It met security standards and was easily searchable for all agency employees. The system was implemented without any interruption in service, an important consideration in its selection as a solution.

Because it used a Web-based, open-source solution, it was inexpensive to implement and saved the city-county approximately $1.5 million over five years.

The system capabilities included document, record, and image management; document versioning, multi-language support; support for multiple client operating systems; Web content management, and integration with MySQL, which Denver used for its relational database management system.

3. What management, organization, and technology issues had to be addressed in selecting and implementing Denver’s new content management system?

Management: Another important consideration of choosing Alfresco as the new information system was to improve citizen engagement. Although many documents could be obtained at government offices, Denver wanted to provide citizens with online access at a reduced cost. Documents could be moved between the new software platform and the old one and made available to citizens through the Web. Organization: The city-county government leveraged its existing information systems to centralize and standardize the procure-to-pay process. Elements of the workflow and the document repository were handled by Alfresco. A Web service was used to communicate and move requisitions, purchase orders, receiving documents, accounts payable invoices, and associated documents between software platforms.

When existing software and services could be leveraged, they were. That not only saved implementation costs but reduced the amount of time to migrate the documents and the amount of time to train employees on the new system.

Technology: Alfresco was integrated with the currently-used software so employees could view contracts and associated content within a familiar interface. That reduced training time and conversion difficulties. Complete automation of the contract requisition, writing, and authorization processes resulted in accelerated contract approval time and enhanced contract and financial document auditing.

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4. How did the new content management system change governmental processes for Denver? How did it benefit citizens?

Another initiative to better serve citizens was an upgrade to the 311 service. The 311 service is a special non-emergency phone number in many communities that connects citizens to a Citizen Service Center. Residents can call to report community concerns such as potholes, barking dogs and other noise disturbances, graffiti, roadway debris, and dysfunctional street and traffic lights. Denver migrated the 311 service to an online version by reusing newly created Web services and incorporating Alfresco with the call center and customer relationship management (CRM) software. Citizens can now use an online form to submit complaints and concerns from their computer or through iPhone and iPad apps.

Knowledge Work Systems” Spend a few minutes discussing knowledge assets and knowledge management. Ask your students to discuss how companies like Microsoft, Dell, Toyota, or Staples might manage their knowledge assets. Going over the examples of knowledge work systems listed in the text stimulates a fair amount of discussion and interest. Many students have knowledge of virtual reality systems by visiting expos or demonstrations. Students have grown up playing games on very powerful computers with high-end graphics. Ask them to discuss their experiences with these types of technologies. If class permits you may wish to demonstrate a quick virtual reality project.

There are a number of projects that you can download and run from this site: wwwvrl.umich.edu/projects.html.

Interactive Session: Technology: Firewire Surfboards Lights Up with CAD Case Study Questions 1. Analyze Firewire using the value chain and competitive forces models.

Firewire is using information systems to achieve a competitive advantage by introducing new products and services to its customers that others are not. It is improving its customer relationships by offering a service that will keep old customers and attract new ones. Its new CAD system gives Firewire a competitive advantage through product differentiation and by strengthening its customer intimacy.

Its value chain is improved through a more efficient design system that is available to customers through the Web. New designs are electronically transmitted directly to the factory and drive the machines that manufacture the surfboards. The new CAD system improves the chain of basic activities and adds a margin of value to the company’s products and services.

2. What strategies is Firewire using to differentiate its product, reach its customers, and persuade them to buy its products?

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Firewire began using computer-aided designs (CAD) sent to cutting facilities to design and build surfboards rather than doing all the work by hand. The computeraided manufacturing process returned a board that was 85–90 percent complete. Later it began offering a Web-based online customization system and advanced 3D CAD tools that allow individual customers to design their own surfboards. Customers can share their designs online with other surfers and solicit feedback from them. Once the board is built and delivered, customers can share their experiences with others online.

Allowing customers to take part in the design process provides them an opportunity to interact with the company and other customers that Firewire’s competitors can’t or don’t.

3. What is the role of CAD in Firewire’s business model?

The new online CAD system provides a way to extend customization to a wider market. The Firewire Surfboards’ Customer Board Design system allows users to easily manipulate board dimensions and other features and experiment with various designs. Once the design is completed and a PDF of the new board’s specifications is produced, customers can have another board made to those exact specs time and again.

4. How did the integration of online custom board design software (CBD), CAD, and computer numerical control (CNC) improve Firewire’s operations?

The computer-aided design (CAD) process reduced the amount of work that had to be done by hand by 10 percent. It also allowed the company to build its surfboards more quickly and cheaply. It generates a precise three-dimensional model of the stock model used as the base design along with a 3D PDF file of the customized board. A customer can manipulate the model from all angles and compare the customized board to the standard board to fully understand the design before placing an order.

The CBD generates a precise solid CAD model of the board that is transmitted directly to the Firewire factory for driving the CNC machines that manufacture the board. The technologies result in a board that is 97 percent complete, minimizing the manufacturing time, finishing process, and costs to the consumer.

Section 11.4, “Intelligent Techniques” In this section, students are introduced to artificial intelligence, expert systems, cased-based 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.

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As a final note on artificial intelligence, you should mention to your students that it is applied in many programs with which they are familiar. For example, the intelligent help system of many application packages is a feature that students should know. The wizards, as the text shows, are examples of intelligent agents. Sometimes the level of intelligence of these agents does not need to be high, such as the agents or robots that look for specific pieces of information on the Internet.

Review Questions 1. What is the role of knowledge management and knowledge management programs 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 firms 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 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.

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 11-7 ..

knowledge that has been documented whereas tacit knowledge is the expertise and experience of organizational members that has not been formally documented Describe the stages in the knowledge management value chain.

Refer to Figure 11–2 for the knowledge management value chain. These steps include: •

Acquire: knowledge discovery, data mining, neural networks, genetic algorithms, knowledge workstations, expert knowledge networks • Store: document management systems, knowledge databases, expert systems • Disseminate: intranet portals, push email reports, search engines, collaboration • Apply: decision support systems, enterprise applications 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 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.

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Describe the role of the following in facilitating knowledge management: portals, wikis, social bookmarking, and learning management systems.

• •

•

•

Portals provide access to external sources of information like news feeds and research, as well as to internal knowledge resources along with capabilities for email, chat/instant messaging, discussion groups, and videoconferencing.

Wikis provide a central repository for all types of corporate data that can be displayed in a Web browser, including electronic pages of documents, spreadsheets, and electronic slides. They can embed email and instant messages. Even if wikis are changed, the software tracks the changes and provides tools for reverting to earlier versions.

Social bookmarking lets users save bookmarks to Web pages on a public Web site and tag these bookmarks with keywords. The bookmarks can be shared with co-workers, managers, customers, suppliers, and business partners.

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.

2. What are the major types of knowledge work systems and how do they provide value for firms?

Define knowledge work systems and describe the generic requirements of knowledge work systems.

Knowledge work systems (KWS) are specialized systems for engineers, scientists, and other knowledge workers that are designed to promote the creation of knowledge and to ensure that new knowledge and technical expertise are properly integrated into the business. These systems reflect the special needs of knowledge workers. In this day and age, knowledge work is critical to most organizations, and in some organizations knowledge work systems produce strategic advantage or the knowledge that enables their company to keep up with others who are trying for strategic advantages.

KWS must have adequate computing power to handle the specialized tasks and complex calculations, provide easy access to external databases to support research, and present a user-friendly interface. KWS software uses intensive graphics, analysis, document management, and communications capabilities. These capabilities can increase the productivity of highly paid knowledge workers. KWS often run on workstations that are customized for the work they must perform. Computer-aided design (CAD) systems and virtual reality systems, which create interactive simulations that behave like the real world, require graphics and powerful modeling

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capabilities. KWS for financial professionals provide access to external databases and the ability to analyze massive amounts of financial data very quickly.

Describe how the following systems support knowledge work: CAD, virtual reality, augmented reality, and investment workstations.

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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.

Investment workstations are computer systems that access and manipulate massive amounts of financial data to manage financial trades and portfolio management. In addition to massive amounts of data, financial data are produced so quickly that specialized, very powerful systems are necessary to keep up with the rapid speed of finance and financial changes.

3. 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.

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.

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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.

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.

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 Web sites, and the purchases of others who are “similar.”

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 11-11 ..

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.

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 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.

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Discussion Questions 1. Knowledge management is a business process, not a technology. Discuss.

Knowledge that cannot be communicated and shared with others is nearly useless. It becomes most useful and actionable when it’s shared throughout an organization.

Much of a company’s value depends on its ability to create and manage knowledge.

Well-executed knowledge-based projects have been known to produce extraordinary returns on investment. Knowledge management is a set of business processes used to create, store, transfer, and apply knowledge. It benefits from the usage of information technology to support these business processes. Information technology helps a company create, share, capture, codify, and distribute its knowledge.

2. Describe various ways that knowledge management systems could help firms with sales and marketing or with manufacturing and production.

KMS have been developed for sales and marketing to help them access and share information about customers, sales leads, competitors, and changes in pricing and specifications of products. Virtual Reality and VRML help customers experience the look and feel of products before they purchase them, and case-based reasoning systems are used for customer service and support.

Manufacturing and production use knowledge work systems for creating and sharing product design and manufacturing specifications and for project management. Expert systems configure orders when many parts or features are being assembled. Experts systems and case-based reasoning are used for diagnostics and repairs. Fuzzy logic helps improve the performance of products and genetic algorithms help to solve problems in scheduling and design.

3. 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.

The first step is to understand the dimensions of knowledge as outlined in Table 11-1.

These guidelines help lay the groundwork for selecting a knowledge management system that will meet the needs of the organization.

The second step is to review the Knowledge Management Value Chain in Figure 111. The activities in this figure reflect proper business processes necessary to collect, store, disseminate, and apply knowledge. The information system activities should accompany management and organizational activities to increase the viability of the knowledge management value chain.

Once the groundwork has been accomplished, the organization must decide which of the three knowledge management systems best fit the needs of its employees, managers, and executives. An enterprise-wide knowledge management system is a 11-13 ..

general-purpose firm-wide effort to collect, store, distribute, and apply digital content and knowledge. Are the capabilities for information searches, storing both structured and unstructured data, and locating employee expertise valuable to the organization?

Are technologies like portals, search engines, collaboration tools, and learning management systems important to the organization?

Would a knowledge work system built for engineers, scientists, and other knowledge workers that provide computer-aided design, visualization, simulation, and virtual reality systems fulfill the organizational needs?

Or, does the organization require intelligent techniques such as data mining, expert systems, neural networks, fuzzy logic, genetic algorithms, and intelligent agents?

Since each of these three knowledge management systems have different objectives, every company must decide upon the ultimate objective and then select the most appropriate knowledge management system.

Hands-on MIS Projects Management Decision Problems 1. U.S. Pharma Corporation: Headquartered in New Jersey the company has research sites in Germany, France, the United Kingdom, Switzerland, and Australia. R& D is key to its ongoing profits. Researchers need to share information with others within and outside the company. Design a knowledge portal with design specifications relevant to internal systems and databases, external sources of 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.

2. 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.

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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 Web site for new products and services, best practices, and problem resolution. A section of the Web site 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.

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 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 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 Web sites, vendors, articles, and references.

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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_mis13_ch11_solution_file.xls.

Improving Decision Making: Using Intelligent Agents for Comparison Shopping Software skills: Web browser and shopping bot software Business skills: Product evaluation and selection 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 S100 or the Olympus Tough TG-820. 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 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 of 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.

Video Cases You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

Collaboration and Teamwork: Rating Enterprise Content Management Systems With a group of classmates, select two enterprise content management products, such as those from Open Text, IBM, EMC, or Oracle. Compare their features and capabilities. To prepare your analysis, use articles from computer magazines and the Web sites for the knowledge network software vendors. If possible, use electronic presentation software to present your findings to the class. If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project 11-16 ..

documents. Try to use Google Docs to develop a presentation of your finding for the class.

Because teams will select different enterprise content management products, no firm answer can be supplied for this project. Teams will probably visit each vendor’s Web site and obtain a list of features and capabilities for the product. Try having students use a spreadsheet-type layout to compare each feature. That will help them analyze the characteristics of the features. For instance, OpenText lists one of its features as “Digital Asset Management.” IBM lists the same feature as “FileNet Image Services.” What may not be apparent at first is that both of these features focus on content like videos, pictures, or audio files rather than mere text-based files. Perhaps more importantly than just listing features and capabilities, you can encourage students to understand exactly what each feature will accomplish for an organization.

Case Study: IBM’s Watson: Can Computers Replace Humans?

Case Study Questions 1. 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.

2. 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!

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3. What kinds of problems is Watson able to solve? How useful a tool is it for knowledge management?

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.

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 transaction 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.

4. Do you think Watson will be as useful in other 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.

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Chapter 12 Enhancing Decision Making Learning Objectives 1.

2.

3.

4.

5.

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?

How do business intelligence and business analytics support decision making?

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?

Chapter Outline 12.1

12.2

12.3

Decision Making and Information Systems Business Value of Improved Decision Making Types of Decisions The Decision-Making Process Managers and Decision Making in the Real World High-Velocity Automated Decision Making Business Intelligence in the Enterprise What Is Business Intelligence?

The Business Intelligence Environment Business Intelligence and Analytics Capabilities Management Strategies for Developing BI and BA Capabilities Business Intelligence Constituencies Decision Support for Operational and Middle Management Decision Support for Senior Management: The Balanced Scorecard and Enterprise Performance Management Methods Group Decision-Support Systems (GDSS)

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, 474 Behavioral models, 458 Business performance management (BPM), 475

Implementation, 458 Informational role, 459 Intelligence, 458

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Choice, 458 Classical model of management, 458 Data visualization, 469 Decisional role, 459 Design, 458 Drill down, 475 Geographic information systems (GIS), 469 Group decision-support systems (GDSS), 475

Interpersonal role, 459 Key performance indicators (KPIs), 474 Managerial roles, 459 Pivot table, 472 Predictive analytics, 467 Semistructured decisions, 456 Sensitivity analysis, 472 Structured decisions, 456 Unstructured decisions, 456

Teaching Suggestions The opening case, “Moneyball: Data-Driven Baseball,” illustrates how the effective use of data analytics can help managers at all levels make better decisions that increase sales, allocate resources more efficiently, and reduce costs. Even though the vignette described the game of professional baseball, it points out how important turning raw data into useful information can turn around a team or company. It 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. As the text says, “You can be more efficient and competitive if, like Moneyball, you know how to use data to drive your decisions.”

Section 12.1, “Decision Making and Information Systems” 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.

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— interpersonal, informational, and decisional—students can more easily identify the type of information system managers need.

Section 12.2, “Business Intelligence in the Enterprise” This section explores the emerging business intelligence and business analytics industries that are one of the fastest growing and 12-2 ..

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. Table 12-4 is a good list of vendors from which to start.

What makes one stand out more than the others? Which would work well for small- or mediumsize businesses and, which would work better for large-sized 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 bestof-breed vendor solutions.

To help students discern among the five analytic functionalities that BI systems deliver (page 465), have them describe or create mockups of each of them. They may need to research the different functionalities on the Web. Interactive Session: Organizations: Analytics Help the Cincinnati Zoo Know Its Customers Case Study Questions 1. What management, organization, and technology factors were behind the Cincinnati Zoo losing opportunities to increase revenue Management: More than two-thirds of the Zoo’s $26 million annual budget is paid from fundraising efforts with the remainder coming from admission fees, food, and gifts. To increase revenue and improve performance, senior management completed a comprehensive review of its operations. Management had limited knowledge and understanding of day-today operations other than the number of people who visited every day and total revenues.

Organization: The organization had no central repository for data and information. It had no real-time analytics and reporting capabilities. The Zoo’s business is highly weatherdependent, sometimes leaving the Zoo overstaffed and overstocked.

Technology: Each of the Zoo’s four income streams—admissions, membership, retail, and food service—had different point-of-sale platforms. The food service business still relied on manual cash registers. Daily sales totals were analyzed by sifting through paper receipts.

Entering data on a spreadsheet was the only tool the organization had available for collecting visitors’ zip codes and using the data for geographic and demographic analysis.

2. Why was replacing legacy point-of-sale systems and implementing a data warehouse essential to an information system solution?

The Zoo began its information overhaul by replacing its four legacy point-of-sale systems with a single platform. It built a centralized data warehouse and implemented IBM’s Cognos 12-3 ..

Business Intelligence system to provide real-time analytics and reporting. The Zoo can now feed weather-related data into the system and adjust staffing levels for rainy days and ensure it has the right kinds of food items that visitors want during particularly hot or rainy days.

Management can now make more accurate decisions about labor scheduling and inventory planning. That reduced costs and increased sales.

3. How did the Cincinnati Zoo benefit from business intelligence? How did it enhance operational performance and decision making? What role was played by predictive analytics?

By capturing the right kinds of data, the organization can analyze the data to determine usage and spending patterns down to the individual customer level. This information helps the Zoo segment visitors based on their spending and visitation behaviors and use the information to target marketing and promotions specifically for each customer segment.

The Zoo used its customer information to devise a direct mail marketing campaign in which particular types of visitors are offered discounts in some of the restaurants and gift shops.

Loyal customers are rewarded with targeted marketing and recognition programs.

Management has tailored food sales to specific times during the day, either closing some early or leaving some open later. It has also been able to adjust the brands and types of food for particular visitors. That has increased food sales 30.7 percent. It also increased retail sales by 5.9 percent compared to a year earlier.

4. Visit the IBM Cognos Web site and describe the business intelligence tools that would be the most useful for the Cincinnati Zoo. (Two tools are highlighted below: Copied from the IBM Cognos Web site, Dec. 2012) IBM Cognos® TM1® is enterprise planning software that can radically transform your entire planning cycle, from target setting and budget rollout all the way to reporting, analysis and reforecasting. With Cognos TM1, you can rapidly analyze data, model business requirements and collaborate on plans, budgets and forecasts to uncover hidden business options and optimize performance.

• • •

Powerful analysis—create and analyze sophisticated budgeting models and forecasts, even those based on large data sets.

Flexible modeling—with a guided modeling environment, your business owners and analysts can develop and deploy even your most complex planning models.

Collaboration with many users—include input from thousands of users across the organization – exchange commentary and documents.

Cognos Controller is part of an integrated Financial Close Management (FCM) solution, built on an efficient, purpose-built platform. It helps you deliver complete financial results, create financial and management reports, and provide the CFO with an enterprise view of key ratios and metrics.

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• • • • • •

•

Automate and accelerate the close process.

Define and maintain all financial consolidation rules and processes from the office of finance.

Ensure accurate collection and reconciliation of financial results and eliminate data and calculation errors.

Consolidate thousands of accounts into a common chart-of-accounts structure.

Maintain end-to-end control of the entire consolidation process, including data input and reconciliation.

Use the Company and Group Command Centers to help both reporting users and Group Controllers efficiently carry out tasks during the closing process and monitor and manage the progress.

Use audit trail functionality to track changes in data entry, manual journal data and automatic journal data.

Section 12.3, “Business Intelligence Constituencies” 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 like 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 (KPI) should be for their university or school. Obvious suggestions are enrollment numbers and the number of students in each academic discipline. Less obvious KPI 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.

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The Web has numerous online demonstrations of ESS applications that allow users to drill down to specific data. You may want to have students access some of them and critique them based on how easy they are to use. Discuss how ESS allow managers to increase their span of control by pushing decisions further down the management chain and decentralize many decisions.

Conversely, ESS can centralize decision-making even more because managers have a wider range of information readily available.

Interactive Session: People: Colgate-Palmolive Keeps Managers Smiling with Executive Dashboards Case Study Questions 1. Describe the different types of business intelligence users at Colgate-Palmolive.

Most middle managers at Colgate are considered “power users,” of the SAP system and were comfortable using the reporting and analytical tools provided by the data warehouse. Senior managers and other casual users were not as comfortable running ad hoc reports or drilling down through layers of data to answer questions.

2. Describe the “people” issues that were affecting Colgate’s ability to use business intelligence.

Data in Colgate’s data warehouse were not being used by enough employees in their decision making to have an impact on business benefits. Even though power users felt comfortable using the previous reporting system, senior managers and casual users did not. These two groups wanted more timely and user-friendly formats from the data warehouse. They also wanted reports that were easier to run and where the data could be interpreted faster. Senior management requested customizable, real-time dashboards that could be more easily used to drive performance improvement.

3. What management, organization, and technology factors had to be addressed in providing business intelligence capabilities for each type of user?

Management: While power users were comfortable with the old system, most other users were not. The new dashboard system enables business analysts and nontechnical users to ask spontaneous questions about their data. The new dashboards provide simple drag-and-drop techniques to access data sources and create interactive reports. Tools for cutting-edge visualization allow end users to view two- and three-dimensional charts and hone in on specific areas of focus.

Organization: Colgate was experiencing disparities in the data developed between different geographic regions and between data used at the corporate level and data used by an individual region or business unit. Also, data were constantly changing making it difficult for all user levels to work with the same version of data.

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Technology: Colgate created a single global data repository fed by regional ERP systems.

The data were standardized and formatted for enterprise-wide reporting and analysis thereby eliminating differences in data across the enterprise. The information systems staff created customized dashboards that simplified data presentation to suit different types of employees.

Employee training was essential to the dashboards’ success.

4. What kind of decisions does Colgate’s new business intelligence capability support?

Give three examples. What is their potential business impact?

Colgate’s new business intelligence capability supports structured, semistructured, and unstructured reports. Middle managers can use the dashboard system to determine how long it’s taking to produce a certain product or how shipping costs are affecting profit margins.

Business analysts can use the dashboard system to determine if production in one region is keeping pace with production in other regions. Executives can use the dashboard system to help make financial decisions within a particular region or company-wide. Anytime a company can decrease the amount of time it takes to make timelier and more accurate decisions it impacts profits.

Review Questions 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.

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.

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•

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.

List and describe the stages in decision making.

Stages in the decision-making process include: • Intelligence consists of discovering, identifying, and understanding the problems occurring in the organization. Why is there a problem, where, and what effect it is having on the firm?

• Design involves identifying and exploring various solutions to the problem.

• Choice consists of choosing among solution alternatives.

• Implementation involves making the chosen alternative work and continuing to monitor how well the solution is working.

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.

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.

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.

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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.

List and describe the elements of a business intelligence environment.

• • • •

•

•

Data from the business environment: Structured and unstructured data from many different sources, including mobile devices and the Internet that are integrated and organized so that they can be analyzed and used by human decision makers.

Business intelligence infrastructure: Powerful database systems that capture relevant data stored in transactional databases or are integrated into an enterprise-data warehouse or interrelated data marts.

Business analytics toolset: Software tools used to analyze data and produce reports, respond to managers’ questions, and use key indicators of performance to track a business’s progress.

Managerial users and methods: Business performance management and balanced scorecard approaches that focus on key performance indicators; industry strategic analyses that focus on changes in the general business environment with special attention to competitors. Managerial oversight ensures that business analytics focus on the right issues for the organization.

Delivery platform—MIS, DSS, ESS: One suite of hardware and software tools in the form of a business intelligence and analytics package that integrate information from MIS, DSS, and ESS systems and disseminate it to the appropriate manager’s desktop or mobile computing device.

User interface: business analytics software suites emphasize visual techniques like dashboards and scorecards that can be viewed on mobile computing devices, desktop computers, or Web portals.

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.

Compare two different management strategies for developing BI and BA capabilities.

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• •

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 between all the components. The reward comes from greater flexibility and independence in choosing vendors.

4. How do different decision-making constituencies in an organization use business intelligence?

List each of the major decision-making constituencies in an organization and describe the types of decisions each makes.

• • •

•

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 systems; use exception reports to determine exceptional conditions upon which they act.

Super users/business analysts: Generally, make semistructured decisions based on information from MIS systems, DSS systems, 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 systems but more importantly from ESS systems; 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.

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 systems provide information on the firm’s performance to help managers monitor and control the business. They typically produce fixed, regularly scheduled reports based on data extracted and summarized from the firm’s underlying transaction processing systems. The formats for these reports are often specified in advance.

Decision-support systems (DSS) provide analytical models or tools for analyzing large quantities of data and supportive interactive queries for middle managers who face semistructured situations. DSSs emphasize change, flexibility, and rapid responses. With a DSS there is less of an effort to link users to structured information flows and a correspondingly greater emphasis on models, assumptions, ad-hoc queries, and display graphics.

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Executive support systems help senior managers with unstructured problems that occur at the strategic level of the firm. ESSs 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. ESSs provide easy-to-use analytical tools and online displays to help users select and tailor the data as needed.

ESSs 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.

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 like 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.

5. What is the role of information systems in helping people working in a group make decisions more efficiently?

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 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.

Explain how a GDSS works and how it provides value for a business.

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Hardware, software tools, and people are the three GDSS elements. Hardware includes the conference facility itself (room, tables, chairs) that is laid out to support group collaboration.

It also includes electronic hardware such as electronic display boards as well as audiovisual, computer, and networking equipment. Software tools include electronic questionnaires, electronic brainstorming tools, idea organizers, questionnaire tools, tools for voting or setting priorities, stakeholder identification and analysis tools, policy formation tools, and group dictionaries. People include the participants, a trained facilitator, and the staff to support the hardware and software.

GDSS enable more people to attend and participate in a meeting. A GDSS improves the productivity of large group meetings by allowing attendees to contribute simultaneously to the discussion. A GDSS can guarantee anonymity, follow structured methods for organizing and evaluating ideas, preserve the results of meetings, and increase the number of ideas generated and the quality of decisions while producing the desired results in fewer meetings.

Discussion Questions 1. 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? Managers and users of information systems would want to specify what kinds of decisions the systems should support, and where the data for those decisions should come from. In a typical enterprise, workers are capturing data, sharing data with other workers, retrieving insights from captured data, and managing the information as per agreed upon guidelines.

However, data are turned into valuable business information and insight only when they can be easily captured, systematically stored, properly retrieved, readily shared, and well managed. Data management, DSS, and ESS represent the cornerstone of any data warehousing program.

Data warehouses have become a critical component in enabling management to make decisions quickly and accurately. For example, telecommunications companies use it to manage churn and ensure the retention of their customers, while retail firms rely on data mining to maximize product mix and shelf space, and governments use it to manage federal welfare and healthcare programs. Across industries, data warehousing programs have helped increase productivity, reduce the time it takes to analyze data, and reveal business opportunities that were otherwise hidden from management among layers of unreachable data. However, if management is not part of the design and use of a DSS or ESS, then this information may not be available or utilized. If not, the firm may not be able to gain or maintain a competitive advantage. One thing is for sure—the competition is using these systems to enhance decision making.

2. If businesses used DSS, GDSS, and ESS more widely, would managers and employees make better decisions? Why or why not?

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Competitiveness increasingly depends on the quality of decision making. So naturally, companies often rely on their own history and their past transactions and activities to make future decisions. When businesses make decisions, it is usually helpful to use a decisionsupport system and firm-wide data. These systems can automate certain decision procedures, and they can offer information about different aspects of the decision situation. They can also help managers question existing decision procedures. It can be useful to explore the outcomes of alternative organizational scenarios. And, of course, using GDSS can improve how groups make decisions, and also improve the decision that might have been made by an independent person.

Until recently, the idea of analyzing years of accumulated transaction data in a single pass seemed expensive and unachievable. In addition to the difficulties caused by data format incompatibilities, the computational requirements would have consumed much of the company’s data processing capacity for days or even weeks. Analysis has been limited to fairly simple queries run after hours against relatively small subsets of data. In recent years, scalable hardware and software technologies have fueled data warehousing, enabling decision makers to unleash the power of analysis provided as a result.

On the other hand, remember that these systems do not automatically lead to better decisions unless the problem or situation is clearly understood and the systems are appropriately designed.

3. How much can business intelligence and business analytics help companies refine their business strategy? Explain your answer.

Business intelligence and business analytics are all about integrating all the information streams produced by a firm into a single, coherent enterprise-wide set of data. Managers then use modeling, statistical analysis tools, and data mining tools, to make sense out of all these data and hopefully make better decisions and better plans. Managers can know quickly when their firms are failing to meet planned targets.

Contemporary business intelligence and analytics technology enables a new style and culture of management called “information driven management” or “management by facts.”

Information is captured at the operational level and immediately entered into enterprise systems and databases. Information is delivered to corporate headquarters executive dashboards for analysis within hours and seconds—it’s real-time management.

However, business intelligence hardware and software are only as intelligent as the human beings who use them. Without strong senior management oversight, business analytics can produce a great deal of information, reports, and online screens that focus on the wrong matters and divert attention from the real issues. So far, only humans can ask intelligent questions.

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Hands-on MIS Projects Management Decision Problems 1. Subaru: Dealerships keeps 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? 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.

2. 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 since 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.

Improving Decision Making: Using Pivot Tables to Analyze Sales Data Software skills: Pivot tables Business skills: Analyzing sales data 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 the Companion Web site for this chapter.

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Use Excel’s Pivot Table to help you answer the following questions: 1. 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.

2. What form of payment is the most common? The answer could be used to emphasize in advertising the most preferred means of payment.

3. 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)?

4. What’s the relationship between regions, type of product purchased, and average sales price?

See the solution file MIS13ch12_solutionfile.

Improving Decision Making: Using a Web-Based DSS for Retirement Planning Software skills: Internet-based software Business skills: Financial planning This project will help develop your skills in using Web-based DSS for financial planning.

The Web sites for CNN Money and Kiplinger feature Web-based DSS for financial planning and decision making. Select either site to plan for retirement. Use your chosen site to determine how much you need to save to have enough income for your retirement.

Assume that you are 50 years old and plan to retire in 16 years. You have one dependent and $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.

1. To calculate your estimated social security benefit, use the Quick Calculator at the Social Security Administration Web site (www.ssa.gov/planners/calculators.htm).

2. Use the Web site you have selected to determine how much money you need to save to help you achieve your retirement goal.

3. 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 it to understand how Web-based DSS fulfill a variety of 12-15 ..

needs for making decisions. Students should also understand that many DSS are not necessarily complicated or difficult to use.

Video Cases You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

Collaboration and Teamwork: Designing a University GDSS In MyMISLab you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Sites, Google Docs, and other opensource collaboration tools to complete the assignment.

Case Study: Zynga Wins with Business Intelligence 1. It has been said that Zynga is “an analytics company masquerading as a games company.” Discuss the implications of this statement.

Zynga’s success has disrupted the video game industry. Traditional video game companies begin with an idea for a game that they hope players will buy and enjoy, and then make the game. Zynga begins with a game, but then studies data to determine how its players play, what types of players are most active, and what virtual goods players buy. Then, Zynga uses the data to get players to play longer, tell more friends, and buy even more goods.

Because of its successful strategy, other game companies may struggle to keep pace and remain successful against Zynga. Even some of its own developers dislike the company’s prioritization of data analysis over creativity in game design. However, Zynga targets the casual gamer more likely to play its games rather than the “hard core” gamers that prefer more difficult games.

2. What role does business intelligence play in Zynga’s business model?

Zynga’s social graph-related data are streamed in real time to a dedicated Vertica cluster where the graph is generated on a daily basis. Every night, the models resulting from this graph are fed back into its games for use the next day. With this business intelligence solution, Zynga has been able to improve the targeting of items such as gifts to effectively increase the level of interaction between active players while minimizing spam to passive players. Zynga is now in a position to identify groups of users with similar behavior or common paths for even more precise targeting of game-related promotions and activities.

By analyzing data to such a high level, Zynga can quickly identify what is working and what isn’t in each of its games. If a particular game feature is not performing to expectations, Zynga uses its data analytics to tweak the feature and improve the gaming experience. It also shows what features player prefer, allowing executives to make those aspects of the game 12-16 ..

more available. For instance, analytics proved that gamers tend to buy more in-game goods when they are offered as limited-edition items. So rather than guess, executives can make decisions that are more accurate and timely.

3. Give examples of three kinds of decisions supported by business intelligence at Zynga.

Zynga improves the targeting of items such as gifts to effectively increase the level of interaction between active players while minimizing spam to passive players. It identifies groups of users with similar behavior or common paths for even more precise targeting of game-related promotions and activities.

Zynga’s attention to detail and ability to glean important information from countless terabytes of data generated daily by its users allows it to offer specific types of “virtual goods” that users are more likely to purchase. That increases its sales and profits without wasting time or space offering goods customers are not likely to purchase.

By using Facebook as its game platform, the company has access to profile information of all Facebook users. It uses that information to determine what types of users are most likely to behave in certain ways. It can determine with greater accuracy which users are most likely to become big spenders that spend hundreds of dollars each month on virtual goods. Though only 5 percent of Zynga’s 150 million active users contribute to corporate revenue, that subset of users is so dedicated that they account for nearly all of the company’s earnings.

4. How much of a competitive advantage does business intelligence provide for Zynga?

Explain.

Zynga’s revenue rose from $121 million in 2009 to $600 million and a $91 million dollar profit in 2010. Clearly, Zynga’s methods are working. Traditional game makers like Activision Blizzard and Electronic Arts are noting Zynga’s growth and success and have moved towards a similar business model. For example, Electronic Arts launched a free Facebook version of the classic game “The Sims.” The game now has 40 million active monthly players and was Facebook’s fastest growing app for much of 2011. It’s hard to argue with that kind of success that's difficult to come by.

“While from the outside Zynga may have the fun and whimsy of the Willy Wonka chocolate factory, the organization thrives on numbers, relentlessly aggregating performance data, from the upper ranks to the cafeteria staff.

General managers submit weekly reports, measuring factors like traffic and customer satisfaction. Every quarter, teams assess their priorities under an Intelpioneered system called ‘objectives and key results.’ And Mr. Pincus, a professed data obsessive, devours all the reports, using multiple spreadsheets, to carefully track the progress of Zynga’s games and its roughly 3,000 employees.

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‘It’s very similar to a New York investment bank,’ said Lou Kerner, an analyst at the brokerage firm Liquidnet, who has followed Zynga for years. ‘It’s data-driven, and it’s intense.’

The data pipeline allows Zynga to fine-tune its games to optimize engagement, helping the company attract some 270 million unique users each month, many through Facebook. The four-year-old Zynga, which has emerged as the Web’s largest social game company, recorded $828.9 million in revenue in the first nine months of 2011, more than double the period a year earlier. It is also the rare Internet start-up that is profitable, earning $121 million since the start of 2010.

But the heavy focus on metrics, in this already competitive industry, has also fostered an uncompromising culture, one where employees are constantly measured and game designers are pushed to meet aggressive deadlines. While some staff members thrive in this environment, others find it crushing. Several former employees describe emotionally charged encounters, including loud outbursts from Mr. Pincus, threats from senior leaders and moments when colleagues broke down into tears.” (New York Times.com, Zynga’s Tough Culture Risks a Talent Drain, Evelyn M. Rusli, Nov. 27, 2011) 5. What problems can business intelligence solve for Zynga? What problems can't it solve?

Zynga's penchant for collecting and analyzing customer and user data can help it solve problems associated with product offerings, new game development, attracting new users, keeping users engaged for longer periods of time, and motivating users to spend more money on virtual goods.

Zynga cannot solve its problems with disgruntled employees who view creativity as more important than data analysis. Because it relies almost totally on Facebook as its delivery platform, its use of business intelligence cannot automatically resolve problems it may encounter with decisions Facebook executives make that could be detrimental to Zynga.

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Chapter 13 Building Information Systems Learning Objectives 1.

2.

3.

4.

5.

How does building new systems produce organizational change?

What are the core activities in the systems development process?

What are the principal methodologies for modeling and designing systems?

What are the alternative methods for building information systems?

What are new approaches for system building in the digital firm era?

Chapter Outline 13.1

13.2

13.3

13.4

Systems as Planned Organizational Change Systems Development and Organizational Change Business Process Redesign Overview of Systems Development Systems Analysis Systems Design Completing the Systems Development Process Modeling and Designing systems: Structured and Object-Oriented Methodologies Alternative Systems-Building Approaches Traditional Systems Life Cycle Prototyping End-User Development Application Software Packages and Outsourcing Application Development for the Digital Firm Rapid Application Development (RAD) Component-Based Development and Web Services

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, 500 Agile development, 514 Automation, 490 Business process management, 492 Business process redesign, 491 Component-based development, 515

Phased approach strategy, 501 Pilot study strategy, 501 Postimplementation audit, 501 Process specifications, 504 Production, 501 Programming, 500 13-1 ..

Computer-aided software engineering (CASE), 506 Conversion, 500 Customization, 511 Data flow diagram (DFD), 503 Direct cutover strategy, 501 Documentation, 501 End-user development, 509 End-user interface, 508 Feasibility study, 498 Fourth-generation languages, 509 Information requirements, 498 Iterative, 508 Joint application design (JAD), 514 Maintenance, 502 Object, 504 Object-oriented development, 504 Offshore outsourcing, 512 Paradigm shift, 491 Parallel strategy, 500

Prototype, 508 Prototyping, 508 Query languages, 510 Rapid application development (RAD), 514 Rationalization of procedures, 491 Request for Proposal (RFP), 511 Responsive Web design, 515 Six sigma, 491 Structure chart, 504 Structured, 502 System testing, 500 Systems analysis, 498 Systems design, 498 Systems development, 495 Systems life cycle, 507 Test plan, 500 Testing, 500 Total quality management (TQM), 491 Unit testing, 500

Teaching Suggestions The opening case, “New Systems and Business Processes Put MoneyGram ‘On the Money,’” highlights the importance of an organization continually assessing its business processes and striving to improve them. The company’s old system relied on outdated systems that used spreadsheets and manual processes that were too time-consuming and error-prone. More importantly, there was no way for managers to glean data from the system to help them make better decisions.

Probably the most important thing MoneyGram executives did was to make users part of the solution by involving them in the design and redesign from the beginning. Top management made sure employees and managers were well-schooled in the old system processes and elicited their help in redesigning the new processes. It’s also worth noting that employees became responsible for the success of the new processes.

After the system improvements, MoneyGram automated more than 90 percent of its nonstandard commission plans. It can also deliver new products faster to maintain its competitive advantage in the global market place. In the past, new regional innovations took months to plan, but the Oracle system implementation cut that time by approximately 40 percent. The total cost savings of the new system amount to millions of 13-2 ..

dollars. More transactions are handled by fewer employees. The company estimates that the Oracle software paid for itself within one year.

Section 13.1, “Systems as Planned 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.

Interactive Session: Organizations: Burton Snowboards Speeds Ahead with Nimble Business Processes Case Study Questions 1. Analyze Burton using the value chain and competitive forces models.

Burton uses the traditional competitor’s tactics of continuously devising new, more efficient ways to produce new products and attracting new customers by further developing and refining its brand. There aren’t many substitute products to threaten the company but it could face new market entrants if prices become too high or if they can’t deliver products to customers when promised.

Burton has worked hard to create and improve its customer intimacy and continues to cultivate that aspect of its business. Burton identified the top five transactions in its primary activities that were most critical and needed optimization.

2. Why are the business processes described in this case such an important source of competitive advantage for Burton?

By decreasing the time involved with the available-to-promise process, dealers and customers now have more precise information about the availability of products within 20 minutes. The inefficiencies in reporting inventory costs money and time.

Suppliers and customers could not easily determine up-to-date information on which items were in stock and in which warehouse.

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Burton Snowboards is a market leader that has grown from a small woodworking shop in Vermont to a global enterprise that serves customers in 27 countries and has offices in Japan, Austria, and throughout the United States. It has to protect its business against new market entrants and other competitors by improving its processes and becoming more efficient.

3. Explain exactly how these process improvements enhance Burton’s operational performance and decision making.

Burton wanted to speed up the available-to-promise process so that dealers and retail customers would have more precise information about the company’s availability of products not currently in stock. The process now takes 20 minutes.

The order-to-cash process; the handling of overdue purchase orders in the procure-topay process, which consists of all the steps from purchasing goods from a supplier to paying the supplier; and the electronic data interchange inventory feed extract transaction, all required improvements. The company worked with SAP analysts on these important processes to reduce costs and increase efficiencies.

Working together, SAP and company managers developed a dashboard that shows how smoothly a critical process is running at a certain point in time. Information from the dashboard helps key users discover inconsistencies, gaps, or other areas that need closer monitoring.

“Section 13.2, Overview of Systems Development” This section breaks down the systems development process into six separate activities: system analysis, system design, programming, testing, conversion, and production and maintenance. Specific information requirements must be established at the beginning of the system analysis phase.

Otherwise, you may be building a system that doesn’t solve an organization’s problem.

Faulty requirements analysis is a leading cause of systems failure and high systems development costs. Another major cause of system failure is attributed to insufficient user involvement in the design effort. Too many times system analysis and design are left up to the IT staff instead of involving users throughout the system development process.

What’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.

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 13-4. 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.

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Section 13.3, “Alternative Systems-Building Approaches” 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 highlystructured systems such as accounting, payroll or complex manufacturing systems.

Government defense or space systems often are mandated to use the system life cycle methodology because of the rigorous milestones generated by the method.

On the other hand, prototyping is much quicker and should involve users in a more direct way than SDLC. End-user interfaces are more closely aligned with actual user requests and requirements because the system designer must work with end users in the development process. Following up on the exercise in the first two sections, have students develop a prototype of a user interface they could use for the student loan application.

End-user development is a hot area. You may want to note that the original attraction of using spreadsheets on personal computers were attempts by end users to provide their own end-user tools to get around application backlogs in the IT department. End-user computing is difficult to manage and support. However, if managed correctly it can be an effective way to meet end-user needs. And, as usual, make sure you emphasize that whether the organization uses end-user development or some other approach, the purpose of the system is to serve the strategies of the company and the end users.

Section 13.4, “Application Development for the Digital Firm” 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.

Interactive Session: Technology: What Does It Take to Go Mobile?

Case Study Questions 1. What management, organization, and technology issues need to be addressed when building mobile applications?

Management: You can’t just port a Web site or desktop application to a smartphone or tablet. It’s a different systems development process. Managers need to understand 13-5 ..

and support the idea that each Web site or process requires a different set of processes. It may sound more expensive to develop apps and Web sites that way, but in the long run it will pay off with greater customer satisfaction. It’s important to understand how, why, and where customers use mobile devices and how these mobile experiences change business interactions and behavior.

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.

Technology: Developing mobile apps or a mobile Web site 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 that in traditional systems analysis?

Deckers Outdoor Corporation, the parent company of brands such as UGG Australia, Teva, and Simple Shoes, compiled significant research about customer behavior on mobile devices. It wanted to know how customers used mobile devices to research products, what information they wanted about brands, and what information they were looking for about product features, product reviews, or retail store location.

Their customer research showed that when consumers use mobile devices inside a Deckers store, the most important feature was a seamless interaction. The customer wants to look at a product and receive the same information that a person would obtain in the store, plus additional information like consumer reviews.

3. Describe the business processes changed by USAA’s mobile applications before and after the applications were deployed.

USAA developed a smartphone accident report and claims app that enables customers to snap a photo and submit a claim directly from the site of an accident. The app can also send geographic information to a towing service and display nearby car rental locations. Customers can snap a photo of a check and use an app to make a bank deposit. The company’s bank processed $6.4 billion through the mobile app. The mobile app also displays loan and credit card balances, shopping services, homeowners and auto insurance policy information, Home Circle and Auto Circle buying services, retirement products and information, ATM and taxi locators and a communities feature that lets users see what other are posting in social media about the company.

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Review Questions 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.

Define business process management and describe the steps required to carry it out.

Business process management: Companies manage incremental process changes that are required simultaneously in many areas. Organizations need to revise and optimize numerous internal business processes and BPM provides the methodologies and tools necessary to be successful. BPM is more about continual improvements to business processes and using processes as building blocks in information systems.

Steps required for effective BPM: • Identify processes for change: A business first needs to understand what business processes need improvement. Improving the wrong processes simply allows a business to continue doing what it shouldn’t do in the first place.

• Analyze existing processes: An organization must understand and measure the performance of existing processes as a baseline including inputs, outputs, resources, and the sequence of activities. The process design team identifies redundant steps, paper-intensive tasks, bottlenecks, and other inefficiencies.

Otherwise, the effectiveness of the changes can’t be determined.

• Design the new process: The process design team tries to improve the process by designing a new one that can be documented and modeled for comparison with the old process. The new process design needs to be justified by showing how much it reduces time and costs or enhances customer service and value.

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•

•

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.

Explain how information systems support process changes that promote quality in an organization.

Total quality management (TQM) and Six Sigma are two quality improvement programs that differ from business process redesign, which is based on radical onetime redesigns of business processes. They are more incremental in their approach to change than BPR. TQM requires a series of continuous improvements. Six Sigma requires statistical analysis to detect flaws and make minor adjustments.

Information systems help achieve organizational goals in these two programs by: • Helping companies simplify products or processes • Making improvements based on customer demands • Reducing cycle times • Improving the quality and precision of design and production • Meeting benchmarking standards 2. What are the core activities in the systems development process?

Distinguish between systems analysis and systems design. Describe the activities for each.

System 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. System analysis requires determining if the solution is feasible from a financial, technical, and organizational standpoint.

System design: Shows how the system will fulfill the objective of the system 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.

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 13-8 ..

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.

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.

Describe the role of programming, conversion, production, and maintenance in systems development.

• • •

•

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.

3. What are the principal methodologies for modeling and designing systems?

Compare object-oriented and traditional structured approaches for modeling and designing systems.

Structured methods for designing systems separate processes from data in the modeling process. System analysis is separated from system design. Object-oriented development (OOD) combines processes and data into an object that becomes the basic unit of system analysis and design. Data encapsulated in an object is accessed and modified only by the operations or methods associated with that object.

Processing logic resides within the objects. Object-oriented development is more iterative and incremental than traditional structured development. The analysis phase 13-9 ..

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.

4. What are the alternative methods for building information systems?

Define the traditional systems lifecycle. Describe each of its steps and its advantages and disadvantages for systems building.

The traditional systems lifecycle is a formal methodology for managing the development of systems and is still the principal methodology for large projects. The overall development process is partitioned into distinct stages, each of which consists of activities that must be performed in a certain order. The stages are usually sequential with formal “sign-off” agreements among end users and data processing specialists to validate that each stage has been completed. Users, managers, and data processing staff have specific responsibilities in each stage. The approach is slow, expensive, inflexible, and is not appropriate for many small desktop systems.

The systems lifecycle consists of systems analysis, systems design, programming, testing, conversion, and production and maintenance. Systems analysis requires an organization to define a problem that needs solving. Technical specialists identify the problem, gather information requirements, develop alternative solutions, and establish a project management plan. Business users provide information requirements, establish financial or operational constraints, and select the solution. During systems design, technical specialists model and document design specifications and select the hardware and software technologies for the solution. Business users approve the specifications.

Technical specialists translate the design specifications into software during the programming phase. After that, technical specialists develop test plans and conduct unit, system, and acceptance tests. Business users provide test data and scenarios and validate test results.

During the conversion phase, technical specialists prepare a conversion plan and supervise conversion. Business users evaluate the new system and decide when the new system can be put into production. During the production and maintenance phase, technical specialists evaluate the technical performance and perform maintenance. Business users use the system and evaluate its functional performance.

The main advantages of using this method for building information systems are: • it is highly structured.

• it has a rigorous and formal approach to requirements and specifications and tight controls over the system building process.

• it is appropriate for building large transaction processing and management 13-10 ..

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.

Define information system prototyping. Describe its benefits and limitations. List and describe the steps in the prototyping process.

Information system prototyping is an explicitly interactive system design methodology that builds an experimental model of a system as a means of determining information requirements. Prototyping builds an experimental system quickly and inexpensively for demonstration and evaluation so that users can better determine information requirements. A preliminary model of a system or important parts of the system 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 prototyped. The prototype may be built so rapidly that design is not well thought out or must be reworked for a production environment. The problem arises when the prototype is adopted as the production version of the system without careful analysis and validation. Prototypes are built so rapidly that documentation and testing are glossed over. The system is so easily changed that documentation may not be kept up-to-date.

The steps in prototyping include identifying the 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.

Define an application software package. Explain the advantages and disadvantages of developing information systems based on software packages.

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Application software packages are common to all business organizations and are built around universal functions with standard processes that don’t change a great deal over time. Examples include payroll, accounts receivable, general ledger, or inventory control.

Software packages provide several advantages: • the vendor has already established most of the design that may easily consume up to 50 percent of development time.

• programs are pretested, reducing testing time and technical problems.

• the vendor often installs or assists in the installation of the package.

• periodic enhancement or updates are supplied by the vendor.

• vendors also maintain a permanent support staff well versed in the package, reducing the need for individual organizations to maintain such expertise inhouse.

• the vendor supplies documentation.

The disadvantages of application software packages are: • there are high conversion costs for systems that are sophisticated and already automated, • they may require extensive customization or reprogramming if they cannot easily meet unique requirements, • a system may not be able to perform many functions well in one package alone, Define end-user development and describe its advantages and disadvantages.

Name some policies and procedures for managing end-user development.

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 13-12 ..

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.

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.

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5. What are new approaches for system-building in the digital firm era?

Define rapid application development (RAD) and agile development 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.

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.

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 Web sites 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.

Web site designers must design the sites specifically for mobile interfaces and create multiple mobile sites to meet the needs of smartphones, tablets, and desktop 13-14 ..

browsers. Responsive Web design enables Web sites 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.

Discussion Questions 1. Why is selecting a systems development approach an important business decision? Who should participate in the selection process?

The development of new systems or major enhancements to existing systems is often the result of significant changes made to the business processes supported by the systems. Organizations are being faced with the requirement to meet higher quality standards, but often with fewer resources. Basically, organizations need to do more with less and do it better. This trend forces organizations to find simpler and more efficient methods for performing their work. Usually the effort to simplify the business processes themselves precedes any major systems development effort. It is appropriate that the business processes be reviewed before systems work begins, to avoid the unfortunate mistake of simply automating existing cumbersome processes.

Ideally, the efforts to simplify business processes will be done by the functional users in conjunction with technical personnel, so that current technology can be considered as the business processes are reviewed. In some cases, particularly when a vendor package is selected for implementation, the simplification of business processes may occur during the systems development or installation process. One other issue is critical. A decision on the selection of a development approach often is dependent upon the system itself. A large, complex system simply cannot be developed using a quick prototype method, for example.

2. Some have said that the best way to reduce system development costs is to use application software packages or fourth-generation tools. Do you agree? Why or why not?

Student views will likely vary because no simple, straightforward answer exists. The answer to this question is dependent upon the type of problem to be solved. For example, large transaction-heavy applications are not suited to end-user software tools. Also, remember that purchasing and installing an application software package or fourth-generation tool rather than developing a system from scratch might save significant time, and often significant resources, in terms of cost. However, there are many issues to consider when deciding whether to purchase a product or develop a custom system. The following guidelines help determine if a vendor package is the right way to go: 13-15 ..

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Are packages available on the market that can satisfy at least 80 percent of the functional requirements of the system? Although it may not be possible to find a package that exactly matches the specific functional requirements, if less than 80 percent of the requirements are satisfied, then the purchase of a package is likely to be more costly than custom development.

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Are available packages compatible with the organizations current technical environment (or planned for installation in the immediate future)?

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Is the overall cost of purchasing, installing, and maintaining a package no more than (and preferably less than) the cost of custom development and maintenance?

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Do the vendors have a proven track record of installation and support and can they show evidence of financial stability (this is particularly critical for large systems)?

3. Why is it so important to understand how a business process works when trying to develop a new information system?

Business process management provides a variety of tools and methodologies to analyze existing processes, design new processes, and optimize those processes.

Businesses must decide not just how to use computers to improve business processes, but rather understand what business processes need improvement. Computerizing the wrong business model or business process makes the firm more efficient at doing what it should not do. That makes the business more vulnerable to competitors who may have discovered the right business model. Deciding which processes have the most impact on overall performance and revenue ensures the business gets the most return on its investment of time, money, and resources.

Hands-on MIS Projects Management Decision Problems 1. 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.

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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 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.

2. Agricultural chemicals corporation: Management at your agricultural chemicals corporation has been dissatisfied with production planning. Production plans are created using best guesses of demand for each product, which are based on how much of each product has been ordered in the past. If a customer places an unexpected order or requests a change to an existing order after it has been placed, there is no way to adjust production plans. The company may have to tell customers it can’t fill their orders, or it may run up extra costs maintaining additional inventory to prevent stockouts.

At the end of each month, orders are totaled and manually keyed into the company’s production planning system. Data from the past month’s production and inventory systems are manually entered into the firm’s order management system. Analysts from the sales department and from the production department analyze the data from their respective systems to determine what the sales targets and production targets should be for the next month. These estimates are usually different. The analysts then get together at a high-level planning meeting to revise the production and sales targets to take into account senior management’s goals for market share, revenues, and profits. The outcome of the meeting is a finalized production master schedule.

The entire production planning process takes 17 business days to complete. Nine of these days are required to enter and validate the data. The remaining days are spent developing and reconciling the production and sales targets and finalizing the production master schedule.

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Draw a diagram of the existing production planning process. Students should use Figure 13-2 as a guide for diagramming the existing production planning process.

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Analyze the problems this process creates for the company. The main problem this process creates for the company are the potentially lost sales or extra costs in maintaining additional inventory to prevent stock-outs if customers place unexpected orders or requests to change existing orders. It’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 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.

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How could an enterprise system solve these problems? In what ways could it lower costs? Diagram what the production planning process might look like if the company implemented enterprise software. The first step is to eliminate having to manually key in any data into any system. Production planning should be based on data derived from both systems (production planning system and the order management system) and not on best guesses. That eliminates having different estimates from the sales department and the production department. The company can use business process management (BPM) to revise and optimize 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.

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 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: 13-18 ..

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.

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: MIS13ch13 solutionfile.mdb.

Achieving Operational Excellence: Analyzing Web Site Design and Information Requirements Software skills: Web browser software Business skills: Information requirements analysis, Web site design Visit the Web site of your choice and explore it thoroughly. Prepare a report analyzing the various functions provided by that Web site and its information requirements. Your report should answer these questions: What functions does the Web site perform? What data does it use? What are its inputs, outputs, and processes? What are some of its other design specifications? Does the Web site link to any internal systems or systems of other organizations? What value does this Web site 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 Web site, 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 Web site 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.

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Video Cases Video cases and Instructional Videos illustrating some of the concepts in this chapter are available. Contact your instructor to access these videos.

Collaboration and Teamwork: Preparing Web Site Design Specifications In MyMISLab you will find a Collaboration and Teamwork Project dealing with the concepts in this chapter. You will be able to use Google Sites, Google Docs, and other open-source collaboration tools to complete the assignment.

Case Study: Honam Petrochemical’s Quest for Better Management Reports 1. List and describe the information requirements of HPC’s new management system What problems was the new system designed to solve?

Honam needed reliable reports that could accurately measure management performance and provide useful, accurate information for increasing sales and reducing costs. Executive decision-makers wanted up-to-the-minute reports that they could view quickly on their desktops. They wanted access via the Web or their mobile devices. They also wanted access to enterprise-wide data that could be shared easily across various business units and functions to support the company's expansion geographically and by product line.

The problems Honam wanted to solve included outdated and “sanitized” reports.

Individual managers were processing and manipulating data to make their departments “look better” to senior management. The report data were also outdated and only presented periodically. Executives also did not want to be overloaded with unnecessary data.

2. To what extent were “people” problems affecting management decision-making at HPC? What were some of the management organization, and technology issues that had to be addressed by the new system? How did the system’s designers make the system more “people-friendly?”

Management: Managers were sanitizing data to make their departments look better to executive managers. Executives didn’t want each department’s own interpretation of reports. Instead, they want to see current data to get a real view of what was actually happening on the plant floor or in the sales office.

Organization: Executive decision-makers were working with data that were up to three months old. The report data were stale and only presented only on a periodic basis.

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Technology: Report data were outdated and inaccurate. Technology was not preventing managers from manipulating data. Some reports included too much data and not enough information. Executives could not access data through mobile computing devices. Executives wanted enterprise-wide data that could be accessed and shared easily across various business units and functions.

The system designers made the system more “people-friendly” by creating interactive analytics for powerful, personalized dashboards in the SAP ERP platform. The software tools can be used for performance management, planning, reporting, query and analysis, and provide self-service access to data from databases and Excel spreadsheets.

3. What role did end users play in developing HPC’s new system? How did the project team make sure users were involved? What would have happened to the project if they had not done this?

End-users appear to have had quite a lot of input into designing the new reporting system. The information systems team asked executives to list existing reports they were already receiving and to assess the usefulness of each. Executives were asked if there were any additional reports or data from which their organizational groups could benefit. The findings were very useful in determining the right set of reports and dashboards for Honam executives.

To encourage users to start working with the system, the information systems people visited various manufacturing plants where the system was being rolled out and had in-depth discussions with executives about the systems' benefits as well as how to use it.

Because the information systems team involved users at the beginning and asked for their input, executives were much more likely to adapt to and use the new information reporting system.

4. What other steps did HPC take to make sure the system was successful?

A very intuitive Web-based user interface was created to make the system accessible.

The interface was so simple and well-designed that users required minimal training on how to use the system or access data and reports.

Even after the system was up and running, the information systems department continues to run campaigns to ensure that executives are using the system in the most effective way.

5. What types of system-building methods and tools did HPC use for building its system?

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HPC used a phased approach in its system implementation. Rather than pushing a new system onto executives in a direct cutover strategy, HPC waited until the company was experienced with ERP software and confident in its data quality and its data collection and processing methods. According to HPC CIO Jong Pyo Kim, nothing would sidetrack an executive-level system more quickly than inaccurate or untimely data flowing into an executive’s dashboard.

6. What were the benefits of the new system? How did it change the way Honam ran its business? How successful was this system solution?

A highly intuitive Web-based user interface was created to make the system very accessible. The interface was so simple and well-designed that users required minimal training on how to use the system or access data and reports. After the system went live, executives immediately began accessing reports and dashboards on a daily, weekly, and monthly basis. The data are available on mobile devices as well.

Delivery of the information is personalized and differentiated for high-level executives, middle managers, and front-line employees.

Executives no longer receive “sanitized,” stale data in an outdated presentation format. Discussions and decisions are based on timely, consistent, and accurate company-wide data. Executive decision making takes place more rapidly.

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Chapter 14 Managing Projects Learning Objectives 1.

2.

3.

4.

5.

What are the objectives of project management and why is it so essential in developing information systems?

What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals?

How can firms assess the business value of information systems projects?

What are the principal risk factors in information systems projects?

What strategies are useful for managing project risk and system implementation?

Chapter Outline 14.1

14.2

14.3

14.4

The Importance of Project Management Runaway Projects and System Failure Project Management Objectives Selecting Projects Management Structure for Information Systems Projects Linking Systems Projects to the Business Plan Information Requirements and Key Performance Indicators Portfolio Analysis Scoring Models Establishing the Business Value of Information Systems Information System Costs and Benefits Real Options Pricing Models Limitations of Financial Models Managing Project Risk Dimensions of Project Risk Change Management and the Concept of Implementation Controlling Risk Factors Designing for the Organization Project Management Software Tools

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

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Capital budgeting, 539 Change agent, 542 Change management, 542 Counterimplementation, 547 Critical success factors (CSFs), 533 Ergonomics, 549 External integration tools, 545 Formal control tools, 545 Formal planning tools, 545 Gantt chart, 545 Implementation, 542 Information systems plan, 534 Intangible benefits, 538 Internal integration tools, 544

Organizational impact analysis, 550 PERT chart, 545 Portfolio analysis, 536 Project, 530 Project management, 530 Project portfolio management, 551 Real options pricing models (ROPMs), 540 Scope, 532 Scoring model, 537 Sociotechnical design, 550 Tangible benefits, 538 User-designer communications gap, 543 User interface, 530

Teaching Suggestions The opening case, “Nu Skin’s New Human Resources System Project Puts People First,” illustrates the importance of understanding the corporate culture and truly putting people first in any organizational change.

The company was very careful to select the right project team members—those who would enhance the team based on skills and personality as well as the ability to perform on-site training. Through every step of the project, the company was careful to put “people” before technology. And the company was careful to address the business and culture requirements of its new system. Even though it took two years to assess the system requirements, select the correct system, train users, and phase in the system, the benefits were immediate. All employee and human resource reports that were previously completed manually are now accessible in real-time through the new system. It’s much more efficient and cheaper.

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, “The Importance of Project Management” 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 14-2 ..

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.

Interactive Session: Management: Austin Energy’s Billing System Can’t Light Up Case Study Questions 1. Is the Austin Energy project a failure? Explain your answer.

Yes, the project can be considered a failure for these reasons: • Costs exceeded budgets • Unexpected time slippages • Technical performance that was less than expected • Failure to obtain anticipated benefits • Poor user interface 2. Describe the business impact of the faltering Austin Energy project.

Software bugs have led to errors in thousands of customer billings. Over 65,000 customers have not received bills entirely, and another 35,000 have received inaccurate bills. One customer was billed $300,000 instead of $3,000. The company was ill-prepared to deal with the outpouring of customer dissatisfaction and the customer service department was in danger of being overrun.

“Persistent system errors prevented the company from billing apartment residents for water, balancing its books, and filing audit reports. Without the ability to bill for utilities properly, the City of Austin was losing revenue,” said Austin Energy manager Larry Weiss.

3. How much was IBM responsible for the problems encountered by the Austin Energy billing project? Austin Energy? Explain your answer.

IBM responsibilities: IBM was repeating mistakes during the system implementation. Two separate errors cost the project 37 hours of delay and one of the errors was the same type the same team made earlier. The team seemingly used ad hoc methods for managing the project. The company replaced the lead manager twice.

Austin Energy responsibilities: The utility did not include strong enough penalties for vendor nonperformance, including the question of system availability in the contract. The utility did not make provisions for back-up systems in case something went wrong with the new system implementation, instead choosing to believe everything would work smoothly.

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4. What were the specific organizational or technical factors as well as management factors involved in this project failure?

Management: IBM’s lead manager on the project was replaced twice. Problems with the system were not delegated to the right person. IBM and Austin Energy executives failed early on to identify gaps outside the project’s scope and recommend solutions.

IBM responses to the myriad of implementation problems were too incremental.

Organizational: Communications were poor regarding the business impacts caused by known defects. Both IBM and Austin Energy failed to insist or implement best practice processes to ensure repeatable successes. Austin Energy did not manage its customer service department very well to ensure that all customer complaints were handled in a timely and proper manner. It did not plan for back-up measures in case something went wrong. Employees were not properly trained and integrated well into the system implementation.

Technical: IBM failed to work closely with third party vendors like Oracle to ensure all parts of the new system would interface with each other correctly and easily. The new billing system is complex, with 73 different interfaces.

5. Describe the steps Austin Energy and IBM should have taken to better manage this project.

Both companies should have dealt better with five major variables associated with any major project: • Scope: Define what work is or is not included in a project.

• Time: Assess the amount of time required to successfully complete the project, including all activities and tasks.

• Cost: Determine the time to complete a project multiplied by the cost of human resources required to complete the project.

• Quality: Determine how well the end result of a project satisfied the objectives specified by management.

• Risk: Determine potential problems that threaten the project’s success.

Determine if the potential problems prevent a project from achieving its objectives by increasing time and cost, lowering the quality of project outputs, or preventing the project from being completed altogether.

Section 14.2, “Selecting Projects” 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 14-4 ..

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, “Establishing the Business Value of Information Systems” 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, “Managing Project Risk” 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 userdesigner 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: Organizations: Westinghouse Electric Takes on the Risks of a “Big Bang” Project Case Study Questions 1. Identify and discuss the risks in Westinghouse Electric’s Cornerstone project.

The company decided to update its older system to support new processes, configurations, and functionalities that related to the larger amount of business it was conducting. The company estimated that it would increase in size fourfold over the next few years. The program consisted of 40 different projects, and updating the SAP system was one of the largest. The goals were to convert all existing data that the 14-5 ..

company wanted to save, as well as add new functionalities that would help the company manage its imminent growth. It planned to add a new general ledger, a new enterprise reporting environment and implement a new Customer Relationship Management system.

2. Why was change management so important for this project and this company?

The company ensured that every element of the project was motivated by a particular business driver or goal. It wanted to align three distinct operational regions into a single face in every customer location. The new system had to support the company’s plan to increase global hiring. By associating goals with each element of the project, Westinghouse was able to more precisely control the implementation of the new system.

Using a change agent helped the company redefine configurations, interactions, job activities, and power relationships of various organizational groups. The change agent was also responsible for ensuring all parties involved accepted the changes created by a new system.

3. What management, organization, and technology issues had to be addressed by the Westinghouse project team?

Management: The company was growing too fast for a slow implementation process. It had to release the new systems as soon as possible in order to recoup its return on investment sooner rather than later.

Organization: A phased approach is much less risky even though it’s more expensive. The whole organization had to be ready to implement the new system as quickly as possible using the “big bang” method technically referred to as the “cutover” method. Power users were recruited from key parts of the organization to help ensure a smooth implementation. Specific project details were discussed with business unit leaders to gain their support for the new system.

Technology: The supply chain was one of the area’s most likely to endure significant change since the company’s growth would add many new elements to the chain. The company created an automatic call distribution system and email system that routed users across all time zones to the employees most able to answer their questions. The project team also set up a blog where users could share tips and solutions.

4. Should other companies use a “big-bang” implementation strategy? Why or why not? Explain your answer.

Companies should only use a “big-bang” or “cutover” implementation strategy if they have a great deal of confidence in the new system. Once the implementation starts, there is no going back. If the organization has used the proper formal planning and control tools to manage and monitor the new system’s development, it can be 14-6 ..

reasonably comfortable that the new system will operate as intended upon start up. If the company has not adequately planned the implementation, it should not use the cutover strategy.

Review Questions 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.

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.

2. What methods can be used for selecting and evaluating information systems projects and aligning them with the firm’s business goals?

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.

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•

• •

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.

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.

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, high14-8 ..

reward 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.

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.

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 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.

Explain how real options pricing models can help managers evaluate information technology investments.

Appropriate strategies, such as real options pricing models (ROPM), can be applied to evaluate and value the information system when the benefits cannot be established in advance. Real options pricing models apply the same techniques for valuing financial options to systems investments and can be useful to help managers think about the potential value of highly uncertain IT investments. ROPM allows managers to 14-9 ..

systematically take into account the volatility in the value of IT projects over time, the optimal timing of the investment, and the changing cost of implementation as technology prices fall over time. The disadvantages of this model are primarily in estimating all the key variables, especially the expected cash flows from the underlying asset, and changes in the cost of implementation.

4. What are the principal risk factors in information systems projects?

Identify and describe each of the principal risk factors in information systems projects.

Project size: The larger the project (dollars spent, the size of the implementation staff, the time allocated, and the number of organizational units affected), the greater the risk. The larger the project, the higher the failure rate. There are few reliable techniques for estimating the time and cost to develop large-scale information systems.

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.

Explain why builders of new information systems need to address implementation and change management.

An information system is a sociotechnical entity, an arrangement of both technical and social elements. Information systems change involves hardware and software, but in addition, it involves changes in jobs, skills, management, and organization. When we design a new information system, we are redesigning the organization, reordering its technical and social elements. Change management addresses these types of changes, or more directly, the effects of the changes on the people whose jobs will change. The system not only changes the technology and the organization, it also changes people, and the project must also address this aspect if it is to succeed.

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 14-10 ..

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.

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.

5. What strategies are useful for managing project risk and system implementation?

Identify and describe the strategies for controlling project risk.

Strategies you can follow to increase the chances of a successful system include: • New systems that involve challenging and complex technology can be helped by recruiting project leaders with strong technical and administrative experience.

• If the firm does not have staff with the required technical skills or expertise, outsourcing or using external consultants are options that may be pursued.

• Using formal planning and control tools, such as Program Evaluation and Review Technique (PERT) or Gantt charts improve project management by listing the specific activities that make up a project, their duration, and the sequence and timing of task.

• Promote user participation by making user education and training easily available, and by providing better incentives for users who cooperate.

• Exercise sensitivity to ergonomic issues.

• Solve organizational problems prior to introducing new systems.

Identify the organizational considerations that should be addressed by project planning and implementation.

The term implementation refers to the entire process of organizational change 14-11 ..

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.

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.

Discussion Questions 1. How much does project management impact the success of a new information system?

Clearly, any project that is not properly thought out and managed will result in a dismal failure. Without proper management things quickly fall off the rails. Cost overruns mount, delays are unavoidable, frustration levels rise, and lack of commitment and belief in the product disappear, and so on. Success of any new information system is no different than planning for any other type of resource investment.

Murphy’s Law is made for computers; whatever can go wrong, will go wrong. You have to anticipate problems and be ready to solve them. No system yet devised has been problem-free. If you understand and accept that, implementing a new information system shouldn’t be that much different from implementing any other type of new system in the organization. You can use many of the same principles to guide you through the process.

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For instance, if you were changing a production line, you’d have certain plans for analyzing, designing, building, testing, training, and implementing the new tools or methods. If you are changing the process for enrolling employees in the company’s new 401K plan, you’d have to make lots of decisions about the new process. The same thing holds true for implementing a new information system.

2. It has been said that most systems fail because system builders ignore organizational behavior problems. Why might this be so?

System building efforts often fail because there is too much emphasis on the technology and not enough attention to changes in organizational structure, job design, workflows, and reporting relationships. Inattention to these issues often breeds resistance to a new system and may also produce a system that is incompatible with the organization. Conflicts between the technical orientation of system designers and the business orientation of end users must also be resolved for successful implementation of systems. The success or failure of organizational change can be determined by how well information systems specialists, end users, and decision makers deal with key issues at various stages of implementation.

3. What is the role of end users in information systems project management?

End users play the most important role in systems development. There are two positive outcomes from having high levels of user participation in designing and operating information systems: • Users have more opportunities to mold the system according to their priorities and business requirements and more opportunities to control the outcome of the development process.

• Users are more likely to react positively to the completed system.

Managers must be aware of and work to minimize the user-designer communication gap (page 541) which can cause a very high risk of failure when the two groups try to pursue different goals. Communication problems between end users and designers are the number one reason why user requirements are not properly addressed in information systems and why users are driven out of the implementation process.

Hands-on MIS Projects Management Decision Problems 1. 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 14-13 ..

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.

2. Caterpillar: The company wants to end its support for its Dealer Business System (DBS), which it licenses to its dealers to help them run their businesses. The software is becoming out of date and senior management wants to turn support over to Accenture Consultants. The dealers were never required to use the system but it had become a de facto standard for business processes. 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.

Improving Decision Making: Using Spreadsheet Software for Capital Budgeting for a New CAD System Software skills: Spreadsheet formulas and functions Business skills: Capital budgeting 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 14-14 ..

expenditures for installation, training, and support. The Laudon Web site, 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?

A solution can be found in the Microsoft Excel file named: laudon_mis13_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 You have found a new job in Denver, Colorado and would like to purchase a home in that area. Ideally, you would like to find a single-family house with at least three bedrooms and one bathroom that costs between $150,000 and $225,000 and finance it with a 30-year fixed rate mortgage. You can afford a down payment that is 20 percent of the value of the house. Before you purchase a house, you would like to find out what homes are available in your price range, find a mortgage, and determine the amount of your monthly payment. You would also like to see how much of your mortgage payment represents principal and how much represents interest. Use the Yahoo! real estate site (http://realestate.yahoo.com/ ) to help you with the following tasks: 1. Locate homes in your price range in Denver, Colorado. Find out as much information as you can about the houses, including the real estate listing agent, condition of the house, number of rooms, and the school district.

2. 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!).

3. After selecting a mortgage, calculate your closing costs.

4. Calculate the monthly payment for the mortgage you select.

5. Calculate how much of your monthly mortgage payment represents principal and how much represents interest, assuming you do not plan to make any extra payments on the mortgage.

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; the breadth of choice of homes and 14-15 ..

mortgages; and how helpful the whole process would have been for you if you were actually in the situation described in this project.

Naturally, students will select different properties in the Denver 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.

Video Cases You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

Collaboration and Teamwork: Identifying Implementation Problems Form a group with two or three other students. Write a description of the implementation problems you might expect to encounter in one of the systems described in the Interactive Sessions or chapter-ending cases in this text. Write an analysis of the steps you would take to solve or prevent these problems. If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop a presentation of your findings for the class.

Answers for this project will vary. In addition to the models presented in this chapter, here are a few more suggestions for managing the implementation of information systems: • • • • •

Fully document the firm’s applications and IT infrastructure and conduct periodic reviews of the firm’s IT portfolio.

Ensure that information systems investments are closely aligned with the firm’s business objectives.

Project risks and returns should be clearly identified.

Continually measure the business value of new systems and weed out underperforming projects.

For large-scale projects, managers should assume an enterprise-wide focus, solve problems and meet challenges as they arise rather than simply meeting formal project milestones.

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• • •

Emphasize learning as well as planning and adapt to unforeseen uncertainties and chaos.

Establish a separate office to manage subprojects and coordinate the entire project effort with other ongoing projects.

Coordinate the project with ongoing changes in the firm’s business strategy, information technology infrastructure, and business processes.

Case Study: NYCAPS and CityTime: A Tale of Two New York City IS Projects Case Study Questions 1. How important were the NYCAPS and CityTime projects for New York City?

What were their objectives? What would have been their business benefits?

In terms of improving efficiencies and cutting costs, both projects were extremely important for New York City. The goal of the NYCAPS project was to create a modern, automated system for managing and updating personal information for the City’s work force, including employee benefit information. The City was using individual citywide systems, 200 individual agency systems, and a maze of paperwork.

The CityTime project depended on pen and paper to record overtime payments to city workers. It was hoped the new system would automate that and improve accountability throughout the government.

2. Evaluate the key risk factors in both projects.

The key risk factors in both projects were out-of-control time and costs, lower quality of project outputs, and problems that so far have prevented either project from being completed. All of these risk factors were heightened by a lack of qualified project management.

3. Classify and describe the problems each project encountered as the NYCAPS and CityTime systems were being implemented. What management, organization, and technology factors were responsible for these problems?

Management: A lack of qualified and responsible oversight, a lack of management, and a lack of leadership led to the failure of both projects. The NYCAPS project was controlled by government officials who did not have the authority or expertise to make important project decisions, therefore missing many opportunities to lower development costs. The CityTime project was managed by the City’s budget director whose background was in law, not project management or technology.

Organizational: The NYCAPS project monitors reported chronic mismanagement, cost overruns, and general waste plaguing the project, but the city continued ahead 14-17 ..

with the project without making any significant changes. Other city government branches left the project mostly to him. The City Comptroller never audited the project despite numerous warnings about the project from staffers.

Technology: The technology requirements, on the surface, were sound: automate manual systems, provide ways to audit input and output, reduce cheating and fraud through better technology, and replace outdated legacy systems with newer technologies. Even though one of the objectives of the NYCAPS system was to update it, the newer system was designed to run on the same old legacy system used in the previous patchwork system.

4. What were the similarities and differences in the management of both projects?

Both projects used hourly billing vs. fixed cost payments at one time or another. That, along with improper management and oversight, invites fraud, waste, and abuse.

Neither project had an experienced project manager at the top that was qualified and that had the proper authority to effectively control the project.

The NYCAPS project was totally controlled by one company, Accenture. The CityTime project was controlled by one contractor but used a lot of subcontractors to complete the work which made accountability even worse. The terms of this project’s contract were constantly changing.

5. What was the business impact of these botched implementations? Explain your answer.

Ideally, new systems improve efficiencies, reduce costs, reduce fraud and waste, and provide executives, managers, and employees with better information on which to make better decisions. None of these business benefits was met because of the botched system implementations.

6. Describe the steps that should have been taken to prevent negative outcomes in these projects.

The first step in managing project risk involves identifying the nature and level of risk confronting the project. Implementers can then handle each project with the tools and risk-management approaches geared to its level of risk.

Managing technical complexity: Project leaders need both heavy technical and administrative experience. They must be able to anticipate problems and develop smooth working relationships among a predominantly technical team.

Formal planning and control tools: Formal planning tools and formal control tools for documenting and monitoring project plans are an absolute must. Gantt charts and PERT charts are very helpful for monitoring plans and allowing managers to determine early on when the project is veering off course. These tools can help 14-18 ..

managers identify bottlenecks and determine the impact that problems will have on project completion times.

Increasing user involvement and overcoming user resistance: External integration tools consist of ways to link the work of the implementation team to users at all organizational levels. Projects with relatively little structure and many undefined requirements must involve users full at all stages.

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Chapter 15 Managing Global Systems Learning Objectives 1.

2.

3.

4.

5.

What major factors are driving the internationalization of business?

What are the alternative strategies for developing global businesses?

How can information systems support different global business strategies?

What are the challenges posed by global information systems and management solutions for these challenges?

What are the issues and technical alternatives to be considered when developing international information systems?

Chapter Outline 15.1

15.2

15.3

15.4

The Growth of International Information Systems Developing an International Information Systems Architecture The Global Environment: Business Drivers and Challenges State of the Art Organizing International Information Systems Global Strategies and Business Organization Global Systems to Fit the Strategy Reorganizing the Business Managing Global Systems A Typical Scenario: Disorganization on a Global Scale Global Systems Strategy The Management Solution: Implementation Technology Issues and Opportunities for Global Value Chains Computing Platforms and Systems Integration Connectivity Software Localization

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, 574 Domestic exporter, 569 Franchisers, 569

Legitimacy, 576 Multinational, 569 Particularism, 567 Software localization, 581 Transborder data flow, 567 15-1 ..

Global culture, 565 International information systems architecture, 564

Transnational, 570

Teaching Suggestions The opening case, “L’Oreal’s Global Makeover,” demonstrates that a global company has the same information system requirements as a domestic company, just on a larger, more complex, scale. The company operates in 130 companies around the world and has 42 manufacturing sites dealing with thousands of different recipes for its products. That creates a lot of chances for human error and product waste. It needed a uniform system for its production and quality standards.

Regional units were operating their own versions of SAP enterprise resource planning systems that had to be standardized and consolidated based on best-practice processes throughout the company. The company recognized that the key factor in meeting its goals would be to change employee behavior, change management practices, and promote knowledge-sharing across geographical and cultural boundaries. The company assigned a business “owner” for each core business process who would help analyze the processes at each site and implement the necessary changes.

Its new system, ISIS (Integrated Solution for Industrial Systems) consolidates all transactional processing, financial controls, and purchasing into one database. ISIS runs at the company’s central data center in Montpellier, France. The system guides factory operators through each product recipe to ensure uniformity and compliance.

The new system allows L’Oreal to implement new processes and related changes globally much more rapidly than in the past. The company can easily update its systems without disrupting factories and bring them on board much more quickly. Overall capacity has increased and all of its workplaces are more productive and efficient. Fewer materials are wasted, there are fewer discrepancies between actual versus planned production, and the company is able to maintain lower, better managed inventories.

Section 15.1, “The Growth of International Information Systems” 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 15-2 ..

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, “Organizing International Information Systems” 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 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, “Managing Global Systems” 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 154, you can demonstrate management challenges and solutions to creating a global information technology infrastructure.

Interactive Session: Organizations: Hasbro Develops a Global Systems Strategy Case Study Questions 1. What problems was Hasbro having with its legacy SAP/R3 enterprise resource planning (ERP) system installed in the 1990s and how did it affect its operations and global strategy?

With 6,000 employees, two manufacturing plants in different countries, and offices in 40 countries, Hasbro needed a state-of-the-art management information system to bolster its global core-brand strategy and $400 million net earnings.

The system the company installed in the 1990s allowed local customization that eventually became a liability. Different implementations of standard business processes caused individual offices to use different terminology for the same step, included unnecessary steps, or contained needless forms or process divisions. The lack of centralization and standardization proved to be inefficient, hampering coordination between business units. It stifled new IT initiatives because services and

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business processes that should have been shared were not, necessitating avoidable modifications.

2. What management, organization, and technology issues did Hasbro address in order to implement a new global systems strategy?

Management: Hasbro moved to a unified SAP implementation that upgraded its enterprise resource planning software. Its “Way to Work” initiative would create a shared-services structure that would foster corporate efficiencies while still delivering individualized support to local offices, especially those in emerging markets.

Business intelligence and reporting was a key focus of the Way to Work initiative.

Organization: New sales and marketing offices needed to be integrated into the SAP environment quickly and efficiently in order to maximize increased and shifting global sales. An ERP system designed for small businesses was implemented as an interim solution in these emerging markets. After they matured, they could easily be merged into the main corporate structure. The Way to Work initiative standardized business processes. Transitions to uniform business intelligence and data management were also incorporated. Those actions promoted a team atmosphere, encouraged people to get onboard with the new methods, and motivated leaders to push for consistency in additional areas. The complexity of Hasbro’s systems enjoyed a comprehensive reduction.

Technology: Business processes became globally consistent and integrated with the SAP ERP system. The company instituted a new global demand and supply system. It customized a master data management solution to suit the company’s material master data needs. All the materials Hasbro purchased, produced, and kept in stock had consistent part numbers, stock codes, and descriptions. Material master data management provided data consistency in purchasing, accounting, sales, distribution, warehousing, and materials planning and control operations.

3. Describe Hasbro’s new global systems and the problems they solved. How did they improve operations and management decision making?

The company now has the best tools available for quickly accessing and analyzing trending and sales data. Hasbro enjoys improved analysis of its point-of-sale data to gain a clearer understanding of who its customers are and how their spending patterns might be influenced. There is data consistency across all business processes. Reliable data passes to the SAP Business Objects, improving data analysis. Information sharing and collaboration between business units is now available through a global accounts payable workflow process. A unified vision for the future is available to Hasbro’s planning teams.

Section 15.4, “Technology Issues and Opportunities for Global Value Chains” 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 15-4 ..

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: Management: CombineNet ASAP Helps Primark Manage Its Global Supply Case Study Questions 1. Why is supply chain management so important at a company such as Primark?

Primark has 156 stores in the United Kingdom, 38 stores in Ireland, 27 in Spain, 7 in Germany, 5 in Portugal, 3 in the Netherlands, and one in Belgium. Many of its factories are in China, Vietnam, Bangladesh, and India. Shipping products accounts for one of its highest business costs. With more origination ports now shipping to Primark’s already multiple destination ports, supply chain logistics increased in complexity.

2. What set of business conditions prompted Primark to look into upgrading its supply chain management system?

Primark was pressured into maintaining ultra-low prices even after an increase in the value added tax in the United Kingdom, rising labor costs in China, and unpredictable spikes in shipping rates. The retailer had recently begun manufacturing operations in other countries requiring it to ship huge amounts of cargo from multiple sites in Asia to Europe for distribution to hundreds of stores. The old system was unable to handle Primark’s complex allocations to its carriers.

3. What problems was Primark having managing its suppliers and global supply chain?

The company’s third-party logistics service provider did not extend beyond comparing bids between competing shippers and it could not help Primark with optimization scenarios. That resulted in ineffective allocation of TEUs (twenty-foot equivalents) and occasions when TEUs had been delivered to the dock by the seller with no carrier available on which to load them.

The company also had to determine which shipper provided the most cost effective service over a specific time period. It wanted to optimize distributions of its TEUs and the shipping rates between each origination and destination port.

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4. How did the CombineNet ASAP software provide a solution to these problems?

CombineNet ASAP software is a Web-based supply chain execution system used to optimize all supply chain processes. It can process requests for information, requests for proposals, and E-auction bidding. It incorporates “if-then” algorithms into the bidding process. If a carrier is awarded a certain number of TEUs in the first half of a particular shipment, it will reduce the price for the second half by an additional percentage. That encourages buyer-supplier collaboration and savings. It enables the carrier to engage in price differentiation to optimize its business opportunities and it enables the transportation purchaser to calculate the savings that can be achieved based on different shipping scenarios.

5. How does the CombineNet ASAP software improve supply chain execution for Primark?

CombineNet ASAP software allows Primark to coordinate with carriers to optimize August shipping in order to accurately stock holiday shopping. The retailer has been able to reduce its transportation costs by 2.5 percent, amounting to almost $2.5 million. It has increased visibility into its supply chain that had not previously been available.

Review Questions 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.

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.

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• • • •

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 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.

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.

Explain why some firms have not planned for the development of international systems.

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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.

2. What are the alternative strategies for developing global businesses?

Describe the four main strategies for global business and organizational structure.

Referencing Table 15-3, there are four main strategies.

• Domestic exporter: Heavy centralization of corporate activities in the home country of origin. Production, sales, marketing, finance, and other such functions are set up to optimize resources in the home country. Foreign marketing is totally reliant on the domestic home base.

• Multinational: Concentrates financial management and control in a central home base, but decentralizes production, sales, and marketing to suit local market conditions.

• Franchiser: Create, design, and finance the product in the home country, but rely on foreign personnel for further production, marketing, and human resources. Often, the product must be produced locally because it is perishable.

• Transnational: A stateless, truly globally managed firm. It has no single national headquarters, but instead has many regional headquarters and perhaps a world headquarters. Nearly all of the value-added activities are managed from a global perspective without reference to national borders.

3. How can information systems support different global business strategies?

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 15-8 ..

coordinated fashion across all units.

4. 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.

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.

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 15-9 ..

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.

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.

5. 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.

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 15-10 ..

organizational frameworks.

Discussion Questions 1. 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?

There are many general cultural factors and specific business factors to consider. The growth of cheap international communication and transportation has created a world culture with stable expectations or norms. Political stability and a growing global knowledge base that is widely shared contribute also to the world culture. These general factors create the conditions for global markets, global production, coordination, distribution, and global economies of scale.

As the text points out, not all systems are candidates for coordination on a transnational basis. The focus should be on the core business systems, those systems that support functions that are absolutely critical to the organization. Figure 15-4 is a good tool to help differentiate core systems from regional coordinated systems and local option systems.

2. Describe ways the Internet can be used in international information systems.

Companies can use the Internet for international communication by creating global intranets and extranets. Companies can also use the Internet to create virtual private networks. Although the Internet is an attractive option, caution must still be exercised, since many countries still lack the infrastructure for its successful use. The Internet can be used in international information systems to co-opt widely dispersed foreign units into one Internet-connected unit. Factors of production can be coordinated on a global scale. Transnational firms can use the Internet to permit considerable decentralization of development and operations. It can also increase centralized financial controls.

Hands-On MIS Projects Management Decision Problems 1. 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?

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UPS is likely to face these international systems issues: • User interfaces: Which language will be used, Chinese or English? The Chinese language has far more interpretations than the English language. The Chinese language is character based so it may not be easy to translate the user interface instructions between the two languages.

• Databases: Again the languages 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.

2. Selling tennis rackets outside the United States: Your company manugactures 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 Web site 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 0–14years /15–64 years

Literacy Rates Over 15 yrs can read & write

Education Levels # of years in school

GDP per capita

Household incomes by % share highest 10%

Internet users

Brazil China Germany Italy Japan

27/66 20/71 13/66 13/66 13/64

88% 90% 99% 98% 99%

14 11 16 16 15

$9,500 $5,400 $34,100 $30,900 $33,500

44% 34% 22% 26% 21%

50 mil 253 mil 42 mil 32 mil 88 mil

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.

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Features students may consider adding to the Web site 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.

Achieving Operational Excellence: Building a Job Database and Web Page for an International Consulting Firm Software skills: Database and Web page design Business skills: Human resources internal job postings 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 Web site.

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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Improving Decision Making: Conducting International Marketing and Pricing Research Software skills: Internet-based software Business skills: International pricing and marketing 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 Web site (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 Web site.

After going back to a search engine and finding the business, the Web site primarily had contact information as opposed to customs and legal information. The shipping costs will

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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.

Video Cases You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.

Collaboration andTeamwork: Identifying Technologies for Global Business Strategies With a group of students, identify an area of information technology and explore how this technology might be useful for supporting global business strategies. For instance, you might choose an area such as digital telecommunications (e.g., email, wireless communications value added networks), enterprise systems, collaborative work group software, or the Internet. It will be necessary to choose a business scenario to discuss the technology. You might choose, for instance, an automobile parts franchiser or a clothing franchise, such as the Limited Express, as example businesses. Which applications would you make global, which core business processes would you choose, and how would the technology be helpful? If possible, use Google Sites to post links to Web pages, team communication announcements, and work assignments; to brainstorm; and to work collaboratively on project documents. Try to use Google Docs to develop a presentation of your findings for the class. Use Google Sites to post the results on the team’s Web site.

For many companies, staying competitive means they must keep up with emerging technologies. This project should help students think along those lines, as well as orient them toward the emerging relevance of global strategies. This text contains many examples of uses for emerging technologies, including many that can be or are global in scope. Consider open systems architecture to establish a global network, and earlier case studies that discuss the use of artificial intelligence to support such processes as authorizing charges. All are related to telecommunications and can easily be applied globally, plus all rely on recently emerging technology. To take an example from the question itself, if the students selected Limited Express to explore, they might want to consider the following systems (depending upon what technology they were focusing): •

•

A collaborative work group software product that allows their style experts around the world to work better together to predict (and even partially control) the latest styles.

An email system that their buyers can use to communicate better among themselves and with the home office.

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•

• •

A digital network that allows buyers to send graphic images from their offices to other locations so that the company can immediately take advantage of new opportunities.

Point-of-sale systems in stores around the world to better control inventory and allow management to discover emerging trends.

A standardized accounting package that stores use around the world allowing the home office to consolidate financial data. In non-U.S. countries such a system would probably be installed with an automated interface from the local, non-U.S. accounting system.

Some of these systems may already exist in that company, and the students can easily come up with more. Students should present their answers to the class, explaining the system and its underlying technology. They must be careful to relate the technology to the global strategy and to a business scenario to carry out that strategy.

Case Study: Sherwin Williams Paints the World 1. What management problems and challenges typical of global companies was Sherwin-Williams experiencing? What management, organization, and technology factors were responsible for those problems?

Management: International profits accounted for less than 20 percent of SherwinWilliams’s revenues. It needed to broaden its revenue base by entering new overseas markets.

Organization: Raw materials providers in the company’s supply chain had shifted their operations overseas. Shipping both raw materials and finished products is cost prohibitive. When the company enters a market it must have either available or establish local supply chains, retail outlets, and customer service operations. In 1999, Sherwin-Williams had no presence in Asia and only its London office in Europe.

Now it has 13 factories in both regions.

Technology: Enterprise resource planning (ERP) systems must include multilanguage support as well as support for international tax law, differences in accounting procedures, and variations in environmental, financial, and other regulations. In order to become an effective global player, a different application set was necessary and the company’s existing domestic ERP lacked the necessary capabilities. Additionally, outdated, rudimentary, and nonfunctional IT systems at newly acquired companies were common. Future ERP systems needed to centralize data to improve global decision-making while still supporting local differences and avoiding damage to existing local business relationships.

2. How did Sherwin-Williams’ new global systems support its business strategy?

How effective was the solution chosen by the company?

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The new system defined, centralized and coordinated Sherwin-Williams product, vendor, and customer data, enabling non-conflicting data to flow from one business process to another. A centralized approach team is both cost and operationally efficient.

Sherwin-Williams deployed detailed standard business processes organized into five key areas. It has six additional modules that handle product information management and inventory, product development, advanced supply chain planning, process execution, quality control, and process manufacturing financials. Paint recipes are developed independently with formulas entered into its workflows where they are instantly customized for a particular location. That provides detailed records for each paint batch, allowing lots to be easily traced.

Data distribution to accounting and financial processes is much easier with the new system. The company can easily transfer data to a different accounting method if prescribed by local government regulations or market conditions.

Accounting, manufacturing, logistics, and supply chain business processes are delivered as shared services in all of Sherwin-Williams’ regions. If one region revises a process that improves efficiency, it can readily be adopted in other areas.

The company implemented a business intelligence system that expanded data querying and analysis capabilities. Employees have instant access to daily sales and margin data as well as the ability to monitor sales trends. Some shared services are organized among business units rather than regionally.

3. What steps did Sherwin-Williams take to make sure that its global systems implementation was successful?

After the company began its first implementation in Mexico in 2005, the IT team completed an implementation, got feedback from users, made necessary changes, and learned from the experience before moving on to the next country or application. That way, the company could glean best practices and apply them in the next phase. The key goals were to gain familiarity with the customer and to gain acceptance from local employees and supply chain partners. The IT team understood that the benefits of ERP would only be realized if it was accepted and correctly used.

Two distinct instances of the Oracle E-Business suite were deployed: one specifically adapted for Asia and one for the Americas. IT professionals are sent out to the field to staff manufacturing plants and retail stores where they unload trucks, stock shelves, serve customers, and mix paint. The idea is that familiarity with the endpoint, where the dollars are actually generated, imparts an appreciation for how difficult that job actually is as well as an understanding of the supporting tasks that will maximize its efficacy.

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Chapter 1 Running Case Assignment: Understanding Information System Requirements Software skills: Presentation software Business skills: Management analysis and information system recommendations How do you know what information systems are really needed by a business and which are the most important? How should a company’s structure or culture affect the building and use of information systems?

Dirt Bikes’s management has asked you to prepare a management analysis of the company to help it assess the firm’s current situation and future plans. Review Dirt Bikes’s company history, organization chart, products and services, and sales and marketing in the Introduction to Dirt Bikes. Then prepare a report that addresses these questions: • • • • •

What are the company’s goals and culture?

What products and services does Dirt Bikes U.S.A. provide? How many types of products and services are available to customers? How does Dirt Bikes sell its products?

How many employees are managers, production workers, or knowledge or information workers? Are there levels of management?

What kinds of information systems and technologies would be the most important for a company such as Dirt Bikes?

(Optional) Use electronic presentation software to summarize for management your analysis of Dirt Bikes’s performance.

Chapter 2 Runing Case Assignment: Analyzing Financial Performance Software skills: Spreadsheet charts and formulas Business skills: Financial statement analysis As part of your analysis of the company for management, you have been asked to analyze data on Dirt Bikes’s financial performance. Review Dirt Bikes’s selected financial data in the Introduction to Dirt Bikes, which can be found at the Laudon Web site. There you will find Dirt Bikes’s income statement and summary balance sheet data from 2010 to 2012, annual sales of Dirt Bikes models between 2008 and 2012, and total domestic versus international sales between 2008 and 2012.

Use your spreadsheet software to create graphs of Dirt Bikes’s sales history from 2008 to 2012 and its domestic versus international sales from 2008 to 2012. Select the type of graph that is most appropriate for presenting the data you are analyzing.

Use the instructions at the Laudon Web site and your spreadsheet software to calculate the gross and net margins in Dirt Bikes’s income statements from 2010 to 2012.

You can also create graphs showing trends in selected pieces of Dirt Bikes’s income statement and balance sheet data if you wish. (You may want to rearrange the historical ordering of the data if you decide to do this.)

Prepare an addition to your management report that answers these questions: •

What are Dirt Bikes’s best- and worst-performing products? What is the proportion of domestic to international sales? Have international sales grown relative to domestic sales?

•

Are sales (revenues) growing steadily, and, if so, at what rate? What is the cost of goods sold compared to revenues? Is it increasing or decreasing? Are the firm’s gross and net margins increasing or decreasing? Are the firm’s operating expenses increasing or decreasing? Is the firm heavily in debt? Does it have assets to pay for expenses and to finance the development of new products and information systems?

•

(Optional) Use electronic presentation software to summarize your analysis of Dirt Bikes’s performance for management.

Chapter 3 Running Case Assignment: Improving Decision Making: Analyzing Competitive Strategy Software skills: Web browser software and presentation software Business skills: Value chain and competitive forces analysis, business strategy formulation This project provides an opportunity for you to develop the competitive strategy for a real-world business. You’ll use the Web to identify Dirt Bikes’s competitors and the competitive forces in its industry. You’ll use value chain analysis to determine what kinds of information systems will provide the company with a competitive advantage.

Dirt Bikes’s management wants to be sure it is pursuing the right competitive strategy.

You have been asked to perform a competitive analysis of the company using the Web to find the information you need. Prepare a report that analyzes Dirt Bikes using the value chain and competitive forces models. You report should include the following: • Which activities at Dirt Bikes create the most value?

• How does Dirt Bikes provide value to its customers?

• What other companies are Dirt Bikes’s major competitors? How do their products compare in price to those of Dirt Bikes? What are some of the product features they emphasize?

• What are the competitive forces that can affect the industry?

• What competitive strategy should Dirt Bikes pursue?

• What information systems best support that strategy?

• (Optional) Use electronic presentation software to summarize your findings for management.

Chapter 4 Running Case Assignment: Achieving Operational Excellence: Developing a Web Site Privacy Policy Software skills: Web browser software and presentation software Business skills: Corporate privacy policy formulation Dirt Bikes’s management wants to make sure it has policies and procedures in place to protect the privacy of visitors to its Web site. You have been asked to develop Dirt Bikes’s Web site privacy policy. The TRUSTe Web site at <URL>www.truste.com describes privacy best practices to help you draft Dirt Bikes’s privacy policy. You can also examine specific companies’ privacy policies by searching for Web site privacy policies on Yahoo!, Google or another search engine. Prepare a report for management that addresses the following issues: • How much data should Dirt Bikes collect on visitors to its Web site? What information could it discover by tracking visitors’ activities at its Web site? What value would this information provide the company? What are the privacy problems raised by collecting such data?

• Should Dirt Bike use cookies? What are the advantages of using cookies for both Dirt Bikes and its Web site visitors? What privacy issues do they create for Dirt Bikes?

• Should Dirt Bikes join an organization such as TRUSTe to certify that it has adopted approved privacy practices? Why or why not?

• Should Dirt Bikes adopt an opt-in or opt-out model of informed consent?

• Include in your report a short (two to three pages) privacy statement for the Dirt Bikes Web site.

• (Optional) Use electronic presentation software to summarize your recommendations for management.

Chapter 5 Running Case Assignment: Improving Decision Making: Making the Rent vs. Buy Decision for Hardware and Software Software skills: Spreadsheet formulas, electronic presentation software (optional) Business skills: Technology rent vs. buy decision, TCO analysis This project provides an opportunity for you help a real-world company make a decision about whether to rent or buy new technology. You’ll use spreadsheet software to compare the total three-year cost of licensing and maintaining new manufacturing software or renting the software from an application service provider.

Dirt Bikes would like to implement new production planning, quality control, and scheduling software for use by 25 members of its manufacturing staff. Management is trying to determine whether to purchase the software from a commercial vendor along with any hardware required to run the software or to use a hosted software solution from a software service provider. (The hosted software runs on the service provider’s computer.) You have been asked to help management with this rent vs. buy decision by calculating the total cost of each option over a three-year period.

The costs of purchasing the software (actually for purchasing a license from the vendor to use its software package) include the initial purchase price of the software (licensing fee of $100,000 paid in the first year), the cost of implementing and customizing the software in the first year ($20,000), one new server to run the software (a first-year purchase of $4000), one information systems specialist devoting half of his or her time to supporting the software ($55,000 in full-time annual salary and benefits with a 3% annual salary increase each year after the first year), user training in the first year ($10,000), and the cost of annual software upgrades ($5,000).

The costs of renting hosted software are the rental fees ($2500 annually per user), implementation and customization costs ($12,000 in the first year), and training ($10,000 in the first year).

•

Use your spreadsheet software to calculate the total cost of renting or purchasing this software over a three-year period. Identify the lowest-price alternative that meets Dirt Bikes’s requirements.

•

What other factors should Dirt Bikes consider besides cost in determining whether to rent or buy the hardware and software?

•

(Optional) If possible, use electronic presentation software to summarize your findings for management.

Chapter 6 Running Case Assignment: Improving Decision Making: Redesigning the Customer Database Software skills: Database design; querying and reporting Business skills: Customer profiling Dirt Bikes U.S.A. sells primarily through its distributors. It maintains a small customer database with the following data: customer name, address (street, city, state, zip code), telephone number, model purchased, date of purchase, and distributor. You can find the database in MyMISLab. These data are collected by its distributors when they make a sale and are then forwarded to Dirt Bikes. Dirt Bikes would like to be able to market more aggressively to its customers.

The Marketing Department would like to be able to send customers e-mail notices of special racing events and of sales on parts. It would also like to learn more about customers’ interests and tastes: their ages, years of schooling, another sport in which they are interested, and whether they attend dirt bike racing events. Additionally, Dirt Bikes would like to know whether customers own more than one motorcycle. (Some Dirt Bikes customers own two or three motorcycles purchased from Dirt Bikes U.S.A. or other manufacturer.) If a motorcycle was purchased from Dirt Bikes, the company would like to know the date of purchase, model purchased, and distributor. If the customer owns a non–Dirt Bikes motorcycle, the company would like to know the manufacturer and model of the other motorcycle (or motorcycles) and the distributor from whom the customer purchased that motorcycle.

•

Redesign Dirt Bikes’s customer database so that it can store and provide the information needed for marketing. You will need to develop a design for the new customer database and then implement that design using database software.

Consider using multiple tables in your new design. Populate each new table with 10 records.

•

Develop several reports that would be of great interest to Dirt Bikes’s marketing and sales department (for example, lists of repeat Dirt Bikes customers, Dirt Bikes customers who attend racing events, or the average ages and years of schooling of Dirt Bikes customers) and print them.

Chapter 7 Running Case Assignment: Achieving Operational Excellence: Using Internet Tools to Increase Efficiency and Productivity Software skills: Web browser software and presentation software Business skills: Employee productivity analysis In this project, you’ll suggest applications of Internet technology to help a employees at real-world company work more efficiently.

Dirt Bikes’s management is concerned about how much money is being spent communicating with people inside and outside the company and on obtaining information about developments in the motorcycle industry and the global economy. You have been asked to investigate how Internet tools and technology could be used to help Dirt Bikes employees communicate and obtain information more efficiently. Dirt Bikes provides Internet access to all its employees who use desktop computers.

• How could the various Internet tools help employees at Dirt Bikes? Create a matrix showing what types of employees and business functions would benefit from using each type of tool and why.

• How could Dirt Bikes benefit from intranets for its sales and marketing, human resources, and manufacturing and production departments? Select one of these departments and describe the kind of information that could be provided by an intranet for that department. How could this intranet increase efficiency and productivity for that department?

• (Optional) If possible, use electronic presentation software to summarize your findings for management.

Chapter 8 Running Case Assignment: Achieving Operational Excellence: Developing a Disaster Recovery Plan Software skills: Web browser and presentation software Business skills: Disaster recovery planning Management is concerned that Dirt Bikes’s computer systems could be vulnerable to power outages, vandalism, computer viruses, natural disasters, or telecommunications disruptions. You have been asked to perform an analysis of system vulnerabilities and disaster recovery planning for the company. Your report should answer the following questions: • What are the most likely threats to the continued operation of Dirt Bikes’s systems?

• What would you identify as Dirt Bikes’s most critical systems? What is the impact on the company if these systems cannot operate? How long could the company survive if these systems were down? Which systems are the most important to back up and restore in the event of a disaster?

• Use the Web to locate two disaster recovery services that could be used by a small business such as Dirt Bikes. Compare them in terms of the services they offer.

Which should Dirt Bikes use? Exactly how could these services help Dirt Bikes recover from a disaster?

• (Optional) If possible use electronic presentation software to summarize your findings for management.

Chapter 9 Running Case Assignment: Improving Operational Excellence: Identifying Supply Chain Management Solutions Software skills: Web browser and presentation software Business skills: Locating and evaluating suppliers In this project you’ll use the Web to identify the best suppliers for one component of a dirt bike and appropriate supply chain management software for a small manufacturing company.

A growing number of Dirt Bikes orders cannot be fulfilled on time because of delays in obtaining some important components and parts for its motorcycles, especially their fuel tanks. Complaints are mounting from distributors who fear losing sales if the dirt bikes they have ordered are delayed too long. Dirt Bikes’s management has asked you to help it address some of its supply chain issues.

•

Use the Internet to locate alternative suppliers for motorcycle fuel tanks. Identify two or three suppliers. Find out the amount of time and cost to ship a fuel tank (weighing about five pounds) by ground (surface delivery) from each supplier to Dirt Bikes in Carbondale, Colorado. Which supplier is most likely to take the shortest amount of time and cost the least to ship the fuel tanks?

•

Dirt Bikes’s management would like to know if there is any supply chain management software for a small business that would be appropriate for Dirt Bikes. Use the Internet to locate two supply chain management software providers for companies such as Dirt Bikes. Briefly describe the capabilities of the two software applications and indicate how they could help Dirt Bikes. Which supply chain management software product would be more appropriate for Dirt Bikes?

Why?

•

(Optional) Use electronic presentation software to summarize your findings for management.

Chapter 10 Running Case Assignment: Achieving Operational Excellence: Developing an E-Commerce Strategy Software skills: Web browser software, Web page development software Business skills: Strategic analysis This project provides an opportunity for you to develop an e-commerce strategy for a real-world business and to use a Web page development tool to create part of the company’s Web site.

Dirt Bikes’s management believes that the company could benefit from e-commerce. The company has sold motorcycles and parts primarily through authorized dealers. Dirt Bikes advertises in various magazines catering to dirt bike enthusiasts and maintains booths at important off-road motorcycle racing events. You have been asked to explore how Dirt Bikes could benefit from e-commerce and a Dirt Bikes Web site. Prepare a report for management that answers the following questions: • How could Dirt Bikes benefit from e-commerce? Should it sell motorcycles or parts over the Web? Should it use its Web site primarily to advertise its products and services? Should it use the Web for customer service?

• How would a Web site provide value to Dirt Bikes? Use the Web to research the cost of an e-commerce site for a small to medium-sized company. How much revenue or cost savings would the Web site have to produce to make it a worthwhile investment for Dirt Bikes?

• Prepare specifications describing the functions that should be performed by Dirt Bikes’s Web site. Include links to other Web sites or other systems in your specifications.

• (Optional) Design the home page for Dirt Bikes’s Web site and an important secondary page linked to the home page using the Web page creation capabilities of word processing software or a Web page development tool of your choice

Chapter 11 Running Case Assignment: Achieving Operational Excellence: Identifying Opportunities for Knowledge Management Software skills: Web browser software, presentation software Business skills: Knowledge management strategy formulation This project provides an opportunity for you to identify opportunities for knowledge management at a real-world business and to suggest value-adding knowledge management applications.

Senior management has started reading about knowledge management and has asked you to explore opportunities for improving knowledge management at Dirt Bikes. Write a report answering the following questions.

• • • • • • •

What are the most important knowledge assets at Dirt Bikes? What functions and employee positions are responsible for creating, distributing, and using these knowledge assets? Are all of these assets explicit knowledge?

What knowledge outside the organization is required by the company?

How could the following employee groups benefit from knowledge management: designers and engineers, product development specialists, marketing specialists, sales department staff and representatives, managers Describe the kinds of knowledge management systems that would be most valuable for each of these groups. What information would each of these systems provide?

Use the Web to research how the company could make better use of the Internet for knowledge management. What Internet information resources (specific Web sites or Usenet groups) would be most useful to Dirt Bikes?

Describe an enterprise portal for one of the employee groups listed in question 3.

To which knowledge resources would it link? What would the home page of this portal look like?

(Optional) Use electronic presentation software to summarize your findings for management.

Chapter 12 Running Case Assignment: Improving Decision Making: Analyzing the Impact of Component Price Changes Software skills: Spreadsheet formulas, two-variable data table Business skills: Manufacturing bill of materials sensitivity analysis A bill of materials is used in manufacturing and production to show all of the parts and materials required to manufacture a specific item or for the subassembly of a finished product, such as a motorcycle. The information in the bill of materials is useful for determining product costs, coordinating orders, and managing inventory. It can also show how product costs will be affected by price changes in components or raw materials.

This project provides you with an opportunity to use spreadsheet software to perform a sensitivity analysis showing the impact of various prices for component parts on the total costs of a dirt bike. The bill of materials for this project has been simplified for instructional purposes.

Dirt Bikes’s management has asked you to explore the impact of changes in some of its parts components on production costs. Review the spreadsheet file containing bill of materials information for the brake system for Dirt Bikes’s Moto 300 model, which can be found on the Laudon Web site for this chapter. The completed bill of materials contains the description of the component, the identification number of each component, the supplier (source) of the component, the unit cost of each component, the quantity of each component needed to make each finished brake system, the extended cost of each component, and the total materials cost. The extended cost is calculated by multiplying the quantity of each component needed to produce the finished brake system by the unit cost. The prices of components are constantly changing, and you will need to develop a spreadsheet application that can show management the impact of such price changes on the cost to produce each brake system and on total production costs for the Moto 300 model.

• Complete the bill of materials by calculating the extended cost of each component and the total materials cost for each brake system.

• Develop a sensitivity analysis to show the impact on total brake system materials costs if the front brake calipers unit cost ranges from $103 to $107 and if the brake pipe unit cost ranges from $27 to $30.

• The brake system represents 30 percent of the total materials cost for one Moto 300 motorcycle. Use sensitivity analysis again to show the impact of the changes in front brake caliper unit costs and brake pipe unit costs described previously on total materials costs for this motorcycle model.

Chapter 13 Running Case Assignment: Achieving Operational Excellence: Designing an Employee Training and Skills Tracking System and Database Software skills: Database design, querying, and reporting Business skills: Employee training and skills tracking This project requires you to perform a systems analysis and then design a system solution using database software.

Dirt Bikes promotes itself as a “learning company.” It pays for employees to take training courses or college courses to help them advance in their careers. As employees move on, their job positions become vacant and Dirt Bikes must quickly fill them to maintain its pace of production. Dirt Bikes’s human resources staff would like to find a way to quickly identify qualified employees who have the training to fill vacant positions. Once the company knows who these employees are, it has a better chance of filling open positions internally rather than paying to recruit outsiders. Dirt Bikes would like to track each employee’s years of education and the title and date completed of training classes that each employee has attended.

• Dirt Bikes currently cannot identify such employees. Its existing employee database is limited to basic human resources data, such as employee name, identification number, birth date, address, telephone number, marital status, job position, and salary. A portion of this database is illustrated here. You can find some sample records from this database on the Laudon Web site for this chapter.

Dirt Bikes’s human resources staff keeps skills and training data in paper folders.

•

Prepare a systems analysis report describing Dirt Bikes’s problem and a system solution that can be implemented using PC database software. Then use the database software to develop a simple system solution. Your report should include the following: 1) Description of the problem and its organizational and business impact.

2) Proposed solution and solution objectives.

3) Information requirements to be addressed by the solution.

4) 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 solution using database software and populate it with at least 10 records per table. Consider whether you can use or modify the existing employee database in your design.

Print out the design for each table in your new application. Use the system you have created to create queries and reports that would be of most interest to management, such as which employees have college education or which employees have training in project management or advanced computer-aided design [CAD] tools.

If possible, use electronic presentation software to summarize your findings for management.

Chapter 14 Running Case Assignment: Improving Decision Making: Using Spreadsheet Software to Analyze the Return on a New System Investment Software skills: Spreadsheet formulas and functions Business skills: Capital budgeting This project provides you with an opportunity to use spreadsheet software to use the capital budgeting models discussed in this chapter to analyze the return on a new information system investment for a real-world company.

Dirt Bikes’s management would like to analyze the return on its investment in its employee training and skills tracking system described in Chapter 13. The system runs on the human resources specialists’ PCs using PC database software. Because the entire corporate administrative staff recently received new desktop PC systems with database and other productivity software, there are no additional hardware and software purchase costs. The main costs include the initial cost of designing and implementing the database (business staff cost of $5,000; information systems staff cost of $15,000), gathering and adding employee skills and training data to the database ($5,500 initial data conversion cost plus $1,000 annual data entry costs), and ongoing maintenance and support ($3,000 annually). Human resources staff members believe the new application could save each of them two hours of work per week. (Their annual salaries are $37,000 and $42,000 each.) The company would also save about $11,000 annually in employee recruiting costs because it would be able to fill many vacant positions with existing employees, thereby reducing its costs for recruiting outside the company. The system would not be installed until the end of 2012 and would return benefits from 2013 to 2017.

•

•

Prepare a report for management analyzing the return on the investment for this system over a five-year period using the following capital budgeting models: net present value, return on investment (ROI), internal rate of return (IRR), and payback method. Assume a 5 percent interest rate for your net present value calculations. Use spreadsheet software for your calculations.

(Optional) If possible use electronic presentation software to summarize your findings for management.

Chapter 15 Running Case Assignment: Achieving Operational Excellence: Expanding International Sales In this project you’ll use the Web to research international markets for a small manufacturing company.

Software skills: Web browser and electronic presentation software Business skills: Identifying international markets Management would like to expand international sales for Dirt Bikes. You have been asked to analyze opportunities for global business expansion of the company, using the Web to find the information you need. Prepare a report for management that answers the following questions: • Which countries would provide the best markets for Dirt Bikes’s products? Your analysis should consider factors such as the following: In which countries are dirt bikes popular? What is the per capita income of these countries?

• How could Dirt Bikes use the Web to increase international sales? What features should it place on its Web site to attract buyers from the countries it targets?

• (Optional) If possible, use electronic presentation software to summarize your findings for management.

This worksheet shows the number of Dirt Bikes motorcycles sold between 2007 and 2011.

Worksheet name: Sales Amounts are in thousands of dollars

Model Enduro 250 Enduro 550 Moto 300 Moto 450 TOTAL

Sales by Model 2007 2008 2009 1201 1663 2291 2832 3290 3759 1755 1932 2454 463 598 661 6251 7483 9165

2010 2312 4078 2615 773 9778

2011 2195 3647 2627 823 9292

This worksheet shows Dirt Bikes' income statements and summary balance sheets from 2009-2011.

Worksheet name: Financial Statements amounts are in thousands Consolidated Satements of Income (in thousands) 2012 2011 2010 Revenue Net sales Cost of goods sold Gross profit/(loss) Gross margin Operating expenses Sales and markering Engineering and product development General and administrative Total operating expenses Operating income/loss Other income/expense Interest income/expense Other income/(expense) Income before provision for income taxes Income taxes Net income/(loss) Net margin

60,144 45,835 14,309

64,063 43,155 20,908

61,529 41,072 20,457

4,733 3,141 1,913 9,787 4,522

4,537 2,992 1,601 9,130 11,778

3,944 2,339 1,392 7,675 12,782

1,747 (6,254) 15 1,459 (1,444)

175 (2,914) 9,039 1,729 7,310

80 (3,080) 9,782 535 9,247

Summary Balance Sheet Data At December 31 Current assets Cash and cash equivalents Accounts reveivable Inventories Total current assets

2012

2011

2010

6,994 13,083 6,315 26,392

7,197 12,981 5,931 26,109

6,891 12,872 5,843 25,606

Property plant, and equipment Other assets Total assets

36,920 1,765 65,077

34,515 1,903 62,527

32,002 1,834 59,442

Current liabilities Accounts payable Accrued expenses and other liabilities Total current liabilities

8,943 10,877 19,820

8,694 9,382 18,076

7,592 8,654 16,246

Long-term debt Total liabilities

9,772 29,592

9,338 27,414

8,890 25,136

Shareholders' equity Total liabilities + shareholders' equity

35485 65,077

35113 62,527

34306 59,442

This worksheet shows number of Dirt Bikes' domestic vs. interational motorcycles sold between 2008 and 2012.

Worksheet name: Domestic vs. International Sales Amounts are in thousands of dollars

Domestic International TOTAL % International

Domestic vs. International Sales 2008 2009 2010 2011 5723 6843 8254 8889 528 640 911 889 6251 7483 9165 9778 8.4% 8.6% 9.9% 9.1%

2012 8530 762 9292 8.2%

Dirt Bikes USA Organization Chart

CEO and COO

Production

Parts

Shipping & Receiving

Manufacturing

Administration

Service

Sales & Marketing

Design & Engineering

Introduction to Dirt Bikes Dirt Bikes USA is a small company headquartered in Carbondale Colorado that manufactures and sells its own brand of off-road motorcycles. It was founded in 1993 to product dirt bikes that could be customized for racing and off-road recreational riding using the best quality components and parts from all over the world. The company has continued to grow and now faces a new set of challenges and opportunities. You have been asked to serve as a consultant to apply your information systems knowledge to help Dirt Bikes solve some of the problems it is encountering.

There is an assignment awaiting you to accompany each chapter of the Laudon and Laudon Management Information Systems text. In order to complete the assignment, you should review the corresponding text chapter and any information provided by your instructor related to the topic you are investigating. You can complete each project individually or in teams, depending on your instructor’s requirements. To develop solutions, you may need to do Web research and to use spreadsheet, database, or Web browser software tools, and you will need to use a word processor to write up your findings. Many projects recommend you use electronic presentation software, if possible, to summarize your findings for management. Each assignment will list the software tools that you will need to use and the questions you will need to answer.

In order to complete your assignments, you should familiarize yourself with Dirt Bikes.

To learn more about the company and how it works, review each of these topics in this document: Company History and Background Organization Chart and Employees Products and Services Sales and Marketing Selected Financial Data The following is a list of Dirt Bikes projects for each chapter. This list includes links to the data files for these assignments.

Chapter 1 Assignment: Understanding Information System Requirements [Data File: Dirt Bikes Org Chart] Chapter 2 Assignment: Analyzing Financial Performance [Data File: Dirt Bikes Financial Data] Chapter 3 Assignment: Analyzing Competitive Strategy Chapter 4 Assignment: Developing a Web Site Privacy Policy Chapter 5 Assignment: Improving Decision Making: Making the Rent vs. Buy Decision for Hardware and Software Chapter 6 Assignment: Improving Decision Making: Redesigning the Customer Database [Data File: MIS13Ch06 Customer Database] Chapter 7 Assignment: Achieving Operational Excellence: Using Internet Tools to Increase Efficiency and Productivity Chapter 8 Assignment: Achieving Operational Excellence: Developing a Disaster Recovery Plan

Chapter 9 Assignment: Achieving Operational Excellence: Identifying Supply Chain Management Solutions Chapter 10 Assignment: Achieving Operational Excellence: Developing an E-Commerce Strategy Chapter 11 Assignment: Achieving Operational Excellence: Identifying Opportunities for Knowledge Management Chapter 12 Assignment: Improving Decision Making: Analyzing the Impact of Component Price Changes [Data File: MIS13Ch12 Bill of Materials] Chapter 13 Assignment: Achieving Operational Excellence: Designing an Employee Training and Skills Tracking System and Database [Data File: MIS13Ch13 Employee Database] Chapter 14 Assignment: Improving Decision Making: Using Spreadsheet Software to Analyze the Return on a New System Investment Chapter 15 Assignment: Achieving Operational Excellence: Expanding International Sales.

Company History and Background Dirt Bikes USA was founded in 1994 by Carl Schmidt and Steven McFadden, two young but experienced bikers with engineering backgrounds who saw that dirt bikes were becoming very popular in the United States as both sporting and racing motorcycles.

They developed frames for dirt bikes that were more suited to off-road handling and started using these frames to build their own dirt bike models using motorcycle engines manufactured by other companies, such as Honda and Rotax Motors of Austria. Riding on one of their customized dirt bikes, Steven finished first in the famous Barstow to Las Vegas race. There was so much interest in Carl and Steve’s bikes that they decided to open a production facility that could manufacture large numbers of their dirt bikes for the retail market. They opened a small production facility in Carbondale which has since expanded to house 120 workers involved in production, design, and engineering and a corporate sales and administrative staff of close to 20 employees. Over the years Dirt Bikes USA has enhanced and expanded its product line to include dirt bike models optimized for racing and for off-road recreational use. Its racing models have placed well-and often placed first-- in the many dirt bike races staged throughout the United States, including the Barstow-Las Vegas race and competitions at Daytona Bike Week.

Organization Chart and Employees Dirt Bikes USA is still privately owned with Carl serving as CEO and Steven as President and Chief Operating Officer. About 120 employees work in design, engineering and production, including 3 full-time product designers and 3 engineers. In addition to a 4-person Parts department, Dirt Bikes maintains a ten-person service department to service warranties and customer problems with parts and motorcycle performance. Five employees work in Dirt Bikes’ shipping and receiving department.

Dirt Bikes’ sales staff consists of a marketing manager and 5 sales representatives, two for the West coast and Western United States, one for the Midwest, one for the Northeast

and one for the South. The corporate administrative staff consists of a controller, one accountant, one administrative assistant, two human resources staff members, three secretaries, and two information systems specialists to support systems servicing all of the business functional areas. The data file Dirt Bikes Org Chart shows Dirt Bikes’s organization chart.

The company maintains a very friendly family atmosphere, encouraging teamwork, attention to detail and quality, and continual learning and innovation. Employees, distributors, and retail customers are urged to contribute ideas on how to improve Dirt Bikes’ products and service.

Products and Services Dirt Bikes’ founders realized that the most popular dirt bikes were foreign brands and wanted to capitalize on their proximity to the dirt bikes racing circuit and market in the United States. Carl and Steve hoped they could develop bikes that performed and looked better than the competition by using the best custom parts available. Dirt Bikes does not hesitate to use quality components from all over the world. The engines for Dirt Bikes are Rotax engines from Austria and tires are from Dunlop, but many of their parts, such as shock absorbers, front wheel forks, exhaust pipes, and headlights, are from the United States. Dirt Bikes makes its own frames, shaping them to give them the unique spirited style for which the company is noted. The company’s parts and service business accounts for about 15% of its total revenue.

Manufacturing and selling dirt bikes is a complex business. Dirt bike racing has many forms, including racing specifically for different size bikes, for short distances, long distance, and even for up to six days. Enduro bikes are for cross-country racing and motocross bikes are specially designed for racing in an enclosed dirt course that can consist of a variety of terrains; uphill, downhill, corners, jumps, and so forth. Dirt Bikes currently produces four models: the Enduro 250, the Enduro 550, the Moto 300 and the Moto 450. The two Enduros are endurance racers, while the Motos are for motocross racing. All four are very modern, with such technology as both kick and electric starters, steering stabilizers, and liquid cooling. The large majority of these bikes are sold in the United States for between $3,250 and $9000 retail. (The Enduro 250 retails for $3250, the Enduro 550 retails for $7600, the Moto 300 retails for $4295 and the Moto 450 retails for $8995.) Dirt Bikes has appealed primarily to serious trail and Enduro riders, although it is making inroads into the motocross market.

Sales and Marketing Dirt Bikes does not sell directly to retail customers, relying on a network of 40 distributors concentrated in the Western and Midwestern United States. A small percentage of Dirt Bikes are sold in Europe using independent distributors that sell other brands of dirt bikes and motorcycles as well as Dirt Bikes. Dirt Bikes’ motorcycles,

parts, and service, including warranty repairs, can only be obtained through an authorized Dirt Bikes dealer. All motorcycle and spare parts sales, shipping and set-up must be handled by a certified dealer. If a potential customer lives more than 50 miles from the nearest authorized Dirt Bikes dealer, the customer can purchase a Dirt Bike or Dirt Bike parts through a certified independent motorcycle dealer. Retail customers can purchase spare parts directly from Dirt Bikes only by verifying that they live more than 50 miles from an authorized Dirt Bikes dealer.

Dirt Bikes’ sales department works closely with Dirt Bikes’ distributors. One of its key responsibilities is to aggressively promote Dirt Bikes at dirt bike racing and other events.

Many Dirt Bikes employees are dirt bike racing enthusiasts themselves. Several are official company racers representing the company in dirt bike racing competition. Dirt Bikes recently established a Dirt Bikes USA Owners’ Group to promote stronger relationships with customers and to make it easier for them to share their Dirt Bikes USA experiences. Dirt Bikes also advertises in magazines devoted to motorcycle racing and dirt bikes. It uses a small public relations firm to place articles about new company products or racing victories in these magazines. Dirt Bikes also pays for ads in these publications.

Selected Financial Data The data file Dirt Bikes Financial Data provides a spreadsheet with three worksheets containing Dirt Bikes financial data for you to review: • Income statement and summary balance sheet data from 2010-2012 • Annual sales of each Dirt Bikes model between 2008 and 2012 • Total domestic vs. international motorcycle sales between 2008 and 2012 The income statement and balance sheet are the primary financial statements used by management to determine how well a firm is performing. The income statement, also called an operating statement or profit and loss statement, shows the income and expenses of a firm over a period of time, such as a year, a quarter, or a month. The gross profit represents the difference between the firm’s revenue (or sales) and the cost of goods sold. The gross margin is calculated by dividing gross profit by revenues (or sales). Net profit (or loss) is calculated by subtracting all other expenses, including operating expenses and income taxes from gross profit. Operating expenses are all business costs (such as expenditures for sales and marketing, general and administrative expenditures, and depreciation) other than those included in the cost of goods sold. Net margins are calculated by dividing net profit (or loss) by revenues (or sales).

A balance sheet provides a snapshot of a company’s financial assets and liabilities on a given date, usually the close of an accounting period. It lists what material and intangible assets the business owns and what money the business owes either to its creditors (liabilities) or to its owners (shareholders’ equity, also known as net worth).

We have included here are only the most important pieces of balance sheet data for you to review. At any given time a business’s assets equals the sum of its liabilities plus its net worth. Current assets include cash, securities, accounts receivable, or other investments that are likely to be converted into cash within one year. Current liabilities

are debts that are due within one year. Long-term debt consists of liabilities that are not due until after a year or more. If too much debt has been used to finance the firm’s operations, problems may arise in meeting future interest payments and repaying outstanding loans.

By examining a series of financial statements one can identify and analyze trends in the financial strength of a business. When examining Dirt Bikes’ income statement and balance sheet data, pay special attention to the company’s three-year trends in revenue (sales), costs of goods sold, gross margins, operating expenses, and net income (or loss). Pay attention to whether the company’s short and long-term liabilities are growing and whether they exceed assets. If a company has more current assets than current liabilities, it is a sign that it probably has enough working capital to fund investments in new equipment or information systems.

The two other spreadsheets present motorcycle shipment data between 2008 and 2012, which can be used to gauge motorcycle sales. When examining these spreadsheets, pay attention to the trends in sales. This includes the sales trends for each product Dirt Bikes sells, overall sales trends, and the proportion of international to domestic sales.

Bill of Materials: Moto 300 Brake System

Component Brake cable Brake pedal Brake pad Front brake pump Rear brake pump Front brake caliper Rear brake caliper Front brake disc Rear brake disc Brake pipe Brake lever cover

Component No. M0593 M0546 M3203 M0959 M4739 M5930 M7942 M3920 M0588 M0943 M1059

Source Nissin Harrison Billet Russell Brembo Brembo Nissin Nissin Russell Russell Harrison Billet Brembo

Unit Cost Quantity 27.81 1 6.03 2 27.05 2 66.05 1 54.00 1 105.20 1 106.78 1 143.80 1 56.42 1 28.52 1 2.62 1

Extended Cost