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90 mintute time Limit coverin g 3 chapters on Information Systems. 15 True/ False question and 45 MCQ.
It is an online test.
Chapter
Introduction to Information
Systems
1
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[ LEARNING OBJECTIVES ] [ CHAPTER OUTLINE ] [ WEB RESOURCES ]
1. Begin the process of becoming
an informed user of your
organization’s information
systems.
2. Defi ne the terms data,
information, and knowledge,
and give examples of each.
3. Defi ne the terms information
technology, information system,
computer-based information
system, and application.
4. Identify three ways in which
you depend on information
technology in your daily life.
5. Discuss three ways in which
information technology can
impact managers and three
ways in which it can impact
nonmanagerial workers.
6. List three positive and three
negative societal effects of the
increased use of information
technology.
Student Companion Site
wiley.com/college/rainer
• Student PowerPoints for note taking
• Interactive Case: Ruby’s Club
Assignments
• Complete glossary
WileyPlus
All of the above and
• E-book
• Mini-lecture by author for each
chapter section
• Practice quizzes
• Flash Cards for vocabulary review
• Additional “What’s in IT for Me?”
cases
• Video interviews with managers
• Lab Manual for Microsoft Offi ce
2010
• How-to Animations for Microsoft
Offi ce 2010
1.1 Why Should I Study
Information Systems?
1.2 Overview of Computer-Based
Information Systems
1.3 How Does IT Impact
Organizations?
1.4 Importance of Information
Systems to Society
POMFIN HRMKT MISACCT
Forecast revenues Determine best
sources for funds
Process customer
orders
Hire new employees Directly support
all functional
areas
Develop new goods
and services
What’s In
ITFor Me?
T H I S C H A P T E R W I L L H E L P P R E P A R E Y O U T O . . .
3
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4 CHAPTER 1 Introduction to Information Systems
[ Revolution!] The Problem
I
n January 2011, the Arab world’s fi rst successful popular uprising, called the Jasmine
Revolution (after the national fl ower of Tunisia), erupted in Tunisia when a small-town
policewoman slapped a fruit seller named Mohammed
Bouazizi and ordered him to pack up his street cart. Bouazizi
was a computer science graduate who was unable to fi nd any
work as a computer technician. As a result, he was forced to sell
fruit to support his seven siblings. Bouazizi, like many young,
educated Tunisians, was frustrated by the overall lack of oppor-
tunities. For him, the slap was the fi nal straw. He went to the
governor’s offi ce and demanded an appointment, threatening
to set himself on fi re in public if the governor refused to see
him. Despite this dire warning, he was turned away. In response,
on December 17, 2010, Bouazizi carried out his threat. When
he died 18 days later, his story went viral, providing millions of
angry young Tunisians with a martyr. Vast numbers of protestors
took to the streets, sparking the Jasmine Revolution.
The Jasmine Revolution did not need any prominent leaders to rally the protesters or to orga-
nize the demonstrations. Instead, the revolution was fueled by a steady stream of anonymous text
messages and Twitter and Facebook updates. Documents posted on WikiLeaks (see Chapter 3),
in which U.S. diplomats had cataloged corruption at the highest levels of the Tunisian govern-
ment, deepened the popular rage. Mobile phone videos posted online documented the govern-
ment’s brutal response, including scenes of the police beating and shooting at protestors, leading
to at least 100 deaths. The protesters used the one weapon that they understood much better
than did the government: the Internet. Young Tunisians—educated, multilingual, and wired—
devised strategies to evade the government’s crude fi rewalls. Protestors spent several hours each
day on Facebook and other social networks. By rendering the state television and radio stations
irrelevant, they were able to undermine the regime’s propaganda for the fi rst time in many years.
Finally, on January 14, 2011, President Ben Ali was forced into exile.
Later that month, another popular uprising broke out in a different Middle Eastern country—
Egypt. In 2010, Khaled Saied, a young man from Alexandria with no history of political
activism, had been beaten to death by the police. Protesters rallied around a Facebook page
called We Are All Khaled Saied. Mr. Saied’s death became the focal point for Egyptians who
had not been previously involved in the protest movement. Beginning on January 25, 2011,
millions of protesters from a variety of backgrounds and religions demanded the overthrow of
Egyptian President Hosni Mubarak, who had held offi ce since 1981.
An Attempted Solution
In an effort to silence the demonstrators and avoid the fate of Tunisia’s President Ben Ali,
Mubarak “turned off the Internet.” On January 28, at 12:34 am, Egypt’s four primary Internet
providers—Link Egypt, Vodafone/Raya, Telecom Egypt, and Etisalat Misr—all went “dark.”
That is, the four providers stopped transmitting all Internet traffi c into and out of Egypt. The
blackout appeared to be designed to disrupt the organization of the country’s protest movement.
The Results
“When countries block, we evolve,” an activist with the group We Rebuild wrote in a Twitter
message on January 28. We Rebuild and other activist groups scrambled to keep the country
connected to the outside world, turning to landline telephones, fax machines, and even ham
radio to keep information fl owing in and out of Egypt.
The activists were successful. On February 2, Egypt’s embattled leaders realized that the com-
munications blockage was largely ineffective and indeed counterproductive. The shutdown proved
to be more a source of fresh anger than an impediment to the protest movement. Protesters had no
trouble assembling increasingly larger crowds, culminating with an estimated 250,000 people who
assembled in central Cairo on January 29 to demand an end to Mubarak’s rule. On February 11,
following weeks of determined popular protest and pressures, Mubarak resigned from offi ce.
Robert F. Balazik/Shutterstock
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CASE 5
The Jasmine Revolution and the Egyptian Revolution helped to instigate major uprisings
throughout the Middle East and North Africa. By April 2011, Algeria, Bahrain, Iran, Jordan,
Libya, Morocco, and Yemen all had experienced major protests, and minor incidents had
occurred in Iraq, Kuwait, Mauritania, Oman, Saudi Arabia, Somalia, Sudan, and Syria.
What We Learned From This Case
The chapter-opening case illustrates how information technology is encouraging and assisting
people living under repressive regimes in their struggles to attain freedom of expression and
economic opportunity. In fact, social networking technologies literally provided the necessary
underpinnings of these uprisings. You will learn about social networking technologies in detail
in Chapter 9. The case also demonstrates that the impacts of information technology are wide-
ranging and global. You will encounter many other examples of the societal and environmental
effects of information technology throughout this text.
Before we proceed, we need to defi ne information technology and information systems.
Information technology (IT) relates to any computer-based tool that people use to work with
information and to support the information and information-processing needs of an organization.
An information system (IS) collects, processes, stores, analyzes, and disseminates information for
a specifi c purpose.
The opening case is a dramatic example of the far-reaching effects of IT on individuals,
organizations, and our planet. Although this text is largely devoted to the many ways in which
IT has transformed modern organizations, you will also learn about the signifi cant impacts
of IT on individuals and societies, the global economy, and our physical environment. In
addition, IT is making our world smaller, enabling more and more people to communicate,
collaborate, and compete, thereby leveling the digital playing fi eld.
When you graduate, you either will start your own business or will go to work for an organiza-
tion, whether it is public sector, private sector, for-profi t, or not-for-profi t. Your organization will
have to survive and compete in an environment that has been radically changed by informa-
tion technology. This environment is global, massively interconnected, intensely competitive,
24/7/365, real-time, rapidly changing, and information-intensive. To compete successfully, your
organization must effectively use IT. Moreover, your organization does not have to be large to
benefi t from IT, as you will see in the case of E-Mealz in IT’s About [Small] Business 1.1.
As the case of E-Mealz illustrates, small business owners do not need to be experts in technol-
ogy to be successful. The core competency of Jane’s business is not technology. Rather, it is
the service of saving time and money. However, she has effectively employed social media and
available Internet-related tools to create a successful business.
As you read this chapter and this text, keep in mind that the information technologies you
will learn about are important to businesses of all sizes. No matter what area of business you
major in, what industry you work for, or the size of your company, you will benefi t from learning
about IT. Who knows? Maybe you will use the tools you learn about in this class to make your
great idea a reality much the way Jane DeLaney has!
The modern environment is intensely competitive not only for your organization, but for
you as well. You must compete with human talent from around the world. Therefore, you will
also have to make effective use of IT.
Accordingly, this chapter begins with a discussion of why you should become knowledge-
able about IT. It also distinguishes among data, information, and knowledge, and it differenti-
ates computer-based information systems from application programs. Finally, it considers the
impacts of information systems on organizations and on society in general.
Sources: Compiled from J. Solomon and C. Levinson, “West to Isolate Gadhafi ,” The Wall Street Journal, February 26–27, 2011;
“The Faces of Egypt’s ‘Revolution 2.0’,” CNN.com, February 21, 2011; “After Egypt, People Power Hits Like a Tsunami,” CNN.
com, February 15, 2011; “Egyptian President Steps Down Amidst Groundbreaking Digital Revolution,” CNN.com, February 11,
2011; C. Levinson, M. Coker, and J. Solomon, “How Cairo, U.S. Were Blindsided by Revolution,” The Wall Street Journal, February
2, 2011; P. McNamara, “Egypt Lifts Blockade on Internet Service,” Network World, February 2, 2011; V. Blue, “Egypt Blocked
in China: Is Internet Access a Human Right?” ZDNet.com, January 31, 2011; V. Walt, “Tunisia’s Nervous Neighbors Watch the
Jasmine Revolution,” Time, January 31, 2011; N. Gohring and R. McMillan, “Without Internet, Egyptians Find New Ways to Get
Online,” Computerworld, January 28, 2011; J. Robertson, “The Day Part of the Internet Died: Egypt Goes Dark,” USA Today, January
28, 2011; “Tunisia’s Revolution Should Be Wake-Up Call to Middle East Autocrats,” The Washington Post, January 15, 2011.
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6 CHAPTER 1 Introduction to Information Systems
1.1 Why Should I Study Information Systems?
You are part of the most connected generation in history: You have grown up online; you are,
quite literally, never out of touch; you use more information technologies (in the form of digital
devices), for more tasks, and are bombarded with more information, than any generation in
history. The MIT Technology Review refers to you as Homo conexus. Information technologies
are so deeply embedded in your lives that your daily routines would be almost unrecognizable
to a college student just 20 years ago.
Essentially, you practice continuous computing, surrounded by a movable information net-
work. This network is created by constant cooperation between the digital devices you carry
(for example, laptops, media players, and smart phones); the wired and wireless networks that
you access as you move about; and Web-based tools for fi nding information and communicat-
ing and collaborating with other people. Your network enables you to pull information about
virtually anything from anywhere, at any time, and to push your own ideas back to the Web,
from wherever you are, via a mobile device. Think of everything you do online, often with your
smart phone: register for classes; take classes (and not just at your university); access class syllabi,
information, PowerPoints, and lectures; research class papers and presentations; conduct bank-
ing; pay your bills; research, shop, and buy products from companies or other people; sell your
“stuff”; search for, and apply for, jobs; make your travel reservations (hotel, airline, rental car);
create your own blog and post your own podcasts and videocasts to it; design your own page on
Facebook; make and upload videos to YouTube; take, edit, and print your own digital photo-
graphs; “burn” your own custom-music CDs and DVDs; use RSS feeds to create your personal
electronic newspaper; text and tweet your friends and family throughout your day; and many
other activities. (Note: If any of these terms are unfamiliar to you, don’t worry. You will learn
about everything mentioned here in detail later in this text.)
IT’s about [small] business
Jane DeLaney grew up in a home where family meals around the
table were the norm. She wanted the same for her family, but she
found it very diffi cult due to their busy schedules. She would go
from one week of a somewhat organized meal plan to another
week of sheer chaos.
In 2003, Jane decided it was time to do something about the
problem. She created a meal-planning service, called E-Mealz
(www.E-Mealz.com), that she could both use herself and offer to
other families. How does E-Mealz work? Essentially, Jane and a
few employees create a weekly meal plan for different-sized fami-
lies. They then draw up a grocery list with prices from various gro-
cery stores. Customers pay for the service—in April 2011, the cost
was only $1.85 a week—and they receive their grocery list at the
beginning of the week.
Jane needed information technology to put her great idea to
work. The E-Mealz Web site promotes her products and con-
vinces customers to sign up for her service. If you visit her site,
you will fi nd that she also uses Twitter and Facebook to promote
her product and to create a community of customers. Visitors can
submit their own recipes to be included in the system. Members
can sign up for newsletters, and they can manage their accounts
to determine which particular plan they will join. The Web site
offers plans for couples and families, and it provides information
about a host of nutritional needs, all of which is updated weekly.
Although the tools that Jane uses are not complicated, she could
not have transformed her dream into a reality without them.
When Jane DeLaney started E-Mealz, her objective was not to
create a huge meal-planning service. Rather, her goal was simply
to provide a way for families to spend time together, save money,
and enjoy delicious meals. Since its inception, E-Mealz has been
acclaimed for improving family meals while helping families con-
trol their budgets. Members testify that they are able to shop more
quickly and spend less money, while feeling confi dent that they have
purchased all the ingredients they will need for the week. Jane has
successfully utilized IT to accomplish her goal of helping families
spend time together, much as they did when she was growing up.
Questions
1. Provide two examples of how Jane uses information technology
to provide her service.
2. Provide two additional examples of how Jane might use
information technology to improve her service. Be specifi c.
Sources: Compiled from A. Caldwell, “E-Mealz.com—Meal Planning
Resource Review,” Blissfully Domestic, February 17, 2011; http://E-Mealz.
com; http://maketimeforfamily.org; www.daveramsey.com/recommends/dave-
recommends; accessed March 21, 2011.
1.1 E-Mealz
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SECTION 1.1 Why Should I Study Information Systems? 7
FIGURE 1.1 IT skills open
many doors because IT is so
widely used. What do you
think is this woman’s job?
(Source: © Slawomir Fajer/
iStockphoto)
USERS MIS
The Informed User—You!
So, the question is: Why you should learn about information systems and information tech-
nologies? After all, you can comfortably use a computer (or other electronic devices) to perform
many activities, you have been surfi ng the Web for years, and you feel confi dent that you can
manage any IT application that your organization’s MIS department installs.
The answer lies in your becoming an informed user; that is, a person knowledgeable about
information systems and information technology. There are several reasons why you should be
an informed user.
In general, informed users tend to get more value from whatever technologies they use.
You will enjoy many benefi ts from being an informed user of IT. First, you will benefi t more
from your organization’s IT applications because you will understand what is “behind” those
applications (see Figure 1.1). That is, what you see on your computer screen is brought to you
by your MIS department operating “behind” your screen. Second, you will be in a position to
enhance the quality of your organization’s IT applications with your input. Third, even as a
new graduate, you will quickly be in a position to recommend—and perhaps help select—the
IT applications that your organization will use. Fourth, being an informed user will keep you
abreast of both new information technologies and rapid developments in existing technologies.
Remaining “on top of things” will help you to anticipate the impacts that “new and improved”
technologies will have on your organization and to make recommendations on the adoption
and use of these technologies. Finally, you will understand how using IT can improve your
organization’s performance and teamwork as well as your own productivity.
Managing the IS function within an organization is no longer the exclusive responsibility
of the IS department. Rather, users now play key roles in every step of this process. The overall
objective in this text is to be able to immediately contribute to managing the IS function in
your organization from the user’s perspective. In short, the goal is to help you become a very
informed user!
In addition, if you have ideas of becoming an entrepreneur, then being an informed user
will help you use IT when you start your own business. IT’s About Business 1.2 illustrates how
one couple uses IT to run their own multinational businesses from their home.
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8 CHAPTER 1 Introduction to Information Systems
IT’s [about business]
Global outsourcing is no longer used only by big corporations.
Increasingly, small businesses are fi nding it easier to farm out
software development, accounting, support services, and design
work to other countries than to perform these services them-
selves. Improved software, search engines, and new features are
boosting the online services industry. Companies in this industry
include Elance (www.elance.com), Guru (www.guru.com), Brickwork
India (www.b2kcorp.com), DoMyStuff (www.domystuff.com), and
vWorker.com (www.vworker.com). As examples of added features,
Guru has launched a system to avoid disputes over payments by
allowing buyers to put funds into escrow until the work is received;
meanwhile, Elance has developed software to track work in prog-
ress and to handle billing, payments, and tax records.
Take Randy and Nicola Wilburn, for example. Their house is the
headquarters of a multinational company. The Wilburns operate
real estate, consulting, design, and baby food enterprises out of
their home. They accomplish these tasks by making effective use
of outsourcing.
Professionals from around the world are at their service. For
example, for $300 an Indian artist designed Nicola’s letterhead as
well as the logo of an infant peering over the words “Baby Fresh
Organic Baby Foods.” A London-based freelancer wrote promo-
tional materials. Randy employs “virtual assistants” in Jerusalem
to transcribe voice mail, update his Web site, and design Power-
Point graphics. Retired brokers in Virginia and Michigan handle real
estate paperwork.
The Wilburns began buying graphic designs through Elance
in 2000. Today, remote help has enabled Randy to shift his em-
phasis within the changing economy. His real estate business has
slowed in response to the housing crisis, so he spends more time
advising nonprofi t organizations across the United States on how
to help homeowners avoid foreclosure. Virtual assistants handle
routine correspondence and put together business materials while
he travels, all for less than $10,000 per year.
Nicola decided to work from home after having their second
child. She now farms out design work to freelancers and is start-
ing to sell organic baby food she cooks herself. She is setting up
a Web site for that business and has offered $500 for the design
work. Of the 20 bidders who responded via Elance, 18 were from
outside the United States.
The couple employs two primary offshore vendors. One is
GlobeTask (www.globetask.com), a Jerusalem-based outsourcing
fi rm that employs graphic artists, Web designers, writers, and
virtual assistants in Israel, India, and the United States. The com-
pany generally charges $8 per hour. The other vendor is Webgrity
(www.webgrity.com), headquartered in Kolkata, India. For $125,
Webgrity designed a logo for Randy’s real estate business,
which he maintains would have cost as much as $1000 in the
United States.
Interestingly, the Wilburns employ representatives of a growing
lifestyle trend: the digital nomads. In fact, the Wilburns are digital
nomads as well. A digital nomad is someone who uses informa-
tion technologies such as smart phones, wireless Internet access,
and Web-based applications to work remotely—from home, a
coffee shop, an Internet café, and similar locations. Digital no-
mads have location independence, and they frequently work as
freelance writers, photographers, affi liate marketers, Web design-
ers, developers, graphic designers, and other types of knowledge
workers.
Questions
1. Identify and evaluate the advantages and disadvantages of
outsourcing work overseas.
2. Can anyone do what Randy and Nicola Wilburn are doing? Or,
does their strategy require special qualifi cations or knowledge?
Support your answer.
3. Explain how global outsourcing can affect people who are
starting their own business. (Hint: Consider capital outlay, labor
costs, IT infrastructure costs, etc.)
4. Would you like to be a digital nomad? Why or why not? Be
specifi c.
Sources: Compiled from B. Russell, “Ever Heard of a Digital Nomad?”
www.brentonrussell.com, June 10, 2010; M. Elgan, “Is Digital Nomad Living
Going Mainstream?” Computerworld, August 1, 2009; M. Rosenwald, “Digital
Nomads Choose Their Tribes,” The Washington Post, July 26, 2009;
M. Elgan, “Recession Woes? Why Not Become a Digital Nomad,” Com-
puterworld, March 23, 2009; P. Engardio, “Mom-and-Pop Multinationals,”
BusinessWeek, July 14 and 21, 2008; T. Ferriss, The 4-Hour Workweek:
Escape 9–5, Live Anywhere and Join the New Rich, 2007, Crown Publishing
Group; B. McDermott, “Ahoy the Micro-Multinational,” Forbes, September
14, 2007; S. Harris, “Rise of the Micro Giants,” San Jose Mercury News,
July 14, 2007; A. Campbell, “The Trend of the Micro-Multinationals,” Small
Business Trends, February 20, 2007; M. Copeland, “The Mighty Micro-
Multinational,” Business 2.0 Magazine, July 28, 2006; H. Varian, “Technology
Levels the Business Playing Field,” The New York Times, August 25, 2005.
1.2 Build Your Own Multinational Company
IT Offers Career Opportunities
Because information technology is vital to the operation of modern businesses, it offers many
employment opportunities. The demand for traditional IT staff—programmers, business analysts,
systems analysts, and designers—is substantial. In addition, many well-paid jobs exist in areas
such as the Internet and electronic commerce (e-commerce), mobile commerce, network
security, telecommunications, and multimedia design.
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SECTION 1.1 Why Should I Study Information Systems? 9
The information systems fi eld includes the people in organizations who design and build
information systems, the people who use those systems, and the people responsible for manag-
ing those systems. At the top of the list is the chief information offi cer (CIO).
The CIO is the executive who is in charge of the IS function. In most modern organizations,
the CIO works with the chief executive offi cer (CEO), the chief fi nancial offi cer (CFO), and
other senior executives. Therefore, he or she actively participates in the organization’s strategic
planning process. In today’s digital environment, the IS function has become increasingly impor-
tant and strategic within organizations. As a result, although most CIOs still rise from the IS depart-
ment, a growing number are coming up through the ranks in the business units (e.g., marketing,
fi nance, etc.). So, regardless of your major, you could become the CIO of your organization one
day. This is another reason to be an informed user of information systems!
Table 1.1 provides a list of IT jobs along with a description of each one. For further details
about careers in IT, see www.computerworld.com/careertopics/careers and www.monster.com.
Table 1.1
Information Technology Jobs
Position Job Description
Chief Information Offi cer Highest-ranking IS manager; is responsible for all strategic planning in the
organization
IS Director Manages all systems throughout the organization and the day-to-day
operations of the entire IS organization
Information Center Manager Manages IS services such as help desks, hot lines, training, and consulting
Applications Development Manager Coordinates and manages new systems development projects
Project Manager Manages a particular new systems development projec
t
Systems Manager Manages a particular existing system
Operations Manager Supervises the day-to-day operations of the data and/or computer center
Programming Manager Coordinates all applications programming efforts
Systems Analyst Interfaces between users and programmers; determines information
requirements and technical specifi cations for new applications
Business Analyst Focuses on designing solutions for business problems; interfaces closely
with users to demonstrate how IT can be used innovatively
Systems Programmer Creates the computer code for developing new systems software or
maintaining existing systems softwa
re
Applications Programmer Creates the computer code for developing new applications or maintaining
existing applications
Emerging Technologies Manager Forecasts technology trends; evaluates and experiments with new technologies
Network Manager Coordinates and manages the organization’s voice and data networks
Database Administrator Manages the organization’s databases and oversees the use of database-
management software
Auditing or Computer Security Manager Oversees the ethical and legal use of information systems
Webmaster Manages the organization’s World Wide Web site
Web Designer Creates World Wide Web sites and pages
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10 CHAPTER 1 Introduction to Information Systems
Career opportunities in IS are strong and are projected to remain strong over the next ten
years. In fact, when Money Magazine’s Best Jobs in America (http://money.cnn.com/magazines/
moneymag/bestjobs/2010) listed the “top jobs” in America in 2010, 10 of the top 30 jobs related
directly to information technology. These jobs (with their ranks) are:
• Software architect (#1)
• Database administrator (#7)
• Information systems security administrator (#17)
• Software development director (#18)
• Information technology manager (#20)
• Telecommunications and networking manager (#21)
• Network operations manager (#24)
• Information technology business analyst (#26)
• Information technology consultant (#28)
• Software development engineer (#30)
Not only do IS careers offer strong job growth, but the pay is excellent as well. The Bureau
of Labor Statistics, an agency within the Department of Labor that is responsible for tracking
and analyzing trends relating to the labor market, notes that the median salary for “computer
and information systems managers” is approximately $115,000.
Managing Information Resources
Managing information systems in modern organizations is a diffi cult, complex task. Several
factors contribute to this complexity. First, information systems have enormous strategic value
to organizations. Firms rely on them so heavily that, in some cases, when these systems are
not working (even for a short time), the fi rm cannot function. (This situation is called “being
hostage to information systems.”) Second, information systems are very expensive to acquire,
operate, and maintain.
A third factor contributing to the diffi culty in managing information systems is the evolu-
tion of the management information systems (MIS) function within the organization. When
businesses fi rst began to use computers in the early 1950s, the MIS department “owned” the
only computing resource in the organization, the mainframe. At that time, end users did not
interact directly with the mainframe.
In contrast, in the modern organization, computers are located in all departments, and
almost all employees use computers in their work. This situation, known as end user comput-
ing, has led to a partnership between the MIS department and the end users. The MIS depart-
ment now acts as more of a consultant to end users, viewing them as customers. In fact, the
main function of the MIS department is to use IT to solve end users’ business problems.
As a result of these developments, the responsibility for managing information resources is
now divided between the MIS department and the end users. This arrangement raises several
important questions: Which resources are managed by whom? What is the role of the MIS
department, its structure, and its place within the organization? What is the appropriate rela-
tionship between the MIS department and the end users? Regardless of who is doing what, it
is essential that the MIS department and the end users work in close cooperation.
There is no standard way to divide responsibility for developing and maintaining informa-
tion resources between the MIS department and the end users. Instead, that division depends
on several factors: the size and nature of the organization, the amount and type of IT resources,
the organization’s attitudes toward computing, the attitudes of top management toward com-
puting, the maturity level of the technology, the amount and nature of outsourced IT work,
and even the countries in which the company operates. Generally speaking, the MIS depart-
ment is responsible for corporate-level and shared resources, and the end users are responsible
for departmental resources. Table 1.2 identifi es both the traditional functions and various new,
consultative functions of the MIS department.
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SECTION 1.1 Why Should I Study Information Systems? 11
Table 1.2
The Changing Role of the Information Systems Departm
ent
Traditional Functions of the MIS Department
• Managing systems development and systems project management
° As an end user, you will have critical input into the systems development process. You will learn about systems
development in Chapter 13.
• Managing computer operations, including the computer center
• Staffi ng, training, and developing IS skil
ls
• Providing technical services
• Infrastructure planning, development, and control
° As an end user, you will provide critical input about the IS infrastructure needs of your department.
New (Consultative) Functions of the MIS Department
• Initiating and designing specifi c strategic information systems
° As an end user, your information needs will often mandate the development of new strategic information systems.
You will decide which strategic systems you need (because you know your business needs better than the MIS
department does), and you will provide input into developing these systems.
• Incorporating the Internet and electronic commerce into the business
° As an end user, you will be primarily responsible for effectively using the Internet and electronic commerce in your
business. You will work with the MIS department to accomplish this task.
• Managing system integration including the Internet, intranets, and extranets
° As an end user, your business needs will determine how you want to use the Internet, your corporate intranets, and
extranets to accomplish your goals. You will be primarily responsible for advising the MIS department on the most
effective use of the Internet, your corporate intranets, and extranets.
• Educating the non-MIS managers about IT
° Your department will be primarily responsible for advising the MIS department on how best to educate and train your
employees about IT.
• Educating the MIS staff about the business
° Communication between the MIS department and the business units is a two-way street. You will be responsible for
educating the MIS staff on your business, its needs, and its goals.
• Partnering with business-unit executives
° Essentially, you will be in a partnership with the MIS department. You will be responsible for seeing that this
partnership is one “between equals” and ensuring its success.
• Managing outsourcing
° Outsourcing is driven by business needs. Therefore, the outsourcing decision resides largely with the business
units (i.e., with you). The MIS department, working closely with you, will advise you on technical issues such as
communications bandwidth, security, etc.
• Proactively using business and technical knowledge to seed innovative ideas about IT
° Your business needs often will drive innovative ideas about how to effectively use information systems to
accomplish your goals. The best way to bring these innovative uses of IS to life is to partner closely with your MIS
department. Such close partnerships have amazing synergies!
• Creating business alliances with business partners
° The needs of your business unit will drive these alliances, typically along your supply chain. Again, your MIS
department will act as your advisor on various issues, including hardware and software compatibility, implementing
extranets, communications, and security.
So, where do the end users come in? Take a close look at Table 1.2. Under the traditional
MIS functions, you will see two functions for which you provide vital input. Under the consul-
tative MIS functions, you will see how you exercise the primary responsibility for each func-
tion, and how the MIS department acts as your advisor.
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12 CHAPTER 1 Introduction to Information Systems
1.2 Overview of Computer-Based
Information Systems
Organizations refer to their management information systems functional area by several
names, including the MIS Department, the Information Systems (IS) Department, the In-
formation Technology Department, and the Information Services Department. Regardless of
the name, however, this functional area deals with the planning for—and the development,
management, and use of—information technology tools to help people perform all the tasks
related to information processing and management. Information technology relates to any
computer-based tool that people use to work with information and to support the information
and information-processing needs of an organization.
An information system collects, processes, stores, analyzes, and disseminates information for
a specifi c purpose. It has been said that the purpose of information systems is to get the right
information to the right people, at the right time, in the right amount, and in the right format.
Because information systems are intended to supply useful information, we need to differenti-
ate between information and two closely related terms: data and knowledge (see Figure 1.2).
FIGURE 1.2 Binary Code, the
foundation of information and
knowledge, is the key to making
complex decisions. (Sources:
© janaka Dharmasena-Fotolia.
com; Exactostock/SuperStock;
uttam gurjar/Shutterstock)
Data
Information
Knowledge
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SECTION 1.2 Overview of Computer-Based Information Systems 13
Data items refer to an elementary description of things, events, activities, and transactions
that are recorded, classifi ed, and stored but are not organized to convey any specifi c meaning.
Data items can be numbers, letters, fi gures, sounds, and images. Examples of data items are col-
lections of numbers (e.g., 3.11, 2.96, 3.95, 1.99, 2.08) and characters (e.g., B, A, C, A, B, D, F, C).
Information refers to data that have been organized so that they have meaning and value to
the recipient. For example, a grade point average (GPA) by itself is data, but a student’s name
coupled with his or her GPA is information. The recipient interprets the meaning and draws
conclusions and implications from the information. Consider the examples of data provided in
the preceding paragraph. Within the context of a university, the numbers could be grade point
averages, and the letters could be grades in an Introduction to MIS class.
Knowledge consists of data and/or information that have been organized and processed
to convey understanding, experience, accumulated learning, and expertise as they apply to a
current business problem. For example, suppose that a company recruiting at your school has
found over time that students with grade point averages over 3.0 have experienced the greatest
success in its management program. Based on this accumulated knowledge, that company may
decide to interview only those students with GPAs over 3.0. Organizational knowledge, which
refl ects the experience and expertise of many people, has great value to all employees.
Consider this example:
Data Information Knowledge
[No context] [University context]
3.16 3.16 � John Jones � GPA * Job prospects
2.92 2.92 � Sue Smith � GPA * Graduate school prospects
1.39 1.39 � Kyle Owens � GPA * Scholarship prospects
3.95 3.95 � Tom Elias � GPA
[No context] [Professional baseball pitcher context]
3.16 3.16 � Ken Rice � ERA
2.92 2.92 � Ed Dyas � ERA * Keep pitcher, trade pitcher, or
send pitcher to minor leagues
1.39 1.39 � Hugh Carr � ERA * Salary/contract negotiations
3.95 3.95 � Nick Ford � ERA
GPA � grade point average (higher is better)
ERA � earned run average (lower is better); ERA is the number of runs per nine innings accountable to a pitcher
You see that the same data items, with no context, can mean entirely different things in differ-
ent contexts.
Now that you have a clearer understanding of data, information, and knowledge, the focus
shifts to computer-based information systems. As you have seen, these systems process data into
information and knowledge that you can use.
A computer-based information system (CBIS) is an information system that uses computer
technology to perform some or all of its intended tasks. Although not all information systems are
computerized, today most are. For this reason the term “information system” is typically used
synonymously with “computer-based information system.” The basic components of computer-
based information systems are listed below. The fi rst four are called information technology
components. Figure 1.3 shows how these four components interact to form a CBIS.
• Hardware consists of devices such as the processor, monitor, keyboard, and printer.
Together, these devices accept, process, and display data and information.
• Software is a program or collection of programs that enable the hardware to process data.
• A database is a collection of related fi les or tables containing data.
• A network is a connecting system (wireline or wireless) that permits different computers to
share resources.
• Procedures are the instructions for combining the above components in order to process
information and generate the desired output.
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14 CHAPTER 1 Introduction to Information Systems
• People are those individuals who use the hardware and software, interface with it, or utilize
its output.
Figure 1.4 shows how these components are integrated to form the wide variety of in-
formation systems in an organization. Starting at the bottom of the fi gure, you see that the
IT components of hardware, software, networks (wireline and wireless), and databases form
the information technology platform. IT personnel use these components to develop infor-
mation systems, oversee security and risk, and manage data. These activities cumulatively
are called information technology services. The IT components plus IT services comprise
FIGURE 1.3 It takes
technology (hardware, software,
databases, and networks) with
appropriate procedures to make
a CBIS useful for people.
(Sources: Nasonov/Shutterstock;
Angela Waye/Shutterstock;
alexmillos/Shutterstock; broukoid/
Shutterstock; zhu difeng/
Shutterstock)
IT Personnel
IT Components
P
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/O
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IT Services
Transaction Processing Systems
Enterprise Resource Planning Systems
IT Platform
Business Intelligence Systems
Dashboards
FIGURE 1.4 Information
technology inside your
organization.
Database
NetworkSoftware
Computer-based
information system
Procedures
Procedures Procedures
Procedures
Hardware
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SECTION 1.2 Overview of Computer-Based Information Systems 15
Table
1.3
Major Capabilities of Information Systems
Perform high-speed, high-volume numerical computations.
Provide fast, accurate communication and collaboration within and among organizations.
Store huge amounts of information in an easy-to-access, yet small space.
Allow quick and inexpensive access to vast amounts of information, worldwide.
Interpret vast amounts of data quickly and effi ciently.
Automate both semiautomatic business processes and manual tasks.
the organization’s information technology infrastructure. At the top of the pyramid are the
various organizational information systems.
Computer-based information systems have many capabilities. Table 1.3 summarizes the
most important ones.
Information systems perform these various tasks via a wide spectrum of applications. An
application (or app) is a computer program designed to support a specifi c task or business
process. (A synonymous term is application program.) Each functional area or department
within a business organization uses dozens of application programs. For instance, the human
resources department sometimes uses one application for screening job applicants and another
for monitoring employee turnover. The collection of application programs in a single depart-
ment is usually referred to as a departmental information system (also known as a functional
area information system). For example, the collection of application programs in the human
resources area is called the human resources information system (HRIS). There are collections
of application programs—that is, departmental information systems—in the other functional
areas as well, such as accounting, fi nance, marketing, and production/operations. IT’s About
Business 1.3 illustrates how electronic discovery software applications improve the effi ciency
and effectiveness of the legal discovery process.
Types of Computer-Based Information Systems
Modern organizations employ many different types of information systems. Figure 1.4 illus-
trates the different types of information systems that function within a single organization, and
Figure 1.5 shows the different types of information systems that function among multiple orga-
nizations. You will study transaction processing systems, management information systems, and
enterprise resource planning systems in Chapter 10. You will learn about customer relationship
management (CRM) systems and supply chain management (SCM) systems in Chapter 11.
In the next section you will learn about the numerous and diverse types of information
systems employed by modern organizations. You will also read about the types of support these
systems provide.
Breadth of Support of Information Systems. Certain information systems support
parts of organizations, others support entire organizations, and still others support groups of
organizations. This section addresses all of these systems.
Recall that each department or functional area within an organization has its own
collection of application programs, or information systems. These functional area informa-
tion systems (FAISs) are supporting pillars for the information systems located at the top of
Figure 1.4, namely, business intelligence systems and dashboards. As the name suggests, each
FAIS supports a particular functional area within the organization. Examples are accounting
IS, fi nance IS, production/operations management (POM) IS, marketing IS, and human
resources IS.
Consider these examples of IT systems in the various functional areas of an organization.
In fi nance and accounting, managers use IT systems to forecast revenues and business activity,
to determine the best sources and uses of funds, and to perform audits to ensure that the or-
ganization is fundamentally sound and that all fi nancial reports and documents are accurate.
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16 CHAPTER 1 Introduction to Information Systems
When the U.S. Justice Department sued CBS for antitrust viola-
tions in 1978, fi ve television studios became involved. The cost to
the studios was extremely high. As part of the discovery process—
which includes providing documents relevant to a lawsuit—studio
lawyers and paralegals examined 6 million documents at a cost
of $2.2 million. Today, electronic discovery (e-discovery) software
applications can analyze documents in a fraction of the time at
a fraction of the cost. For example, in January 2011, Blackstone
Discovery (www.blackstonediscovery.com) helped one company
analyze 1.5 million documents for less than $100,000.
Some e-discovery applications go beyond just rapidly fi nding
documents with relevant terms. They can extract relevant con-
cepts, even in the absence of specifi c terms, and can deduce
patterns of behavior that would have eluded lawyers examining
millions of documents.
E-discovery software generally falls into two broad categories
that can be described as “linguistic” and “sociological.” The most
basic linguistic software uses specifi c search words to fi nd and sort
relevant documents. More advanced applications fi lter documents
through a large number of interrelated word and phrase defi nitions.
In contrast, sociological applications add inferential analysis,
closely resembling human reasoning. For example, software from
Cataphora (www.cataphora.com) analyzes documents for informa-
tion pertaining to the activities and interactions of people—who
did what and when, and who talked to whom. The software then
manipulates this information to visualize chains of events. It identi-
fi es discussions that might have taken place across e-mail, instant
messages, and telephone calls. The software then captures digital
anomalies that white-collar criminals often create when they try
to hide their activities. For example, the software fi nds “call me”
moments—those incidents when an employee decides to hide a
particular action by having a private conversation. This process usu-
ally involves switching media, perhaps from an e-mail conversation
to instant messaging, telephone, or even a face-to-face encounter.
The Cataphora software also can recognize the sentiment in
an e-mail message—whether a person is positive or negative, or
what Cataphora calls “loud talking”—unusual emphasis that hints
that a document might concern a stressful situation. For example,
a shift in an author’s e-mail style from breezy to unusually formal
can raise a red fl ag about illegal activity.
Another e-discovery company, Clearwell (www.clearwellsystems.
com), has developed software that analyzes documents to fi nd
concepts rather than specifi c keywords. This process decreases
the time required to locate relevant material in litigation. Clearwell’s
software uses language analysis and a visual way of represent-
ing general concepts found in documents. In 2010, for example,
the DLA Piper law fi rm used Clearwell software to search through
some 570,000 documents under a court-imposed deadline of one
week. The software analyzed the documents in two days. The law
fi rm required just one more day to identify more than 3,000 docu-
ments that were relevant to the discovery motion.
E-discovery software is doing an excellent job and, as a result,
the discovery process is becoming increasingly automated,
scientifi c, and objective. One lawyer used e-discovery software to
reanalyze work that his company’s lawyers had performed in the
1980s and 1990s. He discovered that his human colleagues had
been only 60 percent accurate.
Quantifying the impact of these software applications on
employment is diffi cult. However, the founder of Autonomy (www.
autonomy.com), an e-discovery fi rm, is convinced that the U.S. legal
sector will likely employ fewer people in the future. He estimates
that the shift from manual document discovery to e-discovery will
lead to a manpower reduction because one lawyer can now do the
work that once required hundreds of lawyers.
Questions
1. What are the advantages of e-discovery software? Provide
specifi c examples.
2. What are the disadvantages of e-discovery software? Provide
specifi c examples.
3. Based on this scenario, how do you think e-discovery software
will affect the legal profession?
Sources: Compiled from B. Kerschberg, “E-Discovery and the Rise of Pre-
dictive Coding,” Forbes, March 23, 2011; J. Markoff, “Armies of Expensive
Lawyers, Replaced by Cheaper Software,” The New York Times, March 4,
2011; K. Fogarty, “E-Discovery: How a Law Firm Slashes Time and Costs,”
CIO, February 15, 2011; B. Kerschberg, “Surviving e-Discovery with the
Department of Justice’s Antitrust Division,” Forbes, February 14, 2011; M.
Pratt, “E-Discovery Moves In-House,” Computerworld, December 30, 2010;
www.autonomy.com, www.clearwellsystems.com, www.cataphora.com,
www.blackstonediscovery.com, accessed March 21, 2011.
1.3 Electronic E-Discovery Software Replaces Lawyers
IT’s [about business]
In sales and marketing, managers use information technology to perform the following
functions:
• Product analysis: developing new goods and services
• Site analysis: determining the best location for production and distribution facilities
• Promotion analysis: identifying the best advertising channels
• Price analysis: setting product prices to obtain the highest total revenues
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SECTION 1.2 Overview of Computer-Based Information Systems 17
Marketing managers also use IT to manage their relationships with their customers. In manu-
facturing, managers use IT to process customer orders, develop production schedules, control
inventory levels, and monitor product quality. They also use IT to design and manufacture
products. These processes are called computer-assisted design (CAD) and computer-assisted
manufacturing (CAM).
Managers in human resources use IT to manage the recruiting process, analyze and screen
job applicants, and hire new employees. They also employ IT to help employees manage their
careers, to administer performance tests to employees, and to monitor employee productivity.
Finally, they rely on IT to manage compensation and benefi ts packages.
Two information systems support the entire organization: enterprise resource planning
systems and transaction processing systems. Enterprise resource planning (ERP) systems
are designed to correct a lack of communication among the functional area ISs. For this
reason Figure 1.4 shows ERP systems spanning the FAISs. ERP systems were an important
innovation because the various functional area ISs were often developed as standalone sys-
tems and did not communicate effectively (if at all) with one another. ERP systems resolve
this problem by tightly integrating the functional area ISs via a common database. In doing
so, they enhance communications among the functional areas of an organization. For this
reason, experts credit ERP systems with greatly increasing organizational productivity.
A transaction processing system (TPS) supports the monitoring, collection, storage, and
processing of data from the organization’s basic business transactions, each of which generates
data. When you are checking out at Walmart, for example, a transaction occurs each time the
cashier swipes an item across the bar code reader. There also are different defi nitions of a trans-
action in an organization. In accounting, for example, a transaction is anything that changes
a fi rm’s chart of accounts. The information system defi nition of a transaction is broader: A
transaction is anything that changes the fi rm’s database. The chart of accounts is only part
of the fi rm’s database. Consider a scenario in which a student transfers from one section of
an introduction to MIS course to another section. This move would be a transaction to the
university’s information system, but not to the university’s accounting department.
Business-to-business
electronic commerce
(B2B)
Business-to-business
electronic commerce
(B2B)
SUPPLIERS
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t
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Your
Organization
Business-to-consumer
electronic commerce
(B2C)
CUSTOMERS
Individuals
Information
Online orders
Payments
Online orders
Payments
Digital products
Digital products
Payments
Online orders
Physical products
Physical products
M
at
er
ia
ls
Internet
Business
FIGURE 1.5 Information systems that function among multiple organizations.
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18 CHAPTER 1 Introduction to Information Systems
The TPS collects data continuously, typically in real time—that is, as soon as the data are
generated—and provides the input data for the corporate databases. TPSs are considered
critical to the success of any enterprise because they support core operations. Signifi cantly,
nearly all ERP systems are also TPSs, but not all TPSs are ERP systems. In fact, modern
ERP systems incorporate many functions that previously were handled by the organization’s
functional area information systems. You study both TPSs and ERP systems in detail in
Chapter 10.
ERP systems and TPSs function primarily within a single organization. Information systems
that connect two or more organizations are referred to as interorganizational information
systems (IOSs). IOSs support many interorganizational operations, of which supply chain
management is the best known. An organization’s supply chain is the fl ow of materials, infor-
mation, money, and services from suppliers of raw materials through factories and warehouses
to the end customers.
Note that the supply chain in Figure 1.5 shows physical fl ows, information fl ows, and
fi nancial fl ows. Digitizable products are those that can be represented in electronic form, such
as music and software. Information fl ows, fi nancial fl ows, and digitizable products go through
the Internet, whereas physical products are shipped. For example, when you order a computer
from www.dell.com, your information goes to Dell via the Internet. When your transaction is
completed (that is, your credit card is approved and your order is processed), Dell ships your
computer to you.
Electronic commerce (e-commerce) systems are another type of interorganizational infor-
mation system. These systems enable organizations to conduct transactions, called business-to-
business (B2B) electronic commerce, and customers to conduct transactions with businesses,
called business-to-consumer (B2C) electronic commerce. E-commerce systems typically are
Internet-based. Figure 1.5 illustrates B2B and B2C electronic commerce. Electronic commerce
systems are so important that we discuss them in detail in Chapter 7, with additional examples
interspersed throughout the text.
Support for Organizational Employees. So far, you have concentrated on informa-
tion systems that support specifi c functional areas and operations. Now you will learn about
information systems that typically support particular employees within the organization.
Clerical workers, who support managers at all levels of the organization, include
bookkeepers, secretaries, electronic fi le clerks, and insurance claim processors. Lower-level
managers handle the day-to-day operations of the organization, making routine decisions
such as assigning tasks to employees and placing purchase orders. Middle managers make
tactical decisions, which deal with activities such as short-term planning, organizing, and
control.
Knowledge workers are professional employees such as financial and marketing ana-
lysts, engineers, lawyers, and accountants. All knowledge workers are experts in a particu-
lar subject area. They create information and knowledge, which they integrate into the
business. Knowledge workers, in turn, act as advisors to middle managers and executives.
Finally, executives make decisions that deal with situations that can significantly change
the manner in which business is done. Examples of executive decisions are introducing
a new product line, acquiring other businesses, and relocating operations to a foreign
country.
Offi ce automation systems (OASs) typically support the clerical staff, lower and middle
managers, and knowledge workers. These employees use OASs to develop documents (word
processing and desktop publishing software), schedule resources (electronic calendars), and
communicate (e-mail, voice mail, videoconferencing, and groupware).
Functional area information systems summarize data and prepare reports, primarily for
middle managers, but sometimes for lower-level managers as well. Because these reports
typically concern a specifi c functional area, report generators (RPGs) are an important type of
functional area IS.
Business intelligence (BI) systems provide computer-based support for complex, non-
routine decisions, primarily for middle managers and knowledge workers. (They also support
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SECTION 1.2 Overview of Computer-Based Information Systems 19
lower-level managers, but to a lesser extent.) These systems are typically used with a data ware-
house, and they enable users to perform their own data analysis. You learn about BI systems in
Chapter 12.
Expert systems (ES) attempt to duplicate the work of human experts by applying rea-
soning capabilities, knowledge, and expertise within a specifi c domain. They have become
valuable in many application areas, primarily but not exclusively areas involving decision
making. For example, navigation systems use rules to select routes, but we do not typically
think of these systems as expert systems. Signifi cantly, expert systems can operate as stand-
alone systems or be embedded in other applications. We examine ESs in greater detail in
Technology Guide 4.
Dashboards (also called digital dashboards) are a special form of IS that support all
managers of the organization. They provide rapid access to timely information and direct access
to structured information in the form of reports. Dashboards that are tailored to the information
needs of executives are called executive dashboards. Chapter 12 provides a thorough discussion
of dashboards.
Table 1.4 provides an overview of the different types of information systems used by
organizations.
Table 1.4
Types of Organizational Information Systems
Type of System Function
Example
Functional area IS Supports the activities within specifi c System for processing payroll
functional area.
Transaction processing system Processes transaction data from Walmart checkout point-of-sale
business events. terminal
Enterprise resource planning Integrates all functional areas of the Oracle, SAP system
organization.
Offi ce automation system Supports daily work activities of Microsoft® Offi ce
individuals and groups.
Management information system Produces reports summarized from Report on total sales for each
transaction data, usually in one customer
functional area.
Decision support system Provides access to data and analysis “What-if” analysis of changes in
tools. budget
Expert system Mimics human expert in a particular Credit card approval analysis
area and makes decisions.
Executive dashboard Presents structured, summarized Status of sales by product
information about aspects of
business important to executives.
Supply chain management system Manages fl ows of products, Walmart Retail Link system
services, and information among connecting suppliers to Walmart
organizations.
Electronic commerce system Enables transactions among www.dell.com
organizations and between
organizations and customers.
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20 CHAPTER 1 Introduction to Information Systems
1.3 How Does IT Impact Organizations?
Throughout this text you will encounter numerous examples of how IT affects various types of
organizations. This section provides an overview of the impact of IT on modern organizations.
As you read this section you will learn how IT will affect you as well.
IT Reduces the Number of Middle Managers
IT makes managers more productive and increases the number of employees who can report
to a single manager. Thus, IT ultimately decreases the number of managers and experts. It is
reasonable to assume, therefore, that in coming years organizations will have fewer managerial
levels and fewer staff and line managers. If this trend materializes, promotional opportunities
will decrease, making promotions much more competitive. Bottom line: Pay attention in school!
IT Changes the Manager’s Job
One of the most important tasks of managers is making decisions. A major consequence of
IT has been to change the manner in which managers make their decisions. In this way, IT
ultimately has changed managers’ jobs.
IT often provides managers with near real-time information, meaning that they have less
time to make decisions, making their jobs even more stressful. Fortunately, IT also provides
many tools—for example, business intelligence applications such as dashboards, search
engines, and intranets—to help managers handle the volumes of information they must deal
with on an ongoing basis.
So far in this section, we have been focusing on managers in general. Now, let’s focus on
you. Due to advances in IT, you will increasingly supervise employees and teams who are geo-
graphically dispersed. Employees can work from anywhere at any time, and teams can consist
of employees who are literally dispersed throughout the world. Information technologies such
as telepresence systems (discussed in Chapter 6) can help you manage these employees even
though you do not often see them face-to-face. For these employees, electronic or “remote”
supervision will become the norm. Remote supervision places greater emphasis on completed
work and less emphasis on personal contacts and offi ce politics. You will have to reassure your
employees that they are valued members of the organization, thereby diminishing any feelings
they might have of being isolated and “out of the loop.”
Will IT Eliminate Jobs?
One major concern of every employee, part-time or full-time, is job security. Relentless cost-
cutting measures in modern organizations often lead to large-scale layoffs. Put simply, orga-
nizations are responding to today’s highly competitive environment by doing more with less.
Regardless of your position, then, you consistently will have to add value to your organization
and to make certain that your superiors are aware of this value.
Many companies have responded to diffi cult economic times, increased global competi-
tion, demands for customization, and increased consumer sophistication by increasing their
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SECTION 1.3 How Does IT Impact Organizations? 21
investments in IT. In fact, as computers continue to advance in terms of intelligence and
capabilities, the competitive advantage of replacing people with machines is increasing rapidly.
This process frequently leads to layoffs. At the same time, however, IT creates entirely new
categories of jobs, such as electronic medical record keeping and nanotechnology.
IT Impacts Employees at Work
Many people have experienced a loss of identity because of computerization. They feel like
“just another number” because computers reduce or eliminate the human element present in
noncomputerized systems.
The Internet threatens to exert an even more isolating infl uence than have computers and
television. Encouraging people to work and shop from their living rooms could produce some
unfortunate psychological effects, such as depression and loneliness.
IT Impacts Employees’ Health and Safety. Although computers and information
systems are generally regarded as agents of “progress,” they can adversely affect individuals’
health and safety. To illustrate this point, we consider two issues associated with IT: job stress
and long-term use of the keyboard.
An increase in an employee’s workload and/or responsibilities can trigger job stress. Although
computerization has benefi ted organizations by increasing productivity, it also has created
an ever-expanding workload for some employees. Some workers feel overwhelmed and have
become increasingly anxious about their job performance. These feelings of stress and anxiety
can actually diminish rather than improve workers’ productivity while jeopardizing their physical
and mental health. Management can help alleviate these problems by providing training, re-
distributing the workload among workers, and hiring more workers.
On a more specifi c level, the long-term use of keyboards can lead to repetitive strain injuries
such as backaches and muscle tension in the wrists and fi ngers. Carpal tunnel syndrome is a
particularly painful form of repetitive strain injury that affects the wrists and hands.
Designers are aware of the potential problems associated with the prolonged use of computers.
To address these problems, they continually attempt to design a better computing environ-
ment. The science of designing machines and work settings that minimize injury and illness is
called ergonomics. The goal of ergonomics is to create an environment that is safe, well lit, and
comfortable. Examples of ergonomically designed products are antiglare screens that alleviate
problems of fatigued or damaged eyesight and chairs that contour the human body to decrease
backaches. Figure 1.6 displays some sample ergonomic products.
IT Provides Opportunities for People with Disabilities. Computers can create
new employment opportunities for people with disabilities by integrating speech- and vision-
recognition capabilities. For example, individuals who cannot type can use a voice-operated
keyboard, and individuals who cannot travel can work at home.
Going further, adaptive equipment for computers enables people with disabilities to per-
form tasks they normally would not be able to do. The Web and graphical user interfaces (e.g.,
Windows) can be diffi cult to use for people with impaired vision. Audible screen tips and voice
interfaces added to deal with this problem essentially restore the functionality of computers to
the way it was before graphical interfaces become standard.
Other devices help improve the quality of life in more mundane, but useful, ways for people
with disabilities. Examples are a two-way writing telephone, a robotic page turner, a hair brusher,
and a hospital-bedside video trip to the zoo or the museum. Several organizations specialize in
IT designed for people with disabilities.
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22 CHAPTER 1 Introduction to Information Systems
1.4 Importance of Information Systems
to Society
As you saw in the chapter-opening case, IT literally provided the underpinnings of the revolts
against the Tunisian and Egyptian regimes. This section will explain in greater detail why
IT is important to society as a whole. Other examples of the impact of IT on society appear
throughout the text.
IT Affects Our Quality of Life
IT has signifi cant implications for our quality of life. The workplace can be expanded from
the traditional 9-to-5 job at a central location to 24 hours a day at any location. IT can provide
employees with fl exibility that can signifi cantly improve the quality of leisure time, even if it
doesn’t increase the total amount of leisure time.
From the opposite perspective, however, IT also can place employees on “constant call,”
which means they are never truly away from the offi ce, even when they are on vacation. In fact,
a recent poll revealed that 80 percent of respondents took their laptop computers on their most
recent vacations, and 100 percent took their cell phones. Going further, 80 percent did some
work while vacationing, and almost all of them checked their e-mail.
FIGURE 1.6 Ergonomic products protect computer users.
(a) Wrist support. (Source: Media Bakery)
(b) Back support. (Source: Media Bakery)
(c) Eye-protection fi lter (optically coated glass). (Source: Media Bakery)
(d) Adjustable foot rest. (Source: Media Bakery)
a b
c d
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SECTION 1.4 Importance of Information Systems to Society 23
Robot Revolution on the Way
Once restricted largely to science fi ction movies, robots that can perform practical tasks are
becoming more common. In fact, “cyberpooches,” “nursebots,” and other mechanical beings may
be our companions before we know it. Around the world, quasi-autonomous devices have become
increasingly common on factory fl oors, in hospital corridors, and in farm fi elds. For home use,
iRobot (www.irobot.com) produces the Roomba to vacuum our fl oors, the Scooba to wash our fl oors,
the Dirt Dog to sweep our garages, the Verro to clean our pools, and the Looj to clean our gutters.
Telepresence robots are a recent development in the fi eld of robotics. The following
example illustrates how organizations use these robots.
Example
Telepresence robots have been humorously described as a cross between a Segway and a Wall-E.
These robots are designed to help companies save money on travel and on expensive telecon-
ferencing technology. The robots enable people in remote offi ces or locations to have a rich
communications experience without using a complicated video conference system.
A telepresence robot has both a video camera and a video screen embedded in its “head.” It
also has wheels and can be moved around remotely by computer. It is designed to steer its way
clear of obstacles and people.
The robots enable a person to maintain a consistent connection with co-workers, customers,
or clients. The user places the robot at a remote location and directs it to move around, for
example, a conference room during a meeting, broadcasting what is going on to the human
controlling it from afar. Interestingly, the robots actually break down barriers of awkwardness
that people sometimes feel in person-to-person meetings.
Although this technology is rather expensive, some companies are buying multiple units
to place in their remote locations. That way, someone running a meeting could, for example,
easily hear what is being said—or see what is being written on a whiteboard—in each location,
without having to spend hundreds of thousands of dollars on travel costs.
Business managers are using telepresence robots to walk factory fl oors. Healthcare organiza-
tions are employing them for home care. Storage companies are utilizing them for security. In
the retail environment, a robot could wander the fl oor with a customer who asks it purchasing
or support questions. The person controlling the robot could answer the questions, essentially
making the robot a mechanical sales clerk.
Consider how Reimers Electra Steam uses a telepresence robot. One of the fi rm’s electrical
engineers, John Samuels, moved from the company’s location in Virginia to the Dominican
Republic. At fi rst, he would attend meetings back in Virginia through Skype. If he needed to
see something on the shop fl oor, a colleague would carry around a laptop, pointing it wherever
Samuels instructed. Essentially, a human had to act as the remote Samuels’s virtual body,
and if no one was available, Samuels was out of luck. To resolve this problem, the company
purchased a telepresence robot for Samuels. Now, “he” wheels easily from desk to desk and
around the shop fl oor, answering questions and inspecting designs, often using the robot’s
vision feature to examine wiring in detail.
In an example of precision agriculture, Carnegie Mellon University in Pittsburgh has
developed self-directing tractors that harvest hundreds of acres of crops around the clock in
California. These “robot tractors” use global positioning systems (GPSs) combined with video
image processing that identifi es rows of uncut crops.
Many robotic devices are being developed for military purposes as well. For example, the
Pentagon is researching self-driving vehicles and beelike swarms of small surveillance robots,
each of which would contribute a different view or angle of a combat zone. The Predator, an
unmanned aerial vehicle (UAV), is being used in Iraq, Libya, Pakistan, and Afghanistan.
It probably will be a long time before we see robots making decisions by themselves, handling
unfamiliar situations, and interacting with people. Nevertheless, robots are extremely helpful in
various environments, particularly those that are repetitive, harsh, or dangerous to humans.
Sources: Compiled from D. Bennett, “I’ll Have My Robots Talk to Your Robots,” Bloomberg BusinessWeek, February 21–27,
2011; A. Diana, “12 Advances in Medical Robotics,” InformationWeek, January 29, 2011; D. Terdiman, “The Telepresence
Robots Are Coming,” CNET.com, May 18, 2010; www.vgocom.com, www.anybots.com, accessed March 23, 2011.
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24 CHAPTER 1 Introduction to Information Systems
Improvements in Healthcare
IT has brought about major improvements in healthcare delivery. Medical personnel use IT
to make better and faster diagnoses and to monitor critically ill patients more accurately. IT
also has streamlined the process of researching and developing new drugs. Expert systems
now help doctors diagnose diseases, and machine vision is enhancing the work of radiologists.
Surgeons use virtual reality to plan complex surgeries. They also use surgical robots to perform
long-distance surgery. Finally, doctors discuss complex medical cases via videoconferencing.
New computer simulations recreate the sense of touch, allowing doctors-in-training to perform
virtual procedures without risking harm to an actual patient.
Of the thousands of other applications related to healthcare, administrative systems are criti-
cally important. These systems perform functions ranging from detecting insurance fraud, to
creating nursing schedules, to fi nancial and marketing management.
The Internet contains vast amounts of useful medical information (see www.webmd.
com for example). In an interesting study, researchers at the Princess Alexandra Hospital in
Brisbane, Australia, identifi ed 26 diffi cult diagnostic cases published in the New England
Journal of Medicine. They selected three to fi ve search terms from each case and then
conducted a Google search. The researchers selected and recorded the three diagnoses
that Google ranked most prominently and that appeared to fi t the symptoms and signs.
They then compared these results with the correct diagnoses as published in the journal.
They discovered that their Google searches had found the correct diagnosis in 15 of the 26
cases, a success rate of 57 percent. The researchers caution, however, against the dangers
of self-diagnosis. They maintain that people should use diagnostic information gained from
Google and medical Web sites such as WebMD (www.webmd.com) only to ask questions of
their physicians.
In section 1.2, we discussed how IT supports each of the functional areas of the
organization. Here we examine the MIS function.
For the MIS Major
The MIS function directly supports all other functional areas in an organization.
That is, the MIS function is responsible for providing the information that each
functional area needs in order to make decisions. The overall objective of MIS
personnel is to help users improve performance and solve business problems
using IT. To accomplish this objective, MIS personnel must understand both the
information requirements and the technology associated with each functional
area. Given their position, however, they must think “business needs” fi rst and
“technology” second.
What’s In
ITFor
Me?
F
T
T
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Summary 25
[ Summary ]
1. Begin the process of becoming an informed user of your organization’s
information systems.
The benefi ts of being an informed user of IT include:
• You will benefi t more from your organization’s IT applications because you will under-
stand what is “behind” those applications.
• You will be able to provide input into your organization’s IT applications, thus improving
the quality of those applications.
• You will quickly be in a position to recommend, or participate in the selection of IT
applications that your organization will use.
• You will be able to keep up with rapid developments in existing information technolo-
gies, as well as the introduction of new technologies.
• You will understand the potential impacts that “new and improved” technologies will
have on your organization and therefore will be qualifi ed to make recommendations
concerning their adoption and use.
• You will play a key role in managing the information systems in your organization.
• You will be in a position to use IT if you decide to start your own business.
2. Defi ne the terms data, information, and knowledge, and give examples
of each.
Data items refer to an elementary description of things, events, activities, and transactions
that are recorded, classifi ed, and stored, but are not organized to convey any specifi c mean-
ing. Examples of data items are collections of numbers (e.g., 3.11, 2.96, 3.95, 1.99, 2.08)
and characters (e.g., B, A, C, A, B, D, F, C).
Information is data that have been organized so that they have meaning and value to
the recipient. For example, a grade point average (GPA) by itself is data, but a student’s
name coupled with his or her GPA is information. In the above examples, the numbers
could be grade point averages, and the letters could be grades in an Introduction to MIS
class.
Knowledge consists of data and/or information that have been organized and processed
to convey understanding, experience, accumulated learning, and expertise as they apply to
a current business problem. For example, a company recruiting at your school has found
over time that students with grade point averages over 3.0 have enjoyed the greatest success
in its management program. Based on this accumulated knowledge, that company may
decide to interview only those students with GPAs over 3.0.
3. Defi ne the terms information technology, information system, computer-
based information system, and application.
Information technology (IT) relates to any computer-based tool that people use to work
with information and to support the information and information-processing needs of an
organization.
An information system (IS) collects, processes, stores, analyzes, and disseminates
information for a specifi c purpose. A computer-based information system (CBIS) is an
information system that uses computer technology to perform some or all of its intended
tasks. An application (or app) is a computer program designed to support a specifi c task
or business process.
4. Identify several ways in which you depend on information technology
in your daily life.
You are practicing continuous computing, where you are surrounded with a movable
information network. Think of all you do online, often with your phone: register for classes; take
classes, and not just classes from your university; access class syllabi, information, PowerPoints,
and lectures; conduct banking; pay your bills; research, shop, and buy products from com-
panies or other people; sell your “stuff”; search for, and apply for, jobs; have your own page
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26 CHAPTER 1 Introduction to Information Systems
on Facebook; text and tweet your friends and family throughout your day; and many other
activities.
5. Discuss three ways in which information technology can impact managers
and three ways in which it can impact nonmanagerial workers.
Potential IT impacts on managers:
• IT may reduce the number of middle managers;
• IT will provide managers with real-time or near real-time information, meaning that
managers will have less time to make decisions;
• IT will increase the likelihood that managers will have to supervise geographically dis-
persed employees and teams.
Potential IT impacts on nonmanagerial workers:
• IT may eliminate jobs;
• IT may cause employees to experience a loss of identity;
• IT can cause job stress and physical problems, such as repetitive stress injury.
6. List three positive and three negative societal effects of the increased
use of information technology.
Positive societal effects:
• IT can provide opportunities for people with disabilities;
• IT can provide people with fl exibility in their work (e.g., work from anywhere, anytime);
• Robots will take over mundane chores;
• IT will enable improvements in healthcare.
Negative societal effects:
• IT can cause health problems for individuals;
• IT can place employees on constant call;
• IT can potentially misinform patients about their health problems.
application (or app) A computer program designed to sup-
port a specifi c task or business process.
business intelligence (BI) systems Provide computer-based
support for complex, nonroutine decisions, primarily for mid-
dle managers and knowledge workers.
computer-based information system (CBIS) An information
system that uses computer technology to perform some or all
of its intended tasks.
dashboards A special form of IS that support all managers of
the organization by providing rapid access to timely information
and direct access to structured information in the form of reports.
data items An elementary description of things, events, activi-
ties, and transactions that are recorded, classifi ed, and stored
but are not organized to convey any specifi c meaning.
database A collection of related fi les or tables containing data.
electronic commerce (e-commerce) systems A type of inter-
organizational information system that enables organizations
to conduct transactions, called business-to-business (B2B)
electronic commerce, and customers to conduct transactions
with businesses, called business-to-consumer (B2C) elec-
tr onic commerce.
enterprise resource planning (ERP) systems Information
systems that correct a lack of communication among the func-
tional area ISs by tightly integrating the functional area ISs via
a common database.
ergonomics The science of adapting machines and work
environments to people; focuses on creating an environment
that is safe, well lit, and comfortable.
expert systems (ES) Attempt to duplicate the work of human
experts by applying reasoning capabilities, knowledge, and
expertise within a specifi c domain.
functional area information systems (FAISs) ISs that sup-
port a particular functional area within the organization.
hardware A device such as a processor, monitor, keyboard, or
printer. Together, these devices accept, process, and display
data and information.
information Data that have been organized so that they have
meaning and value to the recipient.
[ Chapter Glossary ]
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Problem-Solving Activities 27
information system (IS) Collects, processes, stores, analyzes,
and disseminates information for a specifi c purpose.
information technology (IT) Relates to any computer-based
tool that people use to work with information and support the in-
formation and information-processing needs of an organization.
information technology components Hardware, software,
databases, and networks.
information technology infrastructure IT components plus
IT services.
information technology platform Formed by the IT compo-
nents of hardware, software, networks (wireline and wireless),
and databases.
information technology services IT personnel use IT com-
ponents to perform these IT services: develop information sys-
tems, oversee security and risk, and manage data.
informed user A person knowledgeable about information
systems and information technology.
interorganizational information systems (IOSs) Informa-
tion systems that connect two or more organizations.
knowledge Data and/or information that have been orga-
nized and processed to convey understanding, experience,
accumulated learning, and expertise as they apply to a current
problem or activity.
knowledge workers Professional employees such as fi nan-
cial and marketing analysts, engineers, lawyers, and accoun-
tants, who are experts in a particular subject area and create
information and knowledge, which they integrate into the
business.
network A connecting system (wireline or wireless) that
permits different computers to share resources.
procedures The set of instructions for combining hardware,
software, database, and network components in order to pro-
cess information and generate the desired output.
software A program or collection of programs that enable the
hardware to process data.
supply chain The fl ow of materials, information, money, and
services from suppliers of raw materials through factories and
warehouses to the end customers.
transaction processing system (TPS) Supports the monitor-
ing, collection, storage, and processing of data from the orga-
nization’s basic business transactions, each of which generates
data.
[ Discussion Questions ]
1. Describe a business that you would like to start. Discuss how
you would use global outsourcing to accomplish your goals.
2. Your university wants to recruit high-quality high school
students from your state. Provide examples of (1) the data
that your recruiters would gather in this process, (2) the
information that your recruiters would process from these
data, and (3) the types of knowledge that your recruiters
would infer from this information.
3. Can the terms data, information, and knowledge have dif-
ferent meanings for different people? Support your answer
with examples.
4. Information technology makes it possible to “never be out
of touch.” Discuss the pros and cons of always being avail-
able to your employers and clients (regardless of where you
are or what you are doing).
5. Robots have the positive impact of being able to relieve
humans from working in dangerous conditions. What are
some negative impacts of robots in the workplace?
6. Is it possible to endanger yourself by accessing too much
medical information on the Web? Why or why not? Sup-
port your answer.
7. Is the vast amount of medical information on the Web a
good thing? Answer from the standpoint of a patient and
from the standpoint of a physician.
8. Describe other potential impacts of IT on societies as a
whole.
9. What are the major reasons why it is important for em-
ployees in all functional areas to become familiar with IT?
10. Refer to the study at Princess Alexandra Hospital (in the
“Improvements in Healthcare” section). How do you feel
about Google searches fi nding the correct diagnosis in
57 percent of the cases? Are you impressed with these
results? Why or why not? What are the implications of
this study for self-diagnosis?
[ Problem-Solving Activities ]
1. Visit some Web sites that offer employment opportuni-
ties in IT. Prominent examples are: www.dice.com, www.
monster.com, www.collegerecruiter.com, www.careerbuilder.
com, www.jobcentral.com, www.job.com, www.career.com,
www.simplyhired.com, and www.truecareers.com. Com-
pare the IT salaries to salaries offered to accountants,
marketing personnel, fi nancial personnel, operations
personnel, and human resources personnel. For other in-
formation on IT salaries, check Computerworld’s annual
salary survey.
2. Enter the Web site of UPS (www.ups.com).
a. Find out what information is available to customers
before they send a package.
b. Find out about the “package tracking” system.
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28 CHAPTER 1 Introduction to Information Systems
c. Compute the cost of delivering a 10� � 20� � 15� box,
weighing 40 pounds, from your hometown to Long
Beach, California (or to Lansing, Michigan, if you live
in or near Long Beach). Compare the fastest delivery
against the least cost.
3. Surf the Internet for information about the Department
of Homeland Security (DHS). Examine the available
information, and comment on the role of information
technologies in the department.
4. Access www.irobot.com, and investigate the company’s
Education and Research Robots. Surf the Web for other
companies that manufacture robots, and compare their
products with those of iRobot.
[ Team Assignments ]
1. (a) Create an online group for studying IT or an aspect of
IT that you are interested in. Each member of the group
must establish a Yahoo! e-mail account (free). Go to http://
groups.yahoo.com.
Step 1: Click on “Start Your Group.”
Step 2: Select a category that best describes your group
(use Search Group Categories, or use the Browse Group
Categories tool). Yahoo! will force you to be very specifi c
in categorizing your group. Continue until you see the
button: “Place My Group Here.”
Step 3: Name your group.
Step 4: Enter your group e-mail address.
Step 5: Describe your group.
Step 6: Select your Yahoo! Profi le and e-mail addresses
for your group.
Step 7: Now you can customize your group and invite
people to join.
Step 8: Conduct a discussion online of at least two topics
of interest to the group.
Step 9: Find a similar group (use Yahoo!’s “fi nd a group”
and make a connection). Write a report for your instructor.
(b) Now, follow the same steps for Google Groups.
(c) Compare Yahoo! Groups and Google Groups.
2. Review the Wall Street Journal, Fortune, Business Week, and
local newspapers for the last three months to fi nd stories
about the use of computer-based information systems in
organizations. Each group will prepare a report describing
fi ve applications. The reports should emphasize the role of
each application and its benefi t to the organization. Pre-
sent and discuss your work.
[ Closing Case L’Oréal Retools Its Information Systems ]
The Problem
Headquartered in France, the L’Oréal Group (www.loreal.
com) is the world’s largest cosmetics and beauty company.
Concentrating on hair color, skin care, sun protection, make-
up, perfumes, and hair care, the company is active in derma-
tology and pharmaceuticals. The company’s philosophy is
that everyone aspires to beauty, and its core mission is to help
people around the world realize that aspiration.
L’Oréal employs more than 67,000 people in 130 coun-
tries, and it supports 23 global brands. The fi rm’s products are
manufactured in more than 40 factories located around the
world. The company has a tremendous challenge to produce
high-quality, consistent products globally. It must ensure that
all of its products are created with uniform production pro-
cesses and quality control.
By 2010 L’Oréal had come to realize that its current en-
terprise resource planning system, based on software manu-
factured by SAP, could not support its goal of global product
uniformity without consolidating its many different informa-
tion systems located around the world. For example, L’Oréal
had multiple versions of SAP running in different regions and
countries. As a result, the company used to take between two
and fi ve years to upgrade to the latest version of SAP. L’Oréal
also wanted to improve productivity, safety, and quality by
standardizing the best-practice business processes throughout
the fi rm.
The Solution
To accomplish its mission, L’Oréal reengineered its entire
manufacturing process to work more effi ciently while still sup-
porting the quality and integrity of its brands. The company
integrated its SAP ERP system with Apriso’s (www.apriso.com)
FlexNet for operations management. FlexNet is a unifi ed
set of manufacturing software applications that coordinate a
company’s manufacturing operations within a plant, between
plants, and across an entire supply chain. The integration of
SAP and FlexNet resulted in a global, central IT system called
the Integrated Solution for Industrial Systems (ISIS). ISIS
consists of all the transactional applications, fi nancial controls,
and purchasing transactions integrated into the manufactur-
ing operations on the plant fl oor. FlexNet and ISIS support all
factory processes—including production, quality assurance,
and purchasing—while promoting L’Oréal’s best practices.
ISIS runs in L’Oréal’s central data center in Montpellier,
France, where the master data for the business are stored.
FlexNet runs on servers located in individual factories so that
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Interactive Case: Planning a New Web Site for Ruby’s Club 29
each factory can continue operations in case a problem arises
in the central data center.
The Results
In its reengineering process, L’Oréal implemented a single,
global instance of SAP and FlexNet, so the last upgrade took
only one weekend. By upgrading so quickly, the fi rm was able
to update its systems without disrupting its factories.
The new software implementation also allows L’Oréal to
bring factories online much more quickly. In the past, when
L’Oréal acquired a factory, it took years to bring it online. In
contrast, the new software enabled L’Oréal to integrate an Yves
St. Laurent factory that it had acquired, along with its quality
assurance, safety, and effi ciency practices, in two months.
Every one of L’Oréal’s manufacturing facilities handles
thousands of different recipes for L’Oréal cosmetic products.
Every ingredient must be tested for quality, and every worker
must follow each recipe exactly. This demanding level of
complexity can lead to human error, which can threaten
quality, slow the workfl ow, and create waste. The new soft-
ware guides the operators through each recipe and automati-
cally records the weight of each ingredient to ensure that the
quantities are exactly correct. Once raw materials are tested
for quality, they are given labels that the worker must scan
before adding them to the recipe. This step ensures that all
materials are tested. The labels also give forklift drivers direc-
tions as to which materials need to be taken to the packaging
station. They also provide information on shelf life. Shop
workers confi rm that the new system is easy to use and has
reduced confusion and stress.
By deploying a single, global instance of SAP and FlexNet,
L’Oréal has increased its overall capacity, decreased discrepan-
cies in its actual-versus-planned production, and reduced its
wasted materials. As a result, the company is able to maintain
lower, better-managed inventories at signifi cant cost savings.
Questions
1. Describe several reasons why L’Oréal needed to reengineer its infor-
mation systems.
2. Describe the benefi ts of L’Oréal’s new information systems. Explain
how the benefi ts you describe are related to L’Oréal’s strategic goals,
using specifi c examples to support your arguments.
Sources: Compiled from J. Playe, “L’Oreal’s Manufacturing Makeover,” Baseline
Magazine, January 28, 2011; “Business Process Management in Manufacturing,”
Aberdeen Research Report, January 20, 2011; M. Littlefi eld, “Business Process
Management in Manufacturing: Paving the Way for Effective Collaboration,”
Aberdeen Research Report, November 30, 2010; M. Johnson, “What’s Happening with
ERP Today,” CIO, January 27, 2010; E. Lai, “Microsoft Brings BI to the Cloud,”
Computerworld, April 30, 2009; “Case Study: Siemens,” www.acresso.com, 2008;
www.loreal.com, www.apriso.com, accessed March 1, 2011.
Planning a New Web Site for Ruby’s Club
Go to the Ruby’s Club link at the Student Companion web site or WileyPLUS where you will fi nd a description of your
internship at Ruby’s Club, a downtown music venue, and information for your assignment. Your assignment will include
providing input on Ruby’s new web site design in a memo to the club’s managers.
[ Interactive Case ]
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Chapter
Organizational Strategy,
Competitive Advantage,
and Information Systems
2
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[ LEARNING OBJECTIVES ] [ CHAPTER OUTLINE ] [ WEB RESOURCES ]
1. Understand the concept of
business processes, and provide
examples of business processes
in the functional areas of an
organization.
2. Differentiate between
the terms business process
reengineering and business
process management .
3. List and provide examples
of the three types of business
pressures, and describe one IT
response to each.
4. Identify the fi ve competitive
forces described by Porter, and
explain how the Web has an
impact on each one.
5. Describe the strategies that
organizations typically adopt
to counter the fi ve competitive
forces and achieve competitive
advantage.
6. Defi ne business–information
technology alignment, and
describe the characteristics of
effective alignment.
Student Companion Site
wiley.com/college/rainer
• Student PowerPoints for note taking
• Interactive Case: Ruby’s Club
Assignments
• Complete glossary
WileyPlus
All of the above and
• E-book
• Mini-lecture by author for each
chapter section
• Practice quizzes
• Flash Cards for vocabulary review
• Additional “What’s in IT for Me?”
cases
• Video interviews with managers
• Lab Manual for Microsoft Offi ce
2010
• How-to Animations for Microsoft
Offi ce 2010
2.1 Business
Processes
2.2 Business Process
Reengineering and Business
Process Management
2.3 Business Pressures,
Organizational Responses,
and Information Technology
Support
2.4 Competitive Advantage and
Strategic Information Systems
2.5 Business–Information
Technology Alignment
POMFIN HRMKT MISACCT
Perform audits Determine best uses
for funds
Monitor product
quality
Help employees
manage their careers
Develop systems
to support fi rm’s
strategy
Conduct price
analyses
What’s In
ITFor Me?
T H I S C H A P T E R W I L L H E L P P R E P A R E Y O U T O . . .
31
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32 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
BP’s First Problem
I
n 2008, CEO Tony Hayward of BP (www.bp.com) informed his top 500 managers that the
giant oil company had become a serial underperformer In the audience was Dana Deasy,
BP’s chief information offi cer (CIO). Deasy understood that BP’s
IT group would have to do a much better job of supporting the
CEO’s goals: to restore revenue growth across the enormous (annu-
al revenues of $300 billion) company, to refocus the behavior of
the company around high performance and accountability,
and to reduce the complexity of the organization. The IT
group had become bloated, passive, unfocused, and uncon-
cerned with performance and accountability.
Deasy wanted to eliminate $800 million in expenses from BP’s overall IT budget of $3 billion,
to halve the number of IT vendors, to evaluate BP’s 4,200 IT employees, to reduce the 8,500 soft-
ware applications in use at BP worldwide, and to transform the IT function from a cost center into
a business-driven, strategic weapon. Confronted with a vast sprawl in people, budget, priorities,
requirements, business objectives, and suppliers, Deasy undertook a three-year overhaul of every
facet of BP’s IT operations.
The Solution to BP’s First Problem
Deasy made BP’s IT employees his fi rst priority. Signifi cantly, only 55 percent of his IT
personnel were actually BP employees. The rest consisted of some 1,900 contractors. Deasy
cut 1,000 full-time contractor positions, reducing BP’s reliance on outsiders. In addition, in
his fi rst 11 months as CIO, Deasy replaced 80 percent of the top IT leadership within the
organization.
Deasy then hired IBM to conduct comprehensive assessments of the top 1,000 IT employ-
ees (excluding the remaining contractors). This assessment identifi ed talent gaps as well as
inherent strengths. The most pressing issues were the organizational location of the IT func-
tion, project and portfolio management, and vendor management.
In his next move, Deasy mandated that the CIO for each BP business unit work for the
business unit leader while also reporting to Deasy in a matrix arrangement. Deasy made
accountability the fi rst priority for those CIOs. That is, their primary responsibility was to help
the business units use IT effectively to drive new revenue and reduce costs.
Deasy then set out to reduce the number of IT vendors. Not only was BP currently contract-
ing with more than 2,000 vendors, but the 20 largest vendors accounted for only 30 percent
of IT spending. To make this arrangement more manageable, BP put 65 percent of its annual
global IT spending—about $1.5 billion—up for rebid in one year. As a result of the bidding
process, BP eliminated 1,200 IT vendors and saved the company $900 million over the next
fi ve years.
Deasy also aggressively reworked vendor relationships in the area of application develop-
ment and maintenance. In this area, BP had been using some fi fty vendors, most of whom
refused to talk with one another for fear of losing their share of BP’s business. BP rebid multi-
year application development and maintenance contracts totaling about $2 billion and ended
up with just fi ve vendors. These vendors handle all of the work according to a standard operat-
ing model. Deasy predicts some $500 million in savings from this effort alone.
As one of SAP’s largest customers, BP created a team focused on standardizing project
delivery and management of SAP applications around the world. BP’s goal was to deliver new
SAP capabilities 50 percent faster and 40 percent cheaper than under the existing system.
The Results
Deasy and his team accomplished their goals in two years instead of three. BP realized
$800 million in IT savings, a 60 percent reduction in the number of vendors, a signifi cant
reduction in the number of applications, and an overhaul of the IT reporting structure in
the business units.
[ Double
Trouble
for BP]
Media Bakery
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CASE 33
However, the two major benefi ts may well have been:
• The top-to-bottom changes in IT personnel, where long-time generalists were replaced
with technology specialists or business-domain experts.
• The profound overhaul of the IT organization’s culture, where Deasy changed the passive,
inwardly focused, fi nancially irresponsible, and unaccountable philosophy to a culture
with a sense of purpose centered on business growth and success, excellence, and relentless
improvement and innovation.
BP’s Second Problem
In April 2010, just as BP was beginning to profi t from its IT innovations, the company’s Deep-
water Horizon oil well, located in the Gulf of Mexico, exploded, resulting in the largest marine
oil spill in the history of the petroleum industry. The well took three months to cap, during
which time oil continued to pour into the Gulf.
The explosion was investigated by the Oil Spill Commission, an authority created by Presi-
dent Barack Obama. The key verdict of the commission was that BP’s monitoring IT systems
on the Deepwater Horizon oil platform had failed to provide automatic warning alerts. Instead,
BP had relied on engineers who had to manually monitor and analyze complex data from the
well for long periods of time. Because the engineers had to perform so many simultaneous
functions over long work days, they needed much more support from BP’s automated systems.
The commission further charged that BP had ignored the results of the OptiCem cement
modeling software implemented by Halliburton, the cement contractor. OptiCem had indi-
cated that more stabilizers were needed to support the underwater cement work. The commis-
sion also criticized Halliburton for failing to share data from tests on its cement mix with BP.
In addition to these problems, BP also failed to take advantage of social networking to
open a clear line of communication with people living on the coast of the Gulf of Mexico and
around the world. BP could have used social media sites such as Facebook, YouTube, and Twit-
ter to report on the problem and explain what steps the company was taking to cap the spill and
contain the damage.
Just a couple of decades ago, companies had time to devise strategies to deal with disasters.
An excellent illustration is the Tylenol poisoning crisis of 1982, when seven Chicago residents
died after ingesting Tylenol capsules laced with cyanide. Experts concluded that somebody
had tampered with the capsules after they had been packaged and distributed. The drug’s
manufacturer, Johnson & Johnson, immediately shut down distribution and recalled all of the
capsules that were on the market. Next, the company reintroduced Tylenol, now packaged
in a tamper-resistant pill container, to the market. This entire process, for which Johnson &
Johnson received widespread acclaim, took several weeks. In contrast, in today’s world of viral
videos, bloggers, and social networks, companies cannot wait even a few days to generate a
public response.
The Solution (?) to BP’s Second Problem
In addition to technological efforts to cap the spill, BP spared no expense on public relations.
For example, it spent huge sums of money to buy up Google ads, which routed people to BP’s
relatively inaccurate Web site. Reports from Reuters asserted that BP was buying Google ads so
that its own Web site would rank higher or even at the top of the list of advertisements that ap-
peared with search results when Internet users searched on terms such as “oil spill,” “volunteer,”
and “claims.” The BP Web site contained press releases and photographs of people involved
in the oil cleanup. Notably missing were any pictures of the oil spill itself, of oil-drenched
wetlands, or of animals dying from the effects of the spill.
The Results
It took three months, but BP was able to cap the spill. However, scientists said that the damage
from the oil would continue for many years.
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34 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
At the end of 2010, the U.S. government launched a $21.1 billion lawsuit against BP and its
drilling partners, alleging that they had “failed . . . to use the best available and safest drilling
technology” to monitor pressure in the well. Other lawsuits are pending.
Finally, BP CEO Tony Hayward resigned his position on October 1, 2010.
What We Learned from This Case
The BP case illustrates the importance of information systems in helping the company respond
to business pressures and in supporting the company’s global strategy. The case demonstrates
that any information system can be strategic, meaning that it can provide a competitive advan-
tage if used properly.
The case also demonstrates the incredible complexity of the information systems employed
by a large, international company. BP did an excellent job of revamping the information sys-
tems that support its business operations. However, the company seemed to neglect those in-
formation systems that support its drilling operations, which are clearly just as strategic as the
fi rm’s business information systems.
Information systems can be just as strategic to a small or medium-sized company as they are
to a large fi rm. IT’s About [Small] Business 2.1 illustrates how information systems are strategi-
cally important to Before the Stores.
Have you ever seen a commercial for something sold “As Seen
on TV” and forgotten the phone number? Maybe you also heard
about a Web site, tried to remember it, but just could not seem
to get it right. Where would you start? How would you fi nd that
product that you wanted?
Amar Kahbuni has the answer to your problem. In 2008, as
a sophomore in college, he founded a company called Before
the Stores. His strategy was simple: Sell “As Seen on TV” prod-
ucts before they get into the stores. However, rather than sell-
ing these products through commercials, Amar would capitalize
on the commercials and sell them on the Web. He had sold
items on the Web before, but to implement his new idea he
would need a much more sophisticated order fulfi llment sys-
tem. And what college sophomore has time to develop this type
of system?
Amar found his answer with the Amazon Web store. He used
the Fulfi llment by Amazon (FBA) service offered to Amazon’s busi-
ness customers. This service provides businesses with an easy
method of listing products, inventories, and prices; taking orders;
accepting payment; and, ultimately, scheduling deliveries.
Additionally, Before the Stores would capitalize on two major
markets: (1) the infomercials that often advertise these products
and (2) Amazon’s customer base. In fact, many people go to
Amazon to try to fi nd a product that they heard about. Amar was
going to make it easy for them to fi nd it.
Fortunately for Amar, his school—Babson College in Maryland—
believed Before the Store would be a success. As a sophomore in
2008, Amar won the Business Plan Competition and a signifi cant
cash award. However, only time would tell if this venture would be
successful.
The results speak for themselves. Sales tripled from the third
quarter of 2008 to the third quarter of 2009. Then, during the 2009
holiday season, sales increased 300 percent over the same period
in 2008. By the fourth quarter of 2009, Amar was shipping more
than 1,500 orders per week through FBA. Amar’s business, Before
the Stores, was a success.
Questions
1. Provide specifi c examples of the services that Fulfi llment by
Amazon provided for Amar.
2. Provide specifi c examples of the value that Amar provides his
customers.
Sources: Compiled from “Before the Stores Finds Success with Amazon
Services,” Amazon Services Seller Success Story, accessed March 22,
2011; “Incentive Targeting, Before the Stores LLC, Win Babson’s 2008 Busi-
ness Plan Competitions,” Babson College Press Release, April 10, 2008.
2.1 Before the Stores
IT’s about [small] business
Sources: Compiled from L. King, “BP Oil Spill IT Systems Lacked Key Alarms,” Computerworld, January 6, 2011; S. Mufson,
“BP, Transocean, Halliburton Blamed by Presidential Gulf Oil Spill Commission,” The Washington Post, January 5, 2011;
D. Bates, “BP Accepts Blame for Gulf of Mexico Spill After Leaked Memo Reveals Engineer Misread Pressure Reading,”
London Dailymail, August 30, 2010; S. Gaudin, “BP, in Crisis Mode, Misses Social Networking Target,” Computerworld, June
15, 2010; P. Gralla, “BP’s Disaster Containment Plan—Throw Plenty of Money at Google,” Computerworld, June 11, 2010;
S. Power, R. Gold, and N. King, “Staffi ng Levels on Deepwater Horizon Are Questioned,” The Wall Street Journal, June 8, 2010;
B. Evans, “BP’s IT Transformation,” InformationWeek, March 8, 2010; www.bp.com, accessed March 22, 2011; T. Kaplan, “The
Tylenol Crisis: How Effective Public Relations Saved Johnson & Johnson,” New Jersey Bell Journal, 1983.
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SECTION 2.1 Business Processes 35
Strategy and competitive advantage come in many forms. (Competitive advantage is an
advantage over competitors in some measure such as cost, quality, or speed; it leads to control of a
market and to larger-than-average profi ts.) Amar found a niche where he could use existing elec-
tronic commerce (e-commerce) systems and advertising to create a competitive advantage. Capi-
talizing on Amazon’s customer base and advertising from infomercials, he started a business that
already had a market. He also enjoyed a distinct advantage over stores that ultimately sell these
items because he provided an easy way for customers to fi nd the product as soon as they heard
about it on TV. Basically, he got to the customers fi rst. Additionally, Amar had very little overhead
because Amazon handled the e-commerce side of his operation. He did not have to purchase,
design, set up, or secure costly information systems. He only had to sign up—not set up—to put
his business in operation, because Amazon provided the infrastructure for his business.
By the way, Amazon is always looking for unique business ideas. What could you do with an
Amazon store?
Although there are many examples of companies that use technology in more expensive
ways, Amar’s example demonstrates that an entrepreneurial spirit and a solid understanding of
what IT can do for you will provide competitive advantages to sophomores in college just as
they do for Wall Street CIOs. As you study this chapter, think of the small businesses in your
area that are doing interesting things with popular technologies. Do any of them use Twitter
in an interesting way? Facebook? Amazon? PayPal? If not, can you think of any businesses that
would benefi t from using these technologies?
This chapter is important for you for several reasons. First, the business pressures addressed here
will affect your organization, but they also will affect you. As a result, you must understand how
information systems can help you, and eventually your organization, respond to these pressures.
In addition, acquiring competitive advantage is essential for your organization’s survival.
Many organizations achieve competitive advantage through the efforts of their employees.
Therefore, becoming knowledgeable about strategy and how information systems have an im-
pact on strategy and competitive position will help you throughout your career.
This chapter encourages you to become familiar with your organization’s strategy, mission,
and goals and to understand its business problems and how it makes (or loses) money. It will
help you understand how information technology contributes to organizational strategy. Fur-
ther, you likely will become a member of business/IT committees that decide (among many
other things) whether to adopt new technologies and how to use existing technologies more
effectively. After studying this chapter, you will be able to make immediate contributions in
these committees when you join your organizations.
In many cases, organizations gain competitive advantage by managing their business
processes better than their competitors do. Therefore, you begin this chapter with a brief intro-
duction to business processes and business process management. You will then see how infor-
mation systems enable organizations to respond to business pressures. Next, you will learn how
information systems help organizations gain competitive advantages in the marketplace. The
chapter concludes by discussing business–IT alignment; in other words, how an organization’s
IT function supports the organization’s strategy.
2.1 Business Processes
A business process is an ongoing collection of related activities that create a product or a service
of value to the organization, its business partners, and/or its customers. A process has inputs and
outputs, and its activities can be measured. Many processes cross functional areas in an organi-
zation. For example, product development involves research, design, engineering, manufactur-
ing, marketing, and distribution. Other processes involve only a single functional area. Table 2.1
identifi es the fundamental business processes performed in an organization’s functional areas.
Cross-Functional Processes
All of the business processes discussed above fall within a single functional area of the company.
However, many other business processes, such as procurement and fulfi llment, cut across multiple
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36 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
functional areas; that is, they are cross-functional business processes, meaning that no single
functional area is responsible for their execution. Rather, multiple functional areas collaborate to
perform the process. For a cross-functional process to be successfully completed, each functional
area must execute its specifi c process steps in a coordinated, collaborative way. To clarify this
point, let’s examine the procurement and fulfi llment cross-functional processes in more detail.
The procurement process includes all of the tasks involved in acquiring needed materials
externally from a vendor. Procurement comprises fi ve steps that are completed in three differ-
ent functional areas of the fi rm: warehouse, purchasing, and accounting.
The process begins when the warehouse recognizes the need to procure materials, perhaps
due to low inventory levels. The warehouse documents this need with a purchase requisition,
which it sends to the purchasing department (Step 1). In turn, the purchasing department
identifi es a suitable vendor, creates a purchase order based on the purchase requisition, and
sends the order to the vendor (Step 2). When the vendor receives the purchase order, it ships
the materials, which are received in the warehouse (Step 3). The vendor then sends an invoice,
Table 2.1
Accounting Business Processes
• Managing accounts payable
• Managing accounts receivable
• Reconciling bank accounts
• Managing cash receipts
• Managing invoice billings
• Managing petty cash
• Producing month-end close
• Producing virtual close
Finance Business Processes
• Managing account collection
• Managing bank loan applications
• Producing business forecasts
• Applying customer credit approval and credit terms
• Producing property tax assessments
• Managing stock transactions
• Generating fi nancial cash fl ow reports
Marketing Business Processes
• Managing post-sale customer follow-up
• Collecting sales taxes
• Applying copyrights and trademarks
• Using customer satisfaction surveys
• Managing customer service
• Handling customer complaints
• Handling returned goods from customers
• Producing sales leads
• Entering sales orders
• Training sales personne
l
Production/Operations Management Business
Processes
• Processing bills of materials
• Processing manufacturing change orders
• Managing master parts list and fi les
• Managing packing, storage, and distribution
• Processing physical inventory
• Managing purchasing
• Managing quality control for fi nished goods
• Auditing for quality assurance
• Receiving, inspecting, and stocking parts and materials
• Handling shipping and freight claims
• Handling vendor selection, fi les, and inspections
Human Resources Business Processes
• Applying disability policies
• Managing employee hiring
• Handling employee orientation
• Managing fi les and records
• Applying health care benefi ts
• Managing pay and payroll
• Producing performance appraisals and salary
adjustments
• Managing resignations and terminations
• Applying training/tuition reimbursement
• Managing travel and entertainment
• Managing workplace rules and guidelines
• Overseeing workplace safety
Management Information Systems Business Processes
• Antivirus control
• Computer security issues incident reporting
• Training computer users
• Computer user/staff training
• Applying disaster recovery procedures
• Applying electronic mail policy
• Generating Internet use policy
• Managing service agreements and emergency services
• Applying user workstation standards
• Managing the use of personal software
Examples of Business Processes
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SECTION 2.1 Business Processes 37
which is received by the accounting department (Step 4). Accounting sends payment to the
vendor, thereby completing the procurement process (Step 5).
The fulfi llment process is concerned with effi ciently processing customer orders. Fulfi ll-
ment is triggered by a customer purchase order that is received by the sales department. Sales
then validates the purchase order and creates a sales order. The sales order communicates data
related to the order to other functional areas within the organization, and it tracks the progress
of the order. The warehouse prepares and sends the shipment to the customer. Once account-
ing is notifi ed of the shipment, it creates an invoice and sends it to the customer. The customer
then makes a payment, which accounting records.
An organization’s business processes can create a competitive advantage if they enable the
company to innovate or to execute better than its competitors. They can also be liabilities if they
make the company less responsive and effi cient. Consider the airline industry. It has become a
competitive necessity for all of the airlines to offer electronic ticket purchases via their Web sites.
At the same time, however, these sites must be highly responsive and provide the most current
information on fl ights and prices. An up-to-date, user-friendly site will attract customers and
increase revenues. In contrast, a site that provides outdated or inaccurate information will hurt
rather than improve business. Figure 2.1 illustrates the e-ticket purchasing business process.
Confirm:
Seats available?
Receive ticket order
Airline (web site)
Traveler
Reserve seats
Notify traveler
Notify traveler
Notify traveler
Subtract mileage
from frequent flyer
total mileage
Receive
e-ticket
Submit
ticket order
Seats
available?
Check flights
Plan trip
Use credit card?
Charge
credit card
Charge ok?
Confirm flight(s)
Issue e-ticket
No
NoNo
No
No
Yes
Yes
Yes
Yes
Yes
Frequent flyer
mileage sufficient?
FIGURE 2.1 Business process
for ordering e-ticket from airline
Web site.
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38 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
2.2 Business Process Reengineering
and Business Process Management
Excellence in executing business processes is widely recognized as the underlying basis for all
signifi cant measures of competitive performance in an organization. Consider these measures,
for example:
• Customer satisfaction: the result of optimizing and aligning business processes to fulfi ll
customers’ needs, wants, and desires.
• Cost reduction: the result of optimizing operations and supplier processes.
• Cycle and fulfi llment time: the result of optimizing the manufacturing and logistics processes.
• Quality: the result of optimizing the design, development, and production processes.
• Differentiation: the result of optimizing the marketing and innovation processes.
• Productivity: the result of optimizing each individual’s work processes.
The question is: How does an organization ensure business process excellence?
In their book Reengineering the Corporation, fi rst published in 1993, Michael Hammer
and James Champy argued that in order to become more competitive, American businesses
needed to radically redesign their business processes to reduce costs and increase quality. The
authors further asserted that information technology is the key enabler of such change. This
radical redesign, called business process reengineering (BPR), is a strategy for improving the
effi ciency and effectiveness of an organization’s business processes. The key to BPR is for enter-
prises to examine their business processes from a “clean sheet” perspective and then determine
how they can best reconstruct those processes to improve their business functions.
Although some enterprises successfully implemented BPR, many organizations found this
strategy too diffi cult, too radical, and too comprehensive. The impact on employees, on fa-
cilities, on existing investments in information systems, and even on organizational culture
was overwhelming. Despite the many failures in BPR implementation, however, businesses
increasingly began to organize work around business processes rather than individual tasks.
The result was a less radical, less disruptive, and more incremental approach, called business
process management. Business process management (BPM) is a management technique that
includes methods and tools to support the design, analysis, implementation, management, and
optimization of business processes.
BPM initially helps companies improve profi tability by decreasing costs and increasing
revenues. Over time, BPM can create a competitive advantage by improving organizational
fl exibility. For many companies, BPM can provide cost benefi ts and increase customer satisfac-
tion. In all cases the company’s strategy should drive the BPM effort, as the case of Enterprise
illustrates.
Example
Enterprise Rent-A-Car® (www.enterprise.com) is one of the largest car rental companies in the
world. The company’s Request Services department processes, approves, and fulfi lls requests
for IT hardware, software, and services from 65,000 Enterprise employees located in 7,000
locations worldwide. Historically this department had used multiple manual systems to man-
age this process. As the company expanded, however, this system could no longer keep up with
the growing number of IT requests. Determined to improve this process, Enterprise initiated a
BPM project and selected a product from Appian (www.appian.com) for this project.
Before Enterprise actually started the project, the company made certain that its strategy
was in place. Enterprise recognized that implementing a new process would transform the
company’s traditional work behaviors. Therefore, the Request Services department engaged
key stakeholders—primarily the people who approve IT product and service requests and the
people who fulfi ll these requests—early in the project. The company also educated employees
about BPM in general as well as how to use the new Appian system.
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SECTION 2.3 Business Pressures, Organizational Responses, and Information Technology Support 39
After the BPM system was implemented, Enterprise eliminated its manual processes entirely.
Its employees now use the Appian system to request IT products and services. Signifi cantly, they
now fulfi ll requests more promptly while making fewer errors than they did with the manual
system. In addition, the new process contains business rules that provide appropriate restrictions
on fulfi llment (e.g., what IT hardware, software, or service an employee is entitled to).
Important components of BPM are process modeling, Web-enabled technologies, and busi-
ness activity monitoring. BPM begins with process modeling, which is a graphical depiction of
all the steps in a process. Process modeling helps employees understand the interactions and
dependencies among the people, the information systems they rely on, and the information
they require to optimally perform their tasks.
Web-enabled technologies display and retrieve data via a Web browser. They enable an orga-
nization to integrate the necessary people and applications into each process.
Business activity monitoring (BAM) is a real-time approach for measuring and managing
business processes. Companies use BAM to monitor their business processes, identify fail-
ures or exceptions, and address these failures in real time. Further, because BAM tracks
process operations and indicates whether they succeed or fail, it creates valuable records of
process behaviors that organizations can use to improve their processes.
2.3 Business Pressures, Organizational
Responses, and Information Technology Support
Modern organizations compete in a challenging environment. To remain competitive they
must react rapidly to problems and opportunities that arise from extremely dynamic conditions.
In this section you examine some of the major pressures confronting modern organizations and
the strategies that organizations employ to respond to these pressures.
Business Pressures
The business environment is the combination of social, legal, economic, physical, and politi-
cal factors in which businesses conduct their operations. Signifi cant changes in any of these
factors are likely to create business pressures on organizations. Organizations typically respond
to these pressures with activities supported by IT. Figure 2.2 illustrates the relationships among
business pressures, organizational performance and responses, and IT support. You will learn
about three major types of business pressures: market, technology, and societal pressures.
Market Pressures. Market pressures are generated by the global economy, intense compe-
tition, the changing nature of the workforce, and powerful customers. Let’s look more closely
at each of these factors.
Globalization. Globalization is the integration and interdependence of economic, social,
cultural, and ecological facets of life, made possible by rapid advances in information technol-
ogy. In his book The World Is Flat, Pulitzer Prize-winning author Thomas Friedman argues
that technology is leveling the global competitive playing fi eld, thereby making it “fl at.”
Sources: Compiled from B. Violino, “BPM Success at Enterprise,” Baseline Magazine, March 13,
2009; B. Violino, “BPM: Strategy Before Software,” CIO Insight, March 13, 2009; D. Byron, “Appian
BPM at Enterprise: Can Renting BPM Be Like Renting a Car?” www.bpminaction.com, March 24,
2008; “Enterprise Rent-A-Car Goes Live with Appian Enterprise,” Appian Press Release, March 24,
2008; www.enterprise.com, accessed March 30, 2009; www.appian.com, accessed March 20, 2009.
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40 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
Friedman identifi es three eras of globalization. The fi rst era, Globalization 1.0, lasted from
1492 to 1800. During this era, the force behind globalization was how much muscle, horse-
power, wind power, or steam power a country could deploy.
The second era, Globalization 2.0, lasted from 1800 to 2000. In this era, the force behind
globalization was the emergence of multinational companies; that is, companies that had their
headquarters in one country but operated in several countries. In the fi rst half of this era, glo-
balization was driven by falling transportation costs, generated by the development of the steam
engine and the railroads. In the second half, the driving force was falling telecommunications
costs resulting from the telegraph, telephones, computers, satellites, fi ber-optic cable, and the
Internet and World Wide Web. The modern global economy began to evolve during this era.
Around the year 2000, the world entered Globalization 3.0. In this era, globalization has
been driven by the convergence of ten forces that Friedman calls “fl atteners.” Table 2.2 identi-
fi es these forces.
According to Friedman, each era has been characterized by a distinctive focus. The focus of
Globalization 1.0 was on countries, the focus of Globalization 2.0 was on companies, and the
focus of Globalization 3.0 is on groups and individuals.
As you look at Table 2.2, note that nine of Friedman’s ten fl atteners directly relate to infor-
mation technology (all except the fall of the Berlin Wall). These fl atteners enable individuals
to connect, compute, communicate, collaborate, and compete everywhere and anywhere, any-
time and all the time; to access limitless amounts of information, services, and entertainment;
to exchange knowledge; and to produce and sell goods and services. People and organizations
can now operate without regard to geography, time, distance, or even language barriers. The
bottom line? Globalization is markedly increasing competition.
These observations highlight the importance of market pressures for you. Simply put, you
and the organizations you join will be competing with people and organizations from all over
a fl at world.
Technology
E
conom
ic
(m
a
rke
t)
S
o
ci
e
ta
l/
p
o
lit
ic
al
/le
ga
l
Business process
restructuring and
management (BPM)
Information
overload
Technological
innovations and
obsolescence
Powerful
customers
Social
responsibility
Compliance with
government
regulations and
deregulations
Changing
workforce
Need for
real-time
operations
Global economy
and strong
competition
Terrorist
attacks and
homeland
security
Ethical
issues
Customer focus
and service (CRM),
self-service
Mass
customization
Continuous improvement efforts
(just-in-time, total quality
management), KM, ERP
Busi
ness en
vironment (Pressures)
O
rg
an
iza
tion
al performance responses
IT
Business
Better data
management
alliances
Electronic
commerce Strategic
systems
Intelligent
data
management
FIGURE 2.2 Business
pressures, organizational
performance and responses,
and IT support.
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SECTION 2.3 Business Pressures, Organizational Responses, and Information Technology Support 41
Let’s consider some examples of globalization. Regional agreements such as the North
American Free Trade Agreement (NAFTA), which includes the United States, Canada, and
Mexico, have contributed to increased world trade and increased competition. Further, the
rise of India and China as economic powerhouses has increased global competition.
One important pressure that businesses in a global market must contend with is the cost
of labor, which varies widely among countries. In general, labor costs are higher in developed
countries like the United States and Japan than in developing countries such as China and
El Salvador. Also, developed countries usually offer greater benefi ts, such as health care, to
employees, driving the cost of doing business even higher. Therefore, many labor-intensive
industries have moved their operations to countries with low labor costs. IT has made such
moves much easier to implement.
However, manufacturing overseas is no longer the bargain it once was, and manufacturing
in the United States is no longer as expensive. For example, manufacturing wages in China
doubled between 2002 and 2008, and the value of China’s currency has steadily risen. IT’s
About Business 2.2 illustrates the problems that can arise when companies outsource their
manufacturing processes overseas.
The Changing Nature of the Workforce. The workforce, particularly in developed coun-
tries, is becoming more diversifi ed. Increasing numbers of women, single parents, minorities,
and persons with disabilities are now employed in all types of positions. IT is easing the integra-
tion of these employees into the traditional workforce. IT is also enabling people to work from
home, which can be a major benefi t for parents with young children and for people confronted
with mobility and/or transportation issues.
Powerful Customers. Consumer sophistication and expectations increase as customers be-
come more knowledgeable about the products and services they acquire. Customers can use
Table 2.2
• Fall of the Berlin Wall on November 9, 1989
° Shifted the world toward free-market economies and
away from centrally planned economies.
° Led to the emergence of the European Union and
early thinking about the world as a single, global
market.
• Netscape goes public on August 9, 1995
° Popularized the Internet and the World Wide Web.
• Development of work-fl ow software
° Enabled computer applications to work with one
another without human intervention.
° Enabled faster, closer collaboration and coordination
among employees, regardless of their location.
• Uploading
° Empowered all Internet users to create content and
put it on the Web.
° Led the transition from a passive approach to content
to an active, participatory, collaborative approach.
• Outsourcing
° Contracting with an outside company to perform a
specifi c function that your company was doing itself
and then integrating their work back into your operation;
for example, moving customer call centers to India.
• Offshoring
° Relocating an entire operation, or certain tasks,
to another country; for example, moving an entire
manufacturing operation to China.
• Supply chaining
° Technological revolution led to the creation of
networks composed of companies, their suppliers,
and their customers, all of which could collaborate
and share information for increased effi ciency.
• Insourcing
° Delegating operations or jobs within a business to
another company that specializes in those operations;
for example, Dell hires FedEx to “take over” Dell’s
logistics process.
• Informing
° The ability to search for information, best illustrated by
search engines.
• The Steroids (computing, instant messaging and fi le
sharing, wireless technologies, Voice over Internet
Protocol, videoconferencing, and computer graphics)
° Technologies that amplify the other fl atteners.
° Enable all forms of computing and collaboration to be
digital, mobile, and personal.
Friedman’s Ten Flatteners
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42 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
the Internet to fi nd detailed information about products and services, to compare prices, and
to purchase items at electronic auctions.
Organizations recognize the importance of customers and have increased their efforts to
acquire and retain them. Modern fi rms strive to learn as much as possible about their custom-
ers to better anticipate and address their needs. This process, called customer intimacy, is an
important component of customer relationship management (CRM), an organization-wide
effort toward maximizing the customer experience. You will learn about CRM in Chapter 11.
Technology Pressures. The second category of business pressures consists of those pres-
sures related to technology. Two major technology-related pressures are technological innova-
tion and information overload.
Technological Innovation and Obsolescence. New and improved technologies rapidly
create or support substitutes for products, alternative service options, and superb quality. As a
result, today’s state-of-the-art products may be obsolete tomorrow. For example, how fast are
new versions of your smartphone being released? How quickly are electronic versions of books,
magazines, and newspapers replacing traditional hard copy versions? These changes force busi-
nesses to keep up with consumer demands.
Consider the Apple iPad (www.apple.com/ipad). Apple released the fi rst iPad in April 2010
and sold 3 million of the devices in 80 days. Rather than taking time to enjoy its success, Apple
made its iPad2 available for sale on March 11, 2011, only 11 months later.
The CEO of Sleek Audio (www.sleek-audio.com) was frustrated with
a contract factory in Dongguan, China, that assembled the majority
of his company’s products. Not only did he have to travel to China
every few months to troubleshoot quality fl aws, but manufacturing
problems in the factory threatened to bankrupt his company. In one
case, Sleek Audio had to discard an entire shipment of 10,000 ear-
phones because they were improperly welded, a mistake that cost
the company millions of dollars. Further, delivery delays caused by
the factory’s lax approach to deadlines forced Sleek Audio to spend
huge amounts of money air-freighting products to the United States.
As a result, the company had far too much money tied up in inven-
tory that took months to arrive after the prototypes were developed.
Sleek Audio decided to search for a manufactur-
ing partner that possessed the necessary tools and
expertise to produce their earphones. They found
one, Dynamic Innovations (www.d-inno.com), locat-
ed close to their headquarters in Palmetto, Florida. One year later,
Sleek Audio had a full-scale manufacturing operation that could be
reached with a 15-minute car ride rather than a 24-hour fl ight. Each
earphone costs roughly 50 percent more to produce in Florida than
in China. Sleek Audio is happy to pay the premium, however, for the
assurance that botched orders and shipping delays will not ruin the
company. Based on enthusiastic customer response, Sleek Audio
has projected 2011 to be its most profi table year ever.
When Sleek Audio was considering how the company could
return manufacturing to the United States with its higher labor
costs, company executives realized that the only way to make the
move feasible was to minimize the role of humans on the assembly
line. This process meant redesigning products to take advantage
of automated tools and robots.
Sleek Audio’s earphones featured plastic side panels that the
Chinese factory had to weld into place by hand. In the U.S. factory
the company automated this process by replacing human labor
with robots. Managers redesigned the entire product around a
solid aluminum center into which robots insert the speaker. This
new assembly process requires neither welding nor human hands.
Moreover, as shown in Chapter 1, robots are becoming more
skilled and less expensive.
Questions
1. Which of Friedman’s fl atteners apply to Sleek Audio’s decision
to bring its manufacturing back to the United States? Support
your answer.
2. Identify some potential negative implications of Sleek Audio’s
increasing reliance on robots in its manufacturing processes.
Sources: Compiled from “Bring Manufacturing Jobs Home!” Deloitte
Debates (www.deloitte.com), 2011; R. Read, “In Reverse of Offshore Trend,
Oregon Manufacturing Thrives When High-Tech, High-Quality Products Are
Needed,” The Oregonian, September 18, 2010; T. George, “U.S. Sourcing
Firms Bid to Reverse Offshoring Trend,” Nearshore Americas, April 8, 2010;
B. Koerner, “Made in the USA,” Wired, March, 2011; “Is Reverse Offshoring
a Trend?” Supply Chainer, October 25, 2008; J. Aitoro, “Offshore Manufac-
turing: A Risky Proposition?” CRN.com, June 25, 2007; www.sleek-audio.
com, accessed March 21, 2011.
2.2 Sleek Audio
IT’s [about business]
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SECTION 2.3 Business Pressures, Organizational Responses, and Information Technology Support 43
Information Overload. The amount of information available on the Internet doubles ap-
proximately every year, and much of it is free. The Internet and other telecommunications
networks are bringing a fl ood of information to managers. To make decisions effectively and
effi ciently, managers must be able to access, navigate, and utilize these vast stores of data,
information, and knowledge. Information technologies, such as search engines (discussed in
Chapter 6) and data mining (Chapter 12), provide valuable support in these efforts.
Societal/Political/Legal Pressures. The third category of business pressures includes
social responsibility, government regulation/deregulation, spending for social programs, spend-
ing to protect against terrorism, and ethics. This section will explain how all of these elements
affect modern businesses.
Social Responsibility. Social issues that affect businesses and individuals range from the
state of the physical environment, to company and individual philanthropy, to education.
Some corporations and individuals are willing to spend time and/or money to address various
social problems. These efforts are known as organizational social responsibility or individual
social responsibility.
One critical social problem is the state of the physical environment. A growing IT initiative,
called green IT, is addressing some of the most pressing environmental concerns. The follow-
ing example illustrates how IT is instrumental in organizational efforts to “go green.”
Example
Companies Going Green Use Information Technology
Companies are “going green,” and IT professionals are facing increasing pressures to help their
companies accomplish their environmental goals. Organizations consider IT to be a natural
choice to lead their sustainability efforts, because IT touches every area of an organization. In
a series of interviews, several IT executives listed four areas where IT is particularly valuable.
Facilities design and management. Organizations are creating more sustainable work envi-
ronments. Many organizations are pursuing Leadership in Energy and Environmental Design
(LEED) certifi cation from the U.S. Green Building Council, a nonprofi t group that promotes
the construction of environmentally friendly buildings. One impact of this development is that
IT professionals are expected to help create green facilities. Consequently, IT personnel have
to consider how their computing decisions have an impact on sustainable design and, in turn,
how the building’s design affects the IT infrastructure. Green design infl uences the type of IT
devices used and the locations where IT clusters personal computers, people, and servers. IT
must become familiar with the metering and monitoring systems used in green buildings and
the requirements of buildings’ computerized infrastructure.
Carbon management. As companies try to reduce their carbon footprints, they are turning
to IT executives to develop the systems needed to calculate and track carbon throughout the
organization and its supply chain, which can be global in scope. Therefore, IT employees need
to become knowledgeable about embedded carbon and how to measure it in the company’s
products and processes.
Consider, for example, application development. IT managers will have to ask whether an
application will require new hardware to test and run, or how much additional server space
(and thus energy) it will require—and how these issues translate into carbon output.
International and U.S. state environmental laws. IT executives must deal with state laws
and international regulations that affect everything from the IT products they buy, to how they
dispose of them, to their company’s carbon footprint. IT managers must understand environ-
mental compliance issues so they can ask their vendors the right questions regarding specifi c
state, national, and international environmental standards before buying, deploying, and dispos-
ing of equipment. In short, IT managers must have an equipment strategy from cradle to grave.
Energy management. IT executives must understand their entire organization’s energy
needs. They also need to establish a good relationship with their company’s electrical utilities,
for several reasons. First, energy management systems are becoming increasingly sophisticated.
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44 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
To employ these systems effectively and make intelligent consumption decisions, IT personnel
must familiarize themselves with the system’s complex monitors and sensors. Second, more
utilities are developing an expertise in creating energy-effi cient IT departments. IT manag-
ers should tap that expertise to improve their own departments’ energy performance. Third,
utilities are offering incentives to commercial customers who take certain energy conserva-
tion steps, such as enabling computer power management across their networks and designing
energy-effi cient data centers. Finally, utilities are offering variable rate incentives depending
on when companies use electricity and how much they use. These issues require IT systems
that can regulate electricity use.
Continuing our discussion of social responsibility, social problems all over the world may
be addressed through corporate and individual philanthropy. In some cases, questions arise
as to what percentage of contributions actually goes to the intended causes and recipients
and what percentage goes to the charity’s overhead. Another problem that concerns contrib-
utors is that they often exert little infl uence over the selection of projects their contributions
will support. As you will see in IT’s About Business 2.3, the Internet can act as a facilitator of
generosity.
Still another social problem that affects modern business is the digital divide. The digital
divide refers to the wide gap between those who have access to information and communica-
tions technology and those who do not. This gap exists both within and among countries.
Many government and international organizations are trying to close the digital divide. As
technologies develop and become less expensive, the speed at which the gap can be closed will
accelerate.
A well-known project is the One Laptop per Child (OLPC) project (http://one.laptop.org).
OLPC is a nonprofi t association dedicated to research to develop a very inexpensive laptop—a
technology that aims to revolutionize how the world can educate its children.
The fi rst generation of inexpensive laptops appeared in 2007 with a price of $188, which
was too high. The second generation of the laptop was scrapped because the price remained
too high. The next generation of inexpensive laptops, a touchscreen tablet computer for
schoolchildren in the developing world, uses less power than a light bulb and is unbreakable,
waterproof, and half the thickness of an iPhone. This computer will be a single sheet of plastic,
and have a projected price of $75.
Compliance with Government Regulations. Another major source of business pressures
is government regulations regarding health, safety, environmental protection, and equal op-
portunity. Businesses tend to view government regulations as expensive constraints on their
activities. In general, government deregulation intensifi es competition.
In the wake of 9/11 and numerous corporate scandals, the U.S. government passed many
new laws, including the Sarbanes-Oxley Act, the USA PATRIOT Act, the Gramm-Leach-Bliley
Act, and the Health Insurance Portability and Accountability Act (HIPAA). Organizations must
be in compliance with the regulations contained in these statutes. The process of becoming
and remaining compliant is expensive and time consuming. In almost all cases, organizations
rely on IT support to provide the necessary controls and information for compliance.
Protection against Terrorist Attacks. Since September 11, 2001, organizations have been
under increased pressure to protect themselves against terrorist attacks. In addition, employ-
ees who are in the military reserves have been called up for active duty, creating personnel
problems. Information technology can help protect businesses by providing security systems
and possibly identifying patterns of behavior associated with terrorist activities, including cyber
attacks (discussed in Chapter 4).
Sources: Compiled from J. Matthews, “For IT Managers, Going Green Can Save You Some Long
Green,” Forbes, March 31, 2011; A. Diana, “15 Green Tech Innovations,” InformationWeek, January 5,
2011; A. Nguyen, “Hire Green IT Managers Now, Forrester Urges,” CIO, November 23, 2010;
M. Pratt, “How to Get Your Green IT Cred,” Computerworld, September 2, 2010; C. Penttila, “Why—
and How—Your Company Should Go Green,” InformationWeek, January 30, 2009; www.usgbc.org,
accessed March 15, 2011.
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SECTION 2.3 Business Pressures, Organizational Responses, and Information Technology Support 45
An example of protection against terrorism is the Department of Homeland Security’s
US-VISIT program. US-VISIT is a network of biometric-screening systems, such as fi n-
gerprint and ocular (eye) scanners, that ties into government databases and watch lists to
check the identities of millions of people entering the United States. The system is now
operational in more than 300 locations, including major international ports of entry by air,
sea, and land.
Ethical Issues. Ethics relates to general standards of right and wrong. Information ethics
relates specifi cally to standards of right and wrong in information-processing practices. Ethical
issues are very important because, if handled poorly, they can damage an organization’s image
and destroy its employees’ morale. The use of IT raises many ethical issues, ranging from moni-
toring e-mail to invading the privacy of millions of customers whose data are stored in private
and public databases. Chapter 3 covers ethical issues in detail.
Clearly, then, the pressures on organizations are increasing, and organizations must be pre-
pared to take responsive actions if they are to succeed. You will learn about these organiza-
tional responses in the next section.
The Internet can facilitate acts of generosity and true connec-
tion. Consider, for example, a Web site such as PatientsLikeMe
(www.patientslikeme.com), or any of the thousands of message
boards dedicated to infertility, cancer, and various other ailments.
People use these sites and message boards to obtain information
about life-and-death decisions based on volunteered informa-
tion, while also receiving much-needed emotional support from
strangers.
Sociologists contend that contributing to such communities
helps people gain self-esteem by donating their time and experi-
ences to people in need. People will most readily share informa-
tion, followed by time, and then physical goods.
Many Web sites help concerned individuals provide goods and
services to others. These hubs translate the peer-to-peer princi-
ples of sharing from the virtual world to the real world. For exam-
ple, CouchSurfi ng (www.couchsurfi ng.org) has helped 2.3 million
travelers fi nd willing and free hosts throughout the world. What
is the main reason that people allow strangers to sleep on their
couch for free? The answer is that they give away something that
has little marginal cost in exchange for the opportunity to meet
people from all over the world.
Let’s look at some additional examples of Web sites that en-
able generosity.
• GiftFlow (www.giftfl ow.org): GiftFlow is a virtual community
where you can obtain things you need for free and fi nd people
who need the “stuff” you have to give away. GiftFlow con-
nects community organizations, businesses, governments,
and neighbors in a network of reciprocity, where they can
share resources, meet one another’s needs, and coordinate
their efforts to build a better world.
• OurGoods (www.ourgoods.org): OurGoods enables creative
people to help one another produce independent projects.
More work is accomplished in networks of shared respect and
shared resources than in competitive isolation.
• Sparked (www.sparked.com): Sparked is an online “microvol-
unteering” Web site where large and small organizations list
opportunities for people looking to volunteer.
• thredUP (www.thredup.com): thredUP is a Web site where
parents trade children’s clothing and toys.
• Collaborative Consumption (www.collaborativeconsumption.
com): This Web site is an online hub for discussions about the
growing business of sharing, resale, reuse, and barter (with
many links to Web sites engaged in these practices).
• Kiva (www.kiva.org): Kiva is a nonprofi t enterprise that
provides a link between lenders in developed countries and
entrepreneurs in developing countries. Users pledge interest-
free loans rather than tax-deductible donations. Kiva directs
100 percent of the loans to borrowers.
• DonorsChoose (www.donorschoose.org): DonorsChoose is an
education-oriented Web site that functions entirely within the
United States. Users make donations rather than loans. The Web
site addresses the huge problem of underfunded public schools.
Questions
1. Discuss why people will give away their time and knowledge
for free.
2. Describe the various ways in which the Internet can facilitate
generosity.
Sources: Compiled from A. Kamenetz, “The Case for Generosity,” FastCom-
pany, March, 2011; N. Ferraro, “Lending and Philanthropy in the Internet
Age,” InformationWeek, February 2, 2008; www.giftfl ow.org, www.ourgoods.
org, www.sparked.com, www.thredup.com, http://blog.p2pfoundation.net,
www.collaborativeconsumption.com, www.kiva.org, www.donorschoose.org,
accessed March 28, 2011.
2.3 The Internet Facilitates Generosity
IT’s [about business]
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46 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
Organizational Responses
Organizations are responding to the various pressures just discussed by implementing IT such
as strategic systems, customer focus, make-to-order and mass customization, and e-business.
This section explores each of these responses.
Strategic Systems. Strategic systems provide organizations with advantages that enable
them to increase their market share and/or profi ts, to better negotiate with suppliers, and to
prevent competitors from entering their markets. As an example, the IT department at P&G
(www.pg.com) developed a virtualized environment that the company uses for product design
work, product placement research, and consumer feedback studies. P&G utilizes virtual re-
ality models to test design ideas for the next breakthroughs in products such as diapers and
cosmetics. Within these “cyberworlds,” P&G can rapidly test product performance as well as
consumer responses to various kinds of ingredient and packaging choices.
Customer Focus. Organizational attempts to provide superb customer service can make the
difference between attracting and keeping customers and losing them to competitors. Numerous
IT tools and business processes have been designed to keep customers happy. Consider Amazon,
for example. When you visit Amazon’s Web site anytime after your fi rst visit, the site welcomes
you back by name and presents you with information about items that you might like, based on
your previous purchases. In another example, Dell guides you through the process of buying a
computer by providing information and choices that help you make an informed buying decision.
Make-to-Order and Mass Customization. Make-to-order is a strategy of producing
customized (made to individual specifi cations) products and services. The business problem
is how to manufacture customized goods effi ciently and at a reasonably low cost. Part of the
solution is to change manufacturing processes from mass production to mass customization.
In mass production, a company produces a large quantity of identical items. In mass cus-
tomization, it also produces a large quantity of items, but it customizes them to fi t the needs
and preferences of individual customers. Mass customization is simply an attempt to perform
make-to-order on a large scale. Bodymetrics (www.bodymetrics.com) is an excellent example of
mass customization involving men’s and women’s jeans.
Example
Well-fi tting jeans are notoriously diffi cult to fi nd. To address this problem, Bodymetrics devel-
oped a “body scanner” that scans the customer’s body, captures more than 150 measurements,
and produces a digital replica of his or her size and shape. This scan is then used to provide
three services: made-to-measure jeans, body-shape jeans, and online virtual try-on.
With made-to-measure jeans, the scan is used to create a pattern for the jeans, which are
hand-tailored to the exact lines and contours of the customer’s body. The jeans are ready in
three to six weeks, at which time the customer has a fi nal fi tting with a Bodymetrics tailor.
Based on its experience with made-to-measure jeans, Bodymetrics has identifi ed three body
shapes: straight, semicurvy, and curvy. Body-shape jeans are specifi cally designed to fi t these
different body shapes. After customers are scanned, a Bodymetrics jeans expert helps them de-
termine their body shapes. Customers can then instantly purchase jeans matching their body
shapes off the rack in the store.
The online virtual try-on allows customers who have been scanned to try on jeans virtually
on their own bodies without physically trying on jeans in a dressing room. The service creates
an avatar (a three-dimensional graphical representation of the customer), which has an amaz-
ing resemblance to her or him. Then, the customer can pick various styles of jeans and “virtu-
ally see” what the jeans look like on her or his avatar.
Sources: Compiled from “The First Time I Had a Bodymetrics Scan,” http://howfayeseesit.wordpress.
com, March 23, 2011; L. Talbot, “Bodymetrics: What’s Your Jean Shape?” http://lisatalbot.blogspot.com,
February 2, 2011; Asmita, “Custom-Fit Jeans with Bodymetrics,” www.styleguru.com, January 18, 2007
(Note: StyleGuru is a promotional blog.); R. Young, “Turning Tailoring Over to a Computer,” Interna-
tional Herald Tribune, January 15, 2007; www.bodymetrics.com, accessed March 1, 2011.
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SECTION 2.4 Competitive Advantage and Strategic Information Systems 47
E-Business and E-Commerce. Conducting business electronically is an essential strat-
egy for companies that are competing in today’s business environment. Electronic commerce
(EC or e-commerce) describes the process of buying, selling, transferring, or exchanging
products, services, or information via computer networks, including the Internet. E-business
is a somewhat broader concept. In addition to the buying and selling of goods and services,
e-business also refers to servicing customers, collaborating with business partners, and perform-
ing electronic transactions within an organization. Chapter 7 focuses extensively on this topic.
In addition, e-commerce applications appear throughout the text.
You now have a general overview of the pressures that affect companies in today’s business
environment and the responses that organizations choose to manage these pressures. To plan
for the most effective responses, companies formulate strategies. In the new digital economy,
these strategies rely heavily on information technology, especially strategic information sys-
tems. You examine these topics in the next section.
2.4 Competitive Advantage and Strategic
Information Systems
A competitive strategy is a statement that identifi es a business’s approach to compete, its goals,
and the plans and policies that will be required to carry out those goals (Porter, 1985). A strat-
egy, in general, can apply to a desired outcome, such as gaining market share. A competitive
strategy focuses on achieving a desired outcome when competitors want to prevent you from
reaching your goal. Therefore, when you create a competitive strategy, you must plan your own
moves, but you must also anticipate and counter your competitors’ moves.
Through its competitive strategy, an organization seeks a competitive advantage in an in-
dustry. That is, it seeks to outperform its competitors in a critical measure such as cost, quality,
and time-to-market. Competitive advantage helps a company function profi tably with a market
and generate larger-than-average profi ts.
Competitive advantage is increasingly important in today’s business environment, as you
will note throughout the text. In general, the core business of companies has remained the
same. That is, information technologies simply offer tools that can enhance an organization’s
success through its traditional sources of competitive advantage, such as low cost, excellent
customer service, and superior supply chain management. Strategic information systems
(SISs) provide a competitive advantage by helping an organization implement its strategic
goals and improve its performance and productivity. Any information system that helps an
organization gain a competitive advantage, or reduce a competitive disadvantage, qualifi es as a
strategic information system.
Porter’s Competitive Forces Model
The best-known framework for analyzing competitiveness is Michael Porter’s competitive
forces model (Porter, 1985). Companies use Porter’s model to develop strategies to increase
their competitive edge. Porter’s model also demonstrates how IT can make a company more
competitive.
Porter’s model identifi es fi ve major forces that can endanger or enhance a company’s posi-
tion in a given industry. Figure 2.3 highlights these forces. Although the Web has changed the
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48 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
nature of competition, it has not changed Porter’s fi ve fundamental forces. In fact, what makes
these forces so valuable as analytical tools is that they have not changed for centuries. Every
competitive organization, no matter how large or small, or what business it is in, is driven by
these forces. This observation applies even to organizations that you might not consider com-
petitive, such as local governments. Although local governments are not for-profi t enterprises,
they compete for businesses to locate in their districts, for funding from higher levels of govern-
ment, for employees, and for many other things.
Signifi cantly, Porter (2001) concludes that the overall impact of the Web is to increase com-
petition, which generally diminishes a fi rm’s profi tability. Let’s examine Porter’s fi ve forces and
the ways that the Web infl uences them.
1. The threat of entry of new competitors. The threat that new competitors will enter your
market is high when entry is easy and low when there are signifi cant barriers to entry. An
entry barrier is a product or service feature that customers have learned to expect from orga-
nizations in a certain industry. A competing organization must offer this feature in order to
survive in the marketplace. There are many types of entry barriers. Consider, for example,
legal requirements such as admission to the bar to practice law or a license to serve liquor,
where only a certain number of licenses are available.
Suppose you want to open a gasoline station. In order to compete in that industry,
you would have to offer pay-at-the-pump service to your customers. Pay-at-the-pump is an
IT-based barrier to entering this market because you must offer it for free. The fi rst gas
station that offered this service gained fi rst-move advantage and established barriers to entry.
This advantage did not last, however, because competitors quickly offered the same service
and thus overcame the entry barrier.
For most fi rms, the Web increases the threat that new competitors will enter the market
because it sharply reduces traditional barriers to entry, such as the need for a sales force or
a physical storefront. Today, competitors frequently need only to set up a Web site. This
threat of increased competition is particularly acute in industries that perform an interme-
diation role, which is a link between buyers and sellers (for example, stock brokers and travel
agents), as well as in industries where the primary product or service is digital (for example,
the music industry). In addition, the geographical reach of the Web enables distant com-
petitors to compete more directly with an existing fi rm.
In some cases the Web increases barriers to entry. This scenario occurs primarily when
customers have come to expect a nontrivial capability from their suppliers. For example,
Rivalry
Threat of
new entrants
Threat of
substitute products
or services
Supplier power
(bargaining power
of suppliers)
Buyer power
(bargaining power
of buyers)
Your
organization
Competing
organizations
FIGURE 2.3 Porter’s
Competitive Forces Model.
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SECTION 2.4 Competitive Advantage and Strategic Information Systems 49
the fi rst company to offer Web-based package tracking gained a competitive advantage from
that service. Competitors were forced to follow.
2. The bargaining power of suppliers. Supplier power is high when buyers have few choices
from whom to buy and low when buyers have many choices. Therefore, organizations
would rather have more potential suppliers so they will be in a stronger position to negotiate
price, quality, and delivery terms.
The Internet’s impact on suppliers is mixed. On the one hand, it enables buyers to fi nd
alternative suppliers and to compare prices more easily, thereby reducing the supplier’s bar-
gaining power. On the other hand, as companies use the Internet to integrate their supply
chains, participating suppliers prosper by locking in customers.
3. The bargaining power of customers (buyers). Buyer power is high when buyers have many
choices from whom to buy and low when buyers have few choices. For example, in the
past, there were few locations where students could purchase textbooks (typically, one or
two campus bookstores). In this situation, students had low buyer power. Today, the Web
provides students with access to a multitude of potential suppliers as well as detailed infor-
mation about textbooks. As a result, student buyer power has increased dramatically.
In contrast, loyalty programs reduce buyer power. As their name suggests, loyalty pro-
grams reward customers based on the amount of business they conduct with a particular
organization (for example, airlines, hotels, and rental car companies). Information technol-
ogy enables companies to track the activities and accounts of millions of customers, thereby
reducing buyer power. That is, customers who receive “perks” from loyalty programs are
less likely to do business with competitors. (Loyalty programs are associated with customer
relationship management, which you will study in Chapter 11.)
4. The threat of substitute products or services. If there are many alternatives to an organiza-
tion’s products or services, then the threat of substitutes is high. If there are few alternatives,
then the threat is low. Today, new technologies create substitute products very rapidly. For
example, customers today can purchase wireless telephones instead of land-line telephones,
Internet music services instead of traditional CDs, and ethanol instead of gasoline in cars.
Information-based industries experience the greatest threat from substitutes. Any indus-
try in which digitized information can replace material goods (for example, music, books,
and software) must view the Internet as a threat because the Internet can convey this infor-
mation effi ciently and at low cost and high quality.
Even when there are many substitutes for their products, however, companies can cre-
ate a competitive advantage by increasing switching costs. Switching costs are the costs, in
money and time, of a decision to buy elsewhere. For example, contracts with smart phone
providers typically include a substantial penalty for switching to another provider until the
term of the contract expires (quite often, two years). This switching cost is monetary.
As another example, when you buy products from Amazon, the company develops a pro-
fi le of your shopping habits and recommends products targeted to your preferences. If you
switch to another online vendor, that company will need time to develop a profi le of your
wants and needs. In this case, the switching cost involves time rather than money.
5. The rivalry among existing fi rms in the industry. The threat from rivalry is high when
there is intense competition among many fi rms in an industry. The threat is low when the
competition is among fewer fi rms and is not as intense.
In the past, proprietary information systems—systems that belong exclusively to a single
organization—have provided strategic advantage to fi rms in highly competitive industries.
Today, however, the visibility of Internet applications on the Web makes proprietary sys-
tems more diffi cult to keep secret. In simple terms, when I see my competitor’s new system
online, I will rapidly match its features in order to remain competitive. The result is fewer
differences among competitors, which leads to more intense competition in an industry.
To understand this concept, consider the highly competitive grocery industry, where
Walmart, Kroger, Safeway, and other companies compete essentially on price. Some of
these companies have IT-enabled loyalty programs in which customers receive discounts
and the store gains valuable business intelligence on customers’ buying preferences. Stores
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50 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
use this business intelligence in their marketing and promotional campaigns. (You will
learn about business intelligence in Chapter 12.)
Grocery stores are also experimenting with wireless technologies such as radio-frequency
identifi cation (RFID, discussed in Chapter 8) to speed the checkout process, track custom-
ers through the store, and notify customers of discounts as they pass by certain products.
Grocery companies also use IT to tightly integrate their supply chains for maximum effi –
ciency and thus reduce prices for shoppers.
Competition also is being affected by the extremely low variable cost of digital products.
That is, once a digital product has been developed, the cost of producing additional “units”
approaches zero. Consider the music industry as an example. When artists record music,
their songs are captured in digital format. Physical products, such as CDs or DVDs of the
songs for sale in music stores, involve costs. The costs of a physical distribution channel are
much higher than those involved in delivering the songs digitally over the Internet.
In fact, in the future companies might give away some products for free. For example,
some analysts predict that commissions for online stock trading will approach zero because
investors can search the Internet for information to make their own decisions regarding
buying and selling stocks. At that point, consumers will no longer need brokers to give them
information that they can obtain themselves, virtually for free.
Porter’s Value Chain Model
Organizations use the Porter competitive forces model to design general strategies. To identify
specifi c activities where they can use competitive strategies for greatest impact, they use his
value chain model (1985). The value chain model also identifi es points where an organization
can use information technology to achieve competitive advantage (see Figure 2.4).
Administration and management
Human resource management
Procurement
Inbound logistics
Quality control;
receiving; raw
materials control;
supply schedules
Manufacturing;
packaging;
production control;
quality control;
maintenance
Finishing goods;
order handling;
dispatch; delivery;
invoicing
Customer
management;
order taking;
promotion;
sales analysis;
market research
Warranty;
maintenance;
education and
training;
upgrades
Automated
warehousing systems
Computer-controlled
machining systems;
computer-aided
flexible manufacturing
Automated shipment
scheduling systems;
online point of sale
and order processing
Computerized
ordering systems;
targeted marketing
Customer relationship
management
systems
Outbound logistics Marketing and sales Customer serviceOperations
Product and
technology development
Legal, accounting, finance
management
Personnel, recruiting,
training, career development
Supplier management, funding,
subcontracting, specification
Product and process design,
production engineering,
research and development
Electronic scheduling and message
systems; collaborative workflow
intranet
Workforce planning systems;
employee benefits intranet
E-commerce Web portal
for suppliers
Computer-aided design systems;
product development extranet
with partners
S
U
P
P
O
R
T
A
C
T
IV
IT
IE
S
P
R
IM
A
R
Y
A
C
T
IV
IT
IE
S
F
IR
M
A
D
D
S
V
A
L
U
E
FIGURE 2.4 Porter’s Value
Chain Model.
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SECTION 2.4 Competitive Advantage and Strategic Information Systems 51
According to Porter’s value chain model, the activities conducted in any organization can
be divided into two categories: primary activities and support activities. Primary activities
relate to the production and distribution of the fi rm’s products and services. These activities
create value for which customers are willing to pay. The primary activities are buttressed by
support activities. Unlike primary activities, support activities do not add value directly to
the fi rm’s products or services. Rather, as their name suggests, they contribute to the fi rm’s
competitive advantage by supporting the primary activities.
Next, you will see examples of primary and support activities in the value chain of a
manufacturing company. Keep in mind that other types of fi rms, such as transportation,
health care, education, retail, and others, have different value chains. The key point is that
every organization has a value chain: a sequence of activities through which the organi-
zation’s inputs, whatever they are, are transformed into more valuable outputs, whatever
they are.
In a manufacturing company, primary activities involve purchasing materials, processing
the materials into products, and delivering the products to customers. Companies typically
perform fi ve primary activities in the following sequence:
1. Inbound logistics (inputs)
2. Operations (manufacturing and testing)
3. Outbound logistics (storage and distribution)
4. Marketing and sales
5. Services
As work progresses in this sequence, value is added to the product in each activity. Specifi cally,
the following steps occur:
1. The incoming materials are processed (in receiving, storage, and so on) in activities called
inbound logistics.
2. The materials are used in operations, where value is added by turning raw materials into
products.
3. These products are prepared for delivery (packaging, storing, and shipping) in the out-
bound logistics activities.
4. Marketing and sales sell the products to customers, increasing product value by creating
demand for the company’s products.
5. Finally, the company performs after-sales service for the customer, such as warranty service
or upgrade notifi cation, adding further value.
As noted above, the primary activities are buttressed by support activities. Support activities
consist of:
1. The fi rm’s infrastructure (accounting, fi nance, management)
2. Human resources management
3. Product and technology development (R & D)
4. Procurement
Each support activity can be applied to any or all of the primary activities. In addition, the sup-
port activities can also support one another.
A fi rm’s value chain is part of a larger stream of activities, which Porter calls a value
system. A value system, or an industry value chain, includes the suppliers that provide the
inputs necessary to the fi rm along with their value chains. After the fi rm creates products,
these products pass through the value chains of distributors (which also have their own
value chains), all the way to the customers. All parts of these chains are included in the
value system. To achieve and sustain a competitive advantage, and to support that advan-
tage with information technologies, a fi rm must understand every component of this value
system.
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52 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
Strategies for Competitive Advantage
Organizations continually try to develop strategies to counter the fi ve competitive forces iden-
tifi ed by Porter. You will learn about fi ve of those strategies here. Before we go into specifi cs,
however, it is important to note that an organization’s choice of strategy involves trade-offs. For
example, a fi rm that concentrates only on cost leadership might not have the resources avail-
able for research and development, leaving the fi rm unable to innovate. As another example,
a company that invests in customer happiness (customer-orientation strategy) will experience
increased costs.
Companies must select a strategy and then stay with it, because a confused strategy cannot
succeed. This selection, in turn, decides how a company will utilize its information systems.
A new information system that can improve customer service but will increase costs slightly
will be welcomed at a high-end retailer such as Nordstrom’s, but not at a discount store like
Walmart. The following list presents the most commonly used strategies below. Figure 2.5
provides an overview of these strategies.
1. Cost leadership strategy. Produce products and/or services at the lowest cost in the
industry. An example is Walmart’s automatic inventory replenishment system, which
enables Walmart to reduce inventory storage requirements. As a result, Walmart stores
use fl oor space only to sell products, and not to store them, thereby reducing inventory
costs.
2. Differentiation strategy. Offer different products, services, or product features than your
competitors. Southwest Airlines, for example, has differentiated itself as a low-cost, short-
haul, express airline. This has proved to be a winning strategy for competing in the highly
competitive airline industry. Also, Dell has differentiated itself in the personal computer
market through its mass-customization strategy.
3. Innovation strategy. Introduce new products and services, add new features to existing
products and services, or develop new ways to produce them. A classic example is the in-
troduction of automated teller machines (ATMs) by Citibank. The convenience and cost-
cutting features of this innovation gave Citibank a huge advantage over its competitors. Like
many innovative products, the ATM changed the nature of competition in the banking
industry. Today, an ATM is a competitive necessity for any bank.
Operational Effectiveness
I can do the same
thing more efficiently
than you can.
Customer Oriented
I treat my customers
better than you do.
Innovation
I’m doing something
new and you can’t
catch up.
Cost Leader
I can sell at a lower
cost than you can.
Differentiation
I am better because
I am different.
FIGURE 2.5 Strategies for
Competitive Advantage.
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SECTION 2.5 Business–Information Technology Alignment 53
4. Operational effectiveness strategy. Improve the manner in which internal business pro-
cesses are executed so that a fi rm performs these activities better than its rivals. Such im-
provements increase quality, productivity, and employee and customer satisfaction while
decreasing time to market.
5. Customer-orientation strategy. Concentrate on making customers happy. Web-based sys-
tems are particularly effective in this area because they can provide a personalized, one-to-
one relationship with each customer.
2.5 Business–Information Technology
Alignment
The “holy grail” of organizations is business–information technology alignment, or strategic
alignment (which we will call simply alignment). Business–information technology align-
ment is the tight integration of the IT function with the strategy, mission, and goals of the orga-
nization. That is, the IT function directly supports the business objectives of the organization.
There are six characteristics of excellent alignment:
• Organizations view IT as an engine of innovation that continually transforms the business,
often creating new revenue streams.
• Organizations view their internal and external customers and their customer service func-
tion as supremely important.
• Organizations rotate business and IT professionals across departments and job functions.
• Organizations provide overarching goals that are completely clear to each IT and business
employee.
• Organizations ensure that IT employees understand how the company makes (or loses)
money.
• Organizations create a vibrant and inclusive company culture.
Unfortunately, many organizations fail to achieve this type of close alignment. In fact, ac-
cording to a McKinsey & Company survey on IT strategy and spending, only 16 percent of
the IT and business executives who participated agreed that their organization had adequate
alignment between IT and the business. Given the importance of business–IT alignment, why
do so many organizations fail to implement this policy? The major reasons are:
• Business managers and IT managers have different objectives.
• The business and IT departments are ignorant of the other group’s expertise.
• A lack of communication.
Put simply, business executives know little about information technology, and IT executives
understand the technology but do not understand the real needs of the business.
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54 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
The good news is that some organizations “get it right.” IT’s About Business 2.4 illus-
trates business–IT alignment at two companies: Progressive and Zappos. In fact, both com-
panies maintain that business and IT are virtually indistinguishable in their strategy and
operations.
Progressive
Progressive (www.progressive.com) markets itself as an insurance
provider that offers choices to customers. Its mission is to make
insurance easy to shop for, buy, and own. The insurer uses highly
automated underwriting software, and it presents data to custom-
ers in an easily understandable way.
The company’s exclusive IT-enabled online Name Your Price
application allows customers to choose the price they would like
to pay for insurance and then see the coverage they can buy for
that price. After entering basic car and driver information, shop-
pers are offered a customized insurance package that includes
the limits and deductibles available within that price range. Shop-
pers can also manipulate an online dial to change various op-
tions, and the application instantly responds with information
about how such changes will affect the price. Progressive’s Web
site also allows customers to comparison-shop to fi nd out what
Allstate, State Farm, and other competitors charge for the same
coverage.
To provide this transparency for its customers, Progressive
developed software that allows the company to quickly extract
pricing data fi led with government regulators. The software
allows Progressive managers to read a state regulatory fi ling,
spot the key data, and determine a rating algorithm for competi-
tors’ rates.
Zappos
Zappos (www.zappos.com) is a major manufacturer of clothing,
beauty aids, and accessories. The company’s primary business
platform is an enterprise data warehouse (discussed in Chapter 5)
that essentially contains all of the company’s data—Web site
traffi c, marketing data, merchandising analytics, and so on. This
system handles the new business as Zappos expands its prod-
uct and service offerings. For example, when Zappos expanded
into selling luggage, it had to set up a special place at its distri-
bution center to store the new items, because suitcases take up
much more room than do shoes. On the IT side, the company
needed to reconfi gure its data warehouse to refl ect that change.
As another example, suppose that a customer goes to zappos.
com for a pair of red Clarks sandals in size 8. The customer
can see all of the Clarks sandals available in stock. If the cus-
tomer goes to Clarks.com, he or she will be able to fi nd all of
the same information just as quickly. The reason for this is that
a Zappos unit called Powered by Zappos built and runs the
Clarks Web site. Launched in 2009, Powered by Zappos is a
revenue-producing business application created by the Zappos
IT department.
Questions
1. Consider the cases of Progressive and Zappos. What does it
mean that the business strategy and information technology go
hand-in-hand? (That is, neither comes before the other.)
2. Provide specifi c examples of problems that could occur at
Progressive and Zappos if the fi rms’ business strategy and
information technology are not aligned.
Sources: Compiled from M. Betts, “10 Megatrends Affecting Corporate IT
Through 2020,” Computerworld, March 7, 2011; C. Babcock, “Enterprise
Architects’ Role in Aligning IT with Business,” InformationWeek, February
18, 2011; E. Sperling, “How CIOs See the World,” Forbes, December 20,
2010; T. Wallgum, “Absolute Alignment: How One CIO Remains in Lock-
Step with the Business,” CIO, November 16, 2010; J. Scott, “Don’t Just
Build Business-IT Alignment, Map It,” CIO, July 26, 2010; J. King, “Beyond
Alignment,” Computerworld, May 24, 2010; T. Wallgum, “CVS IT Chief
on the Remedy for Business-IT Alignment,” CIO, March 29, 2010; www.
progressive.com, www.zappos.com, accessed March 19, 2011.
2.4
IT’s [about business]
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Summary 55
For all Majors
All of the functional areas of any organization are literally composed of a variety
of business processes. Regardless of your major, you will be involved in a variety of
business processes from your fi rst day on the job. Some of these processes you will
do by yourself, some will involve only your group or department, and others will
involve several (or all) of the organization’s functional areas.
It is important for you to be able to visualize processes, understand the inputs
and outputs of each process, and identify the “customer” of each process. These
capabilities will enable you to make the organization’s business processes more
effi cient and effective. This task generally involves incorporating information
technology in the process. It is also important for you to appreciate how each process
fi ts into your organization’s strategy.
All functional areas in any organization must work together in an integrated
fashion in order for the fi rm to respond adequately to business pressures. These
responses typically require each functional area to utilize a variety of information
systems. In today’s competitive global marketplace, the timeliness and accuracy of
these responses is even more critical.
Closely following this discussion, all functional areas must work together for the
organization to gain competitive advantage in its marketplace. Again, the functional
areas use a variety of strategic information systems to achieve this goal.
You have seen why companies must be concerned with strategic advantage. But
why is this chapter so important for you? There are several reasons. First, the business
pressures you have learned about have an impact on your organization, but they also
affect you as an individual. So, it is critical that you understand how information
systems can help you, and eventually your organization, respond to these pressures.
In addition, achieving competitive advantage is essential for your organization’s
survival. In many cases, you, your team, and all your colleagues will be responsible
for creating a competitive advantage. Therefore, having general knowledge about
strategy and about how information systems affect the organization’s strategy and
competitive position will help you in your career.
You also need a basic knowledge of your organization’s strategy, mission, and
goals, as well as its business problems and how it makes (or loses) money. You now
know how to analyze your organization’s strategy and value chain, as well as the
strategies and value chains of your competitors. You also have acquired a general
knowledge of how information technology contributes to organizational strategy.
This knowledge will help you to do your job better, to be promoted more quickly,
and to contribute signifi cantly to the success of your organization.
What’s In
ITFor
Me?
[ Summary ]
1. Understand the concept of business processes, and provide examples of
business processes in the functional areas of an organization.
A business process is an ongoing collection of related activities that produce a product or
a service of value to the organization, its business partners, and/or its customers. Examples
of business processes in the functional areas are managing accounts payable, managing
accounts receivable, managing post-sale customer follow-up, managing bills of materials,
managing manufacturing change orders, applying disability policies, hiring employees,
training staff and computer users, and applying Internet use policy.
2. Differentiate between the terms business process reengineering and
business process management.
Business process reengineering is a radical redesign of an organization’s business processes that
is intended to improve the effi ciency and effectiveness of these processes. The key to BPR is
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56 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
for enterprises to examine their business processes from a “clean sheet” perspective and then
determine how they could best reconstruct those processes to improve their business functions.
Because BPR proved diffi cult to implement, organizations have turned to business process
management. BPM is a management technique that includes methods and tools to support
the design, analysis, implementation, management, and optimization of business processes.
3. List and provide examples of the three types of business pressures, and
describe one IT response to each.
• Market pressures: An example of a market pressure is powerful customers. Customer
relationship management is an effective IT response that helps companies achieve cus-
tomer intimacy.
• Technology pressures: An example of a technology pressure is information overload.
Search engines and business intelligence applications enable managers to access, navi-
gate, and utilize vast amounts of information.
• Societal/political/legal pressures: An example of a societal/political/legal pressure is social
responsibility, such as the state of the physical environment. Green IT is one response
that is intended to improve the environment.
4. Identify the fi ve competitive forces described by Porter, and explain
how the Web has an impact on each one.
Porter’s fi ve competitive forces:
• The threat of entry of new competitors: For most fi rms, the Web increases the threat that
new competitors will enter the market by reducing traditional barriers to entry. Frequently,
competitors need only to set up a Web site to enter a market. The Web can also increase bar-
riers to entry, as when customers come to expect a nontrivial capability from their suppliers
• The bargaining power of suppliers: The Web enables buyers to fi nd alternative suppliers
and to compare prices more easily, thereby reducing suppliers’ bargaining power. From a
different perspective, as companies use the Web to integrate their supply chains, partici-
pating suppliers can lock in customers, thereby increasing suppliers’ bargaining power.
• The bargaining power of customers (buyers): The Web provides customers with incredible
amounts of choices for products, as well as information about those choices. As a result,
the Web increases buyer power. However, companies can implement loyalty programs
in which they use the Web to monitor the activities of millions of customers. Such pro-
grams reduce buyer power.
• The threat of substitute products or services: New technologies create substitute products
very rapidly, and the Web makes information about these products available almost in-
stantly. As a result, industries (particularly information-based industries) are in great dan-
ger from substitutes (e.g., music, books, newspapers, magazines, software). However, the
Web also can enable a company to build in switching costs, so that it will cost customers
time and/or money to switch from your company to a competitor.
• The rivalry among existing fi rms in the industry: In the past, proprietary information sys-
tems provided strategic advantage for fi rms in highly competitive industries. The visibil-
ity of Internet applications on the Web makes proprietary systems more diffi cult to keep
secret. Therefore, the Web makes strategic advantage more short-lived.
5. Describe the strategies that organizations typically adopt to counter the
fi ve competitive forces and achieve competitive advantage.
The fi ve strategies are as follows:
• Cost leadership strategy—produce products and/or services at the lowest cost in the industry;
• Differentiation strategy—offer different products, services, or product features;
• Innovation strategy—introduce new products and services, put new features in existing
products and services, or develop new ways to produce them;
• Operational effectiveness strategy—improve the manner in which internal business pro-
cesses are executed so that a fi rm performs similar activities better than its rivals;
• Customer-orientation strategy—concentrate on making customers happy.
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Discussion Questions 57
6. Defi ne business–information technology alignment, and describe the
characteristics of effective alignment.
Business–IT alignment is the tight integration of the IT function with the strategy, mission,
and goals of the organization. There are six characteristics of effective alignment:
• Organizations view IT as an engine of innovation that continually transforms the business.
• Organizations view customers and customer service as supremely important.
• Organizations rotate business and IT professionals across departments and job functions.
• Organizations provide clear, overarching goals for all employees.
• Organizations ensure that IT employees understand how the company makes (or loses)
money.
• Organizations create a vibrant and inclusive company culture.
business environment The combination of social, legal, eco-
nomic, physical, and political factors in which businesses con-
duct their operations.
business–information technology alignment The tight inte-
gration of the IT function with the strategy, mission, and goals
of the organization.
business process A collection of related activities that pro-
duce a product or a service of value to the organization, its
business partners, and/or its customers.
business process management (BPM) A management tech-
nique that includes methods and tools to support the design,
analysis, implementation, management, and optimization of
business processes.
business process reengineering (BPR) A radical redesign of a
business process that improves its effi ciency and effectiveness,
often by beginning with a “clean sheet” (from scratch).
competitive advantage An advantage over competitors in
some measure such as cost, quality, or speed; leads to control
of a market and to larger-than-average profi ts.
competitive forces model A business framework devised by
Michael Porter that analyzes competitiveness by recognizing
fi ve major forces that could endanger a company’s position.
cross-functional business process A process in which no sin-
gle functional area is responsible for its completion; multiple
functional areas collaborate to perform the function.
digital divide The gap between those who have access to infor-
mation and communications technology and those who do not.
entry barrier Product or service feature that customers expect
from organizations in a certain industry; an organization
trying to enter this market must provide this product or service
at a minimum to be able to compete.
globalization The integration and interdependence of eco-
nomic, social, cultural, and ecological facets of life, enabled
by rapid advances in information technology.
individual social responsibility See organizational social
responsibility.
make-to-order The strategy of producing customized prod-
ucts and services.
mass customization A production process in which items are
produced in large quantities but are customized to fi t the de-
sires of each customer.
organizational social responsibility (also individual social
responsibility) Efforts by organizations to solve various social
problems.
primary activities Those business activities related to the pro-
duction and distribution of the fi rm’s products and services,
thus creating value.
strategic information systems (SISs) Systems that help an
organization gain a competitive advantage by supporting its
strategic goals and/or increasing performance and productivity.
support activities Business activities that do not add value
directly to a fi rm’s product or service under consideration but
support the primary activities that do add value.
value chain model Model that shows the primary activities
that sequentially add value to the profi t margin; also shows the
support activities.
value system Includes the producers, suppliers, distributors,
and buyers, all with their value chains.
[ Chapter Glossary ]
[ Discussion Questions ]
1. Consider the student registration business process at your
university:
• Describe the steps necessary for you to register for your
classes each semester.
• Describe how information technology is used in each
step of the process (or is not used).
2. Why is it so diffi cult for an organization to actually imple-
ment business process reengineering?
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58 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems
[ Problem-Solving Activities ]
1. Surf the Internet for information about the Department
of Homeland Security. Examine the available information,
and comment on the role of information technologies in
the department.
2. Experience customization by designing your own shoes
at www.nike.com, your car at www.jaguar.com, your CD
at www.easternrecording.com, your business card at www.
iprint.com, and your diamond ring at www.bluenile.com.
Summarize your experiences.
3. Access www.go4customer.com. What does this company do
and where is it located? Who are its customers? Which of
Friedman’s fl atteners does this company fi t? Provide exam-
ples of how a U.S. company would use its services.
4. Enter Walmart China (www.wal-martchina.com/english/
index.htm). How does Walmart China differ from your
local Walmart (consider products, prices, services, etc.)?
Describe these differences.
5. Apply Porter’s value chain model to Costco (www.costco.
com). What is Costco’s competitive strategy? Who are
Costco’s major competitors? Describe Costco’s business
model. Describe the tasks that Costco must accomplish
for each primary value chain activity. How would Costco’s
information systems contribute to Costco’s competitive
strategy, given the nature of its business?
6. Apply Porter’s value chain model to Dell (www.dell.com).
What is Dell’s competitive strategy? Who are Dell’s major
competitors? Describe Dell’s business model. Describe the
tasks that Dell must accomplish for each primary value chain
activity. How would Dell’s information systems contribute to
Costco’s competitive strategy, given the nature of its business?
7. The market for optical copiers is shrinking rapidly. It is ex-
pected that by 2010 as much as 90 percent of all duplicated
documents will be done on computer printers. Can a com-
pany such as Xerox Corporation survive?
a. Read about the problems and solutions of Xerox from
2000–2010 at www.fortune.com, www.fi ndarticles.com,
and www.google.com.
b. Identify all the business pressures on Xerox.
c. Find some of Xerox’s response strategies (see www.xerox.
com, www.yahoo.com, and www.google.com).
d. Identify the role of IT as a contributor to the business
technology pressures (for example, obsolescence).
e. Identify the role of IT as a facilitator of Xerox’s critical
response activities.
[ Team Assignments ]
1. (a) As a class, describe the business pressures on your uni-
versity. Each group will then create an online group for
studying one of these business pressures, and how your uni-
versity uses IT to respond to this pressure. Each member of
the group must have a Yahoo! e-mail account (free). Form
your groups in Google Groups (http://groups.google.com).
2. Divide the class into teams. Each team will select a coun-
try’s government and visit its offi cial Web site (for example,
try the United States, Australia, New Zealand, Singapore,
Norway, Canada, the United Kingdom, the Netherlands,
Denmark, Germany, and France). For example, the offi –
cial Web portal for the U.S. government is www.fi rstgov.gov.
Review and compare the services offered by each country.
How does the United States stack up? Are you surprised at
the number of services offered by countries through Web
sites? Which country offers the most services? The least?
The Problem
On December 31, 2008, two giant fi nancial institutions an-
nounced a merger, as Wells Fargo (www.wellsfargo.com) com-
pleted its $15 billion acquisition of Wachovia (www.wachovia.
com). The combined company became the second-largest
bank in the United States, with 2008 sales of $1.3 trillion,
300,000 employees, 10,400 branch and offi ce locations, and
12,300 ATMs in North America. For the merger to be suc-
cessful, the two companies had to merge their people and
technology as well as their fi nancial assets.
[ Closing Case Two Financial Giants Merge ]
3. Explain why IT is both a business pressure and an
enabler of response activities that counter business
pressures.
4. What does a fl at world mean to you in your choice of a
major? In your choice of a career? Will you have to be a
“lifelong learner”? Why or why not?
5. What might the impact of a fl at world be on your stan-
dard of living?
6. Is IT a strategic weapon or a survival tool? Discuss.
7. Why might it be diffi cult to justify a strategic information
system?
8. Describe the fi ve forces in Porter’s competitive forces model,
and explain how the Internet has affected each one.
9. Describe Porter’s value chain model. What is the relation-
ship between the competitive forces model and the value
chain model?
10. Discuss the idea that an information system by itself can
rarely provide a sustainable competitive advantage.
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Interactive Case: Supporting a Customer-Oriented Strategy at Ruby’s Club 59
In particular, from an IT perspective, the merger required
a major network integration to combine both banks’ opera-
tions. When two giant fi nancial fi rms merge, they have to
consider more than just integrating their fi nancial cultures.
They have to consider their IT cultures as well. For example,
what happens if one bank maintains a highly decentralized IT
approach in which each individual business unit has its own
IT policies, and the other bank has a centralized approach?
In addition, fi nancial institutions use IT to strategically dif-
ferentiate themselves from their competitors. As one fi nancial
consultant explained, “Banks have their brands, and those
brands are delivered by their IT structure.” Thus, Wells Fargo
and Wachovia faced the added challenge of melding their
distinctive identities into a new identity.
The Solution
The major initiative of the entire IT integration was to select
and implement the best existing application in a business area,
regardless of which bank already used that application. In this
way the newly formed bank focused on business outcomes
rather than technology. The overall goal of the transition team
was customer retention. That is, customers were to experience
no disruption in services during the merger process.
The transition team realized that they were integrating dis-
parate IT teams, in which every team member had his or her
individual preferences regarding the systems they were using.
The challenge was to get all employees to focus on the overall
goal, which was to evaluate which systems would best serve
the new bank’s customers.
The integration process was intricate because the two com-
panies were using more than 4,000 IT systems. The transition
team’s strategy was to choose one business process, select the
most appropriate application for that process, and then make
certain that all of the employees who were involved in that
process knew how to use that application. Consider the mort-
gage lending and online banking business processes.
• The Wells Fargo mortgage lending application was supe-
rior in scalability, meaning that it could accommodate the
increased processing needs generated by the merger. At the
time of the merger, Wells Fargo was struggling to fi ll the de-
mands created by the mortgage refi nancing boom. In fact,
the bank added 10,000 employees just to handle those or-
ders. The Wells Fargo application was better at handling that
demand and conducting secure transactions than was the
Wachovia application, so the transition team used the former.
• Wells Fargo’s online banking applications were also found
to be superior to Wachovia’s. Wells Fargo’s customers con-
stantly commented on how easy these applications were to
use and how intuitive the interface was.
To ensure that employees remained as productive as possi-
ble during the merger, Wells Fargo provided ongoing support
for nearly all of the 4,000 applications that the two banks used
before the merger. A group from the transition team oversaw
the transition to new, best-of-breed applications.
At Wells Fargo, the focus is on providing a level of service
that today’s customers demand. The bank, with more than
48 million customers, has made mobility a key component
of its business. For example, it now offers banking services
through mobile channels: text banking, a mobile browser, and
specialized smart phone applications. Nearly 25 percent of the
customers who bank online also use mobile banking to check
balances, make transfers, and pay bills. Further, customers who
use text banking send about two dozen messages per month.
Also, Wells Fargo is combining physical and virtual tools.
For instance, customers can have ATM receipts sent to their
e-mail addresses rather than on paper.
The Results
The bottom line? In 2010, Wells Fargo posted a second-quarter
profi t of $2.5 billion, a third-quarter profi t of $3.34 billion,
and a fourth-quarter profi t of $3.4 billion.
Questions
1. Provide two specifi c examples of why it was so important for Wells
Fargo and Wachovia to integrate their information systems to ensure
the success of the merger.
2. Provide two specifi c examples of diffi culties the companies experi-
enced in integrating their information systems.
Sources: Compiled from S. Greengard, “Mobile Means Business,” Baseline Maga-
zine, January 28, 2011; K. Nash, “2011 State of the CIO,” CIO, January 1, 2011;
D. McCafferty, “Joining Two Financial Giants,” Baseline Magazine, September 1,
2009; www.wellsfargo.com, www.wachovia.com, accessed February 15, 2011.
Supporting a Customer-Oriented Strategy at Ruby’s Club
Go to the Ruby’s Club link at the Student Companion web site or WileyPLUS for information about your current internship
assignment. Your assignment will entail outlining how Ruby’s Member’s site can best support their customer-oriented strategy
and creating a presentation for the club’s managers.
[ Interactive Case ]
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Chapter
Ethics and Privacy
3
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[ LEARNING OBJECTIVES ] [ CHAPTER OUTLINE ] [ WEB RESOURCES ]
1. Defi ne ethics, list and
describe the three fundamental
tenets of ethics, and describe
the four categories of ethical
issues related to information
technology.
2. Identify three places that store
personal data, and for each one,
discuss at least one potential
threat to the privacy of the data
stored there.
Student Companion Site
wiley.com/college/rainer
• Student PowerPoints for note taking
• Interactive Case: Ruby’s Club
Assignments
• Complete glossary
WileyPlus
All of the above and
• E-book
• Mini-lecture by author for each
chapter section
• Practice quizzes
• Flash Cards for vocabulary review
• Additional “What’s in IT for Me?”
cases
• Video interviews with managers
• Lab Manual for Microsoft Offi ce
2010
• How-to Animations for Microsoft
Offi ce 2010
3.1 Ethical Issues
3.2 Privacy
POMFIN HRMKT MISACCT
Ensure correctness of
annual reports
Adhere to regulatory
environment
Monitor labor laws
overseas
Monitor appropriate
use of IT in workplace
Monitor correct use
of sensitive company
data
Ensure privacy of
customers
What’s In
ITFor Me?
T H I S C H A P T E R W I L L H E L P P R E P A R E Y O U T O . . .
61
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62 CHAPTER 3 Ethics and Privacy
[ What to
Do About
WikiLeaks?]
The Problem (?)
O
ne of the major controversies generated by the Vietnam War occurred in 1971, when
The New York Times and other sources publicized excerpts from a secret Defense
Department study—quickly labeled The Pentagon
Papers—that detailed the history of U.S. involvement
in Southeast Asia. These documents had been copied by defense
analyst Daniel Ellsberg, one of the contributors to the study. Given
the existing technologies, Ellsberg had to photocopy thousands
of documents by hand. Today, whistleblowers—employees with
insider knowledge of an organization—can capture huge amounts
of incriminating documents on a laptop, memory stick, or por-
table hard drive. They can send the information through personal e-mail accounts or online drop
sites, or they can simply submit it directly to WikiLeaks (www.wikileaks.org).
WikiLeaks was offi cially unveiled in December 2006. Julian Assange, one of the founders,
was reportedly inspired by the leak of the Pentagon Papers. Assange intended WikiLeaks to
serve as a dropbox for anyone, anywhere, who disagreed with any organization’s activities or
secrets. According to its Web site, WikiLeaks focuses on material of ethical, political, and his-
torical signifi cance. In its fi rst year, the organization’s database expanded to 1.2 million docu-
ments. In addition, WikiLeaks receives approximately 10,000 new documents every day. Since
its inception, WikiLeaks has had signifi cant impacts on both businesses and governments. We
discuss several examples below.
In January 2008, WikiLeaks posted documents alleging that the Swiss bank Julius Baer
(www.juliusbaer.com) hid its clients’ profi ts from even the Swiss government by concealing
them in what seemed to be shell companies in the Cayman Islands. The bank fi led a lawsuit
against WikiLeaks for publishing data that it claimed had been stolen from its clients. Baer
later dropped the lawsuit—but only after generating embarrassing publicity for itself.
In October 2008, Iceland’s Kaupthing Bank collapsed, saddling the country with $128 billion
in debts. Ten months later, Bogi Agustsson, the anchor for Icelandic national broadcaster RUV,
appeared on the evening news and explained that a legal injunction had prevented the station
from airing an exposé on the bank. Viewers who wanted to see the material, he suggested,
should visit WikiLeaks. People who took Agustsson’s advice found a summary of Kaupthing’s
loans posted on the Web site, detailing more than $6 billion funneled from the bank to its owners
and companies they owned, often with little or no collateral. WikiLeaks promptly became a
household name in Iceland.
The following year, WikiLeaks published documents from a pharmaceutical trade group
implying that its lobbyists were receiving confi dential documents from, and exerting infl uence
over, a World Health Organization (WHO) project to fund drug research in the developing
world. The resulting attention helped to terminate the project.
In September 2009, commodities company Trafi gura (www.trafi gura.com) requested an
injunction from the courts preventing the British media from mentioning a damaging internal
report. The report indicated that the company had dumped tons of toxic waste in the Ivory
Coast that sickened 100,000 local inhabitants. Although Trafi gura could prevent the offi cial
media from reporting this story, it could not stop WikiLeaks from publishing the information.
The public became aware of the transgression, and Trafi gura eventually had to pay out more
than $200 million in settlements.
As consequential as these business leaks were, probably the most controversial WikiLeaks
exposé involved the U.S. government. From November 2009 to April 2010, U.S. Army Private
First Class Bradley Manning downloaded hundreds of thousands of diplomatic cables to a CD at
an outpost in Iraq. He then passed the information to WikiLeaks. In doing so, Manning violated
18 U.S. Code Section 1030(a)(1), which criminalizes unauthorized computer downloads. Begin-
ning on November 28, 2010, WikiLeaks published the contents of more than 250,000 diplomatic
cables, the largest unauthorized release of contemporary classifi ed information in history. Among
these cables were 11,000 documents marked “secret.” The U.S. government’s defi nition of a
secret document is one that, if released, would cause “serious damage to national security.”
FSTOP/Image Source
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CASE 63
Diplomatic fl aps quickly ensued. For example, North Korean leader Kim Jong Il learned
that China would consider supporting the unifi cation of the peninsula under the leadership of
the South Korean government. Similarly, Iranian President Mahmoud Ahmadinejad discov-
ered that his Arab neighbors were pleading with the United States to launch an attack against
Tehran’s nuclear program.
Not surprisingly, the release of the cables also had wide-ranging repercussions within the
United States. The government ordered a clampdown on intelligence sharing between agen-
cies, and it established new measures to control electronically stored documents. U.S. Secre-
tary of State Hilary Clinton charged that the massive cable leak “puts people’s lives in danger,
threatens national security, and undermines our efforts to work with other countries to solve
shared problems.” From the opposite perspective, many individuals and groups, including
Daniel Ellsberg, supported WikiLeaks’ actions.
The problem, then, boils down to this: How can governments, organizations, and even indi-
viduals prevent future disclosures? Is it possible to accomplish this task, given that the sources
of WikiLeaks’ information appear to be internal?
The Solution (?)
In the initial moments after the State Department cables were released, unknown hackers
tried to shut down WikiLeaks by exposing its Web site to denial-of-service attacks (discussed in
Chapter 4). It is unclear whether the hackers were working on behalf of the U.S. government,
but they seemed to endorse the government’s claims that the disclosures threatened national
security.
WikiLeaks’ supporters retaliated with anonymous hacktivism, attacking the Web sites of
companies such as Amazon, which had thrown WikiLeaks off its servers, and MasterCard and
PayPal, which had frozen the organization’s accounts and prevented its supporters from donat-
ing to the cause.
Ultimately, all attempts to stifl e WikiLeaks have proved futile. When the organization is
blocked from one host server, it simply jumps to another. Further, the number of mirror Web
sites—essentially clones of WikiLeaks’ main content pages—had mushroomed to 1,300 by the
end of 2010.
Prior to 9/11, the U.S. State Department had operated its own internal cable system and
encrypted documents to ensure security. After the attacks, the State Department system was
merged into a new digital records system controlled by the Department of Defense. Since the
WikiLeaks disclosures, the State Department has temporarily severed its connection to the new
system while it takes steps to prevent future unauthorized downloads.
In other attempts at thwarting WikiLeaks, governments and companies have turned to cyber
security. Since 2007, every major security software vendor (for example, McAfee, www.mcafee.
com, Symantec, www.symantec.com, and Trend Micro, www.trendmicro.com) has spent hun-
dreds of millions of dollars to acquire companies in the data leak prevention (DLP) industry.
These companies produce software that locates and tags sensitive information and then guards
against its being stolen or illegally duplicated. Unfortunately, to date, DLP software has not been
effective.
The failure of DLP software has prompted organizations to turn to network forensics, which
is the process of constantly collecting every digital “fi ngerprint” on an organization’s servers to
trace and identify an intruder who has broken into the system. Although this software gathers
data and makes them easily available, it does not identify the culprit.
The Results
How can organizations and governments respond to WikiLeaks? Lawsuits will not work,
because WikiLeaks, as a mere conduit for documents, is legally protected in the United States.
Moreover, even if a company or a government somehow won a judgment against WikiLeaks,
that would not shut down the company, because its assets are spread all over the world.
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64 CHAPTER 3 Ethics and Privacy
In fact, WikiLeaks has a nation-size ally—Iceland. Since WikiLeaks discovered the corrupt
loans that helped destroy Iceland’s biggest bank, the country has set out to become the conduit
for a global fl ood of leaks. Birgitta Jonsdottir, a member of Iceland’s parliament, created the
Icelandic Modern Media Initiative (IMMI). This initiative seeks to bring to Iceland all the laws
that support protecting anonymous sources, freedom of information, and transparency from
around the world. It would then set up a Nobel-style international award for activities support-
ing free expression. IMMI also would make Iceland the world’s most friendly legal base for
whistleblowers. As of May 2011, IMMI had yet to become law.
Should WikiLeaks falter, other Web sites around the world are ready to take its place. For
example, Greenleaks (www.greenleaks.org) is a Web site for whistleblowers on environmental
issues. OpenLeaks (www.openleaks.org) is a Web site that will not openly publish information
sent to it, but will give it to reporters and human rights organizations to disseminate. Perhaps
the most controversial site is Anonymous, the hacker collective.
What is the best protection against unauthorized leaks? Icelandic WikiLeaks staffer Kristinn
Hrafnsson suggested, rather drily, that companies—and perhaps governments to some extent—
reform their practices to avoid being targeted.
What We Learned from This Case
The WikiLeaks case addresses the two major issues you will study in this chapter: ethics and
privacy. Both issues are closely related to IT and raise signifi cant questions. For example, are
WikiLeaks’ actions ethical? Does WikiLeaks violate the privacy of governments, organizations,
and individuals? The answers to these questions are not straightforward. In fact, IT has made
fi nding answers to these questions even more diffi cult.
You will encounter numerous ethical and privacy issues in your career, many of which will
involve IT in some manner. This chapter will give you insights into how to respond to these
issues. Further, it will help you to make immediate contributions to your company’s code of
ethics and its privacy policies. You will also be able to provide meaningful input concerning
the potential ethical and privacy impacts of your organization’s information systems on people
within and outside the organization.
For example, suppose your organization decides to adopt Web 2.0 technologies (which you
will see in Chapter 9) to include business partners and customers in new product develop-
ment. You will be able to analyze the potential privacy and ethical implications of implement-
ing these technologies.
All organizations, large and small, must be concerned with ethics. IT’s About [Small] Business 3.1
illustrates an ethical problem in a small bank.
Small business owners face a very diffi cult situation when their employees have access to
sensitive customer information. There is a delicate balance between access to information and
its appropriate use and the temptation for workers to be nosey and curious about what they can
fi nd. This balance is best maintained by hiring honest and trustworthy employees who abide
by the organization’s code of ethics. Ultimately this leads to another question: Does the small
business even have a code of ethics to fall back on in this type of situation?
Sources: Compiled from R. Somaiya, “Former WikiLeaks Colleagues Forming New Web Site, OpenLeaks,” The New York
Times, February 6, 2011; A. Greenberg, “WikiLeaks’ StepChildren,” Forbes, January 17, 2011; M. Calabresi, “Winning the
Info War,” Time, December 20, 2010; A. Greenberg, “WikiLeaks’ Julian Assange,” Forbes, December 20, 2010; J. Dougherty
and E. Labott, “The Sweep: WikiLeaks Stirs Anarchy Online,” CNN.com, December 15, 2010; E. Robinson, “In WikiLeaks
Aftermath, An Assault on Free Speech,” The Washington Post, December 14, 2010; M. Calabresi, “The War on Secrecy,”
Time, December 13, 2010; I. Shapira and J. Warrick, “WikiLeaks’ Advocates Are Wreaking ‘Hacktivism’,” The Washington
Post, December 12, 2010; F. Rashid, “WikiLeaks, Anonymous Force Change to Federal Government’s Security Approach,”
eWeek, December 12, 2010; E. Mills, “Report: Ex-WikiLeakers to Launch New OpenLeaks Site,” CNET.com, December 10, 2010;
G. Keizer, “Pro-WikiLeaks Cyber Army Gains Strength; Thousands Join DDos Attacks,” Computerworld, December 9, 2010;
J. Warrick and R. Pegoraro, “WikiLeaks Avoids Shutdown as Supporters Worldwide Go on the Offensive,” The Washington Post,
December 8, 2010; F. Rashid, “PayPal, PostFinance Hit by DoS Attacks, Counter-Attack in Progress,” eWeek, December 6,
2010; “Holder: ‘Signifi cant’ Actions Taken in WikiLeaks Investigation,” CNN.com, December 6, 2010; “WikiLeaks Back Online
After Being Dropped by U.S. Domain Name Provider,” CNN.com, December 3, 2010; “WikiLeaks Reports Another Electronic
Disruption,” CNN.com, November 30, 2010; “Feds Open Criminal Investigation into WikiLeaks Disclosures,” CNN.com,
November 29, 2010; L. Fadel, “Army Intelligence Analyst Charged in WikiLeaks Case,” The Washington Post, July 7, 2010;
www.wikileaks.org, accessed February 11, 2011; G. Goodale, “WikiLeaks Q&A with Daniel Ellsberg, the Man Behind the Pentagon
Papers,” The Christian Science Monitor, July 29, 2010, accessed May 12, 2011.
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SECTION 3.1 Ethical Issues 65
3.1 Ethical Issues
Ethics refers to the principles of right and wrong that individuals use to make choices that
guide their behavior. Deciding what is right or wrong is not always easy or clear cut. Fortu-
nately, there are many frameworks that can help us make ethical decisions.
Ethical Frameworks
There are many sources for ethical standards. Here we consider four widely used standards:
the utilitarian approach, the rights approach, the fairness approach, and the common good
approach. There are many other sources, but these four are representative.
The utilitarian approach states that an ethical action is the one that provides the most good
or does the least harm. The ethical corporate action would be the one that produces the great-
est good and does the least harm for all affected parties—customers, employees, shareholders,
the community, and the environment.
The rights approach maintains that an ethical action is the one that best protects and
respects the moral rights of the affected parties. Moral rights can include the rights to make
one’s own choices about what kind of life to lead, to be told the truth, not to be injured, and
to a degree of privacy. Which of these rights people are actually entitled to—and under what
circumstances—is widely debated. Nevertheless, most people acknowledge that individuals are
entitled to some moral rights. An ethical organizational action would be one that protects and
respects the moral rights of customers, employees, shareholders, business partners, and even
competitors.
The fairness approach posits that ethical actions treat all human beings equally, or, if un-
equally, then fairly, based on some defensible standard. For example, most people might
ShaNiqua had worked at MidTown bank for 10 years.
She recently overheard a conversation between two
employees regarding a customer’s account. She
asked a co-worker what she should do about it
because she felt this conversation was not appropriate.
The advice she received? Leave it alone because bank manag-
ers are trying to deal with the situation. ShaNiqua is afraid that if
she tells what she knows she could get in trouble. On the other
hand, she is afraid that if she does not tell, those employees could
be talking about her account next!
In ShaNiqua’s small town, everyone knows everyone else. This
situation becomes a problem when curious bank tellers begin
“snooping” into personal bank accounts. While there has never
been any report of theft by employees or complaints fi led by cus-
tomers, there have been numerous rumors of employees talking
to their friends and family about various bank accounts, spending
habits, and recent purchases. Adding to this problem, the number
of new accounts the bank has opened in the past fi ve years has
steadily declined, while their competition has grown.
Possible solutions to the problem include restricting access
to bank accounts, or hiring auditors to reconcile any unnecessary
account access and monitor all employee activity. Any decision
is likely to have unanticipated results due to the delicate bal-
ance of providing access to information to enable employees to
perform their jobs and restricting access for security purposes.
Ultimately, the best solutions may simply be (1) to educate em-
ployees of the legal implications of misusing customer informa-
tion and (2) to create very strong policies to guard against this
type of activity.
At the time of this writing, the bank has yet to determine the
direction it will take. This is a totally new situation for them, and
they are having diffi culty determining how to handle it. However,
the nature of their predicament provides much that we can learn.
Questions
1. Was the advice that ShaNiqua initially received good or bad?
Support your answer.
2. You are the manager of the bank. What would you do in this
case? Be specifi c.
Source: Compiled from personal interviews with the author. Names have
been changed at the request of the interviewees.
3.1 MidTown Bank
IT’s about [small] business
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66 CHAPTER 3 Ethics and Privacy
believe it is fair to pay people higher salaries if they work harder or if they contribute a greater
amount to the fi rm. However, there is less certainty regarding CEO salaries that are hundreds
or thousands of times larger than those of other employees. Many people question whether this
huge disparity is based on a defensible standard or is the result of an imbalance of power and
hence is unfair.
Finally, the common good approach highlights the interlocking relationships that underlie
all societies. This approach argues that respect and compassion for all others is the basis for
ethical actions. It emphasizes the common conditions that are important to the welfare of
everyone. These conditions can include a system of laws, effective police and fi re departments,
health care, a public educational system, and even public recreation areas.
If we combine these four standards, we can develop a general framework for ethics (or ethical
decision making). This framework consists of fi ve steps.
• Recognize an ethical issue
° Could this decision or situation damage someone or some group?
° Does this decision involve a choice between a good and a bad alternative?
° Is this issue about more than what is legal? If so, how?
• Get the facts
° What are the relevant facts of the situation?
° Do I know enough to make a decision?
° Which individuals and/or groups have an important stake in the outcome?
° Have I consulted all relevant persons and groups?
• Evaluate alternative actions
° Which option will produce the most good and do the least harm? (the utilitarian
approach)
° Which option best respects the rights of all stakeholders? (the rights approach)
° Which option treats people equally or proportionately? (the fairness approach)
° Which option best serves the community as a whole, and not just some members? (the
common good approach)
• Make a decision and test it
° Considering all the approaches, which option best addresses the situation?
• Act and refl ect on the outcome of your decision
° How can I implement my decision with the greatest care and attention to the concerns
of all stakeholders?
° How did my decision turn out, and what did I learn from this specifi c situation?
Now that we have created a general ethical framework, we will focus specifi cally on ethics in
a corporate environment.
Ethics in the Corporate Environment
Many companies and professional organizations develop their own codes of ethics. A code
of ethics is a collection of principles intended to guide decision making by members of the
organization. For example, the Association for Computing Machinery (www.acm.org), an orga-
nization of computing professionals, has a thoughtful code of ethics for its members (see www.
acm.org/constitution/code.html).
Keep in mind that different codes of ethics are not always consistent with one another.
Therefore, an individual might be expected to conform to multiple codes. For example, a
person who is a member of two large professional computing-related organizations may be
simultaneously required by one organization to comply with all applicable laws and by the
other organization to refuse to obey unjust laws.
Fundamental tenets of ethics include responsibility, accountability, and liability. Responsi-
bility means that you accept the consequences of your decisions and actions. Accountability
refers to determining who is responsible for actions that were taken. Liability is a legal concept
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SECTION 3.1 Ethical Issues 67
that gives individuals the right to recover the damages done to them by other individuals, orga-
nizations, or systems.
Before you go any further, it is very important that you realize that what is unethical is
not necessarily illegal. For example, a bank’s decision to foreclose on a home can be techni-
cally legal, but it can raise many ethical questions. In many instances, then, an individual or
organization faced with an ethical decision is not considering whether to break the law. As the
foreclosure example illustrates, however, ethical decisions can have serious consequences for
individuals, organizations, and society at large.
In recent years we have witnessed a large number of extremely poor ethical decisions, not
to mention outright criminal behavior. During 2001 and 2002, three highly publicized fi ascos
occurred at Enron, WorldCom, and Tyco. At each company, executives were convicted of vari-
ous types of fraud for using illegal accounting practices. These actions led to the passage of the
Sarbanes-Oxley Act in 2002. Sarbanes-Oxley requires publicly held companies to implement
fi nancial controls and company executives to personally certify fi nancial reports.
More recently, the subprime mortgage crisis exposed unethical lending practices through-
out the mortgage industry. The crisis also highlighted pervasive weaknesses in the regulation of
the U.S. fi nancial industry as well as the global fi nancial system. It ultimately contributed to a
deep recession in the global economy.
Improvements in information technologies have generated a new set of ethical problems.
Computing processing power doubles about every two years, meaning that organizations are
more dependent than ever on their information systems. Organizations can store increasing
amounts of data at decreasing cost, enabling them to store more data on individuals for longer
periods of time. Computer networks, particularly the Internet, enable organizations to collect,
integrate, and distribute enormous amounts of information on individuals, groups, and institu-
tions. As a result, ethical problems are arising concerning the appropriate collection and use
of customer information, personal privacy, and the protection of intellectual property, as IT’s
About Business 3.2 illustrates.
Ethics and Information Technology
All employees have a responsibility to encourage ethical uses of information and information
technology. Many of the business decisions you will face at work will have an ethical dimen-
sion. Consider the following decisions that you might have to make:
• Should organizations monitor employees’ Web surfi ng and e-mail?
• Should organizations sell customer information to other companies?
• Should organizations audit employees’ computers for unauthorized software or illegally
downloaded music or video fi les?
The diversity and ever-expanding use of IT applications have created a variety of ethi-
cal issues. These issues fall into four general categories: privacy, accuracy, property, and
accessibility.
1. Privacy issues involve collecting, storing, and disseminating information about individuals.
2. Accuracy issues involve the authenticity, fi delity, and accuracy of information that is col-
lected and processed.
3. Property issues involve the ownership and value of information.
4. Accessibility issues revolve around who should have access to information and whether a fee
should be paid for this access.
Table 3.1 lists representative questions and issues for each of these categories. In addition,
Online Ethics Cases presents 14 ethics scenarios for you to consider. These scenarios will pro-
vide a context for you to consider situations that involve ethical or unethical behavior.
Many of the issues and scenarios discussed in this chapter, such as photo tagging and geo-
tagging, involve privacy as well as ethics. In the next section, you will learn about privacy issues
in more detail.
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68 CHAPTER 3 Ethics and Privacy
People today live with a degree of surveillance that would have
been unimaginable just a few generations ago. For example, sur-
veillance cameras track you at airports, subways, banks, and other
public venues. In addition, inexpensive digital sensors are now
everywhere. They are incorporated into laptop webcams, video-
game motion sensors, smartphone cameras, utility meters, pass-
ports, and employee ID cards. Step out your front door and you
could be captured in a high-resolution photograph taken from the
air or from the street by Google or Microsoft, as they update their
mapping services. Drive down a city street, cross a toll bridge, or
park at a shopping mall, and your license plate will be recorded
and time-stamped.
Several developments are helping to increase the monitoring
of human activity, including low-cost digital cameras, motion sen-
sors, and biometric readers. In addition, the cost of storing digital
data is decreasing. The result is an explosion of sensor data col-
lection and storage.
In addition, technology to analyze the increasing amounts
of digital sensor data is becoming more effi cient as well as less
expensive. For instance, Affectiva (www.affectiva.com) recently
introduced biometric wristbands that monitor tiny changes in
sweat-gland activity to gauge emotional reactions. Marketing con-
sultants are using the bands to discover what pleases or frustrates
shoppers.
At a recent International Consumer Electronics Show, Intel and
Microsoft introduced an in-store digital billboard that can memo-
rize your face. These billboards can keep track of the products you
are interested in based on purchases or your browsing behavior.
One marketing analyst has predicted that your experience in every
store will soon be customized.
Clearly, privacy concerns must be addressed, particularly with
the capacity of databases to share data and therefore to put to-
gether the pieces of a puzzle that can identify us in surprising ways.
For example, attorneys have begun to use bridge toll records to
establish travel patterns of spouses in divorce proceedings. Police
looking to issue traffi c citations now correlate photos, taken by
cameras located at intersections, with vehicle ownership records.
One of the most troubling privacy problems involves a practice
advocated by Google and Facebook. These companies are using
facial-recognition software—Google Picasa and Facebook Photo
Albums—in their popular online photo-editing and sharing services.
Both companies encourage users to assign names to people in
photos, a practice referred to as photo tagging. Facial-recognition
software then indexes facial features. Once an individual in a photo
is tagged, the software looks for similar facial features in untagged
photos. This process allows the user to quickly group photos in
which the tagged person appears. Signifi cantly, the individual is
not aware of this process.
Once you are tagged in a photo, that photo could be used to
search for matches across the entire Internet or in private databases,
including databases fed by surveillance cameras. The technology
could be used by a car dealer who takes a picture of you when you
step on the car lot. The dealer could then quickly profi le you on the
Web to gain an edge in making a sale. Even worse, a stranger in a
restaurant could photograph you with a smartphone, and then go
online to profi le you. One privacy attorney says that losing the right
to anonymity would have a chilling effect on where you go, whom
you meet, and how you live your life.
Another problem arises with smartphones equipped with
global positioning system (GPS) sensors. These sensors routinely
geotag photos and videos, embedding images with the longitude
and latitude of the location shown in the image. You could be in-
advertently supplying criminals with useful intelligence by posting
personal images on social networks or photo-sharing Web sites.
These actions would show the criminals exactly where you live.
Questions
1. Apply the general framework for ethical decision making to the
practices of photo tagging and geotagging.
2. Discuss and provide examples of the benefi ts and the draw-
backs of photo tagging and geotagging.
3. Are users responsible for their loss of privacy if they do not
know that their photos can be tagged and that they can be
located with GPS sensors?
Sources: Compiled from Autopia Blog, “Cellphone Networks and the Future
of Traffi c,” Wired, March 2, 2011; “Hello, Big Brother: Digital Sensors Are
Watching Us,” USA Today, January 26, 2011; B. Acohido, “Helpful Digital
Sensors,” USA Today, January 25, 2011; D. Priest and W. Arkin, “Top Secret
America,” The Washington Post, December 20, 2010; P. Elmer-DeWitt, “How
the iPhone Spills Your Secrets,” Fortune, December 18, 2010; T. Carmody,
“The Internet of Cars: New R&D For Mobile Traffi c Sensors,” Wired, Sep-
tember 29, 2010; T. Harbert, “Beeps, Blips, and IT: Making Sense of Sensor
Data,” Computerworld, June 24, 2008; www.eff.org, accessed March 17,
2011.
3.2 Big Brother Is Watching You
IT’s [about business]
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SECTION 3.2 Privacy 69
A Framework for Ethical Issues
Privacy Issues
What information about oneself should an individual be required to reveal to others?
What kind of surveillance can an employer use on its employees?
What types of personal information can people keep to themselves and not be forced to
reveal to others?
What information about individuals should be kept in databases, and how secure is the
information there?
Accuracy Issues
Who is responsible for the authenticity, fi delity, and accuracy of the information collected?
How can we ensure that the information will be processed properly and presented
accurately to users?
How can we ensure that errors in databases, data transmissions, and data processing are
accidental and not intentional?
Who is to be held accountable for errors in information, and how should the injured
parties be compensated?
Property Issues
Who owns the information?
What are the just and fair prices for its exchange?
How should we handle software piracy (copying copyrighted software)?
Under what circumstances can one use proprietary databases?
Can corporate computers be used for private purposes?
How should experts who contribute their knowledge to create expert systems be
compensated?
How should access to information channels be allocated?
Accessibility Issues
Who is allowed to access information?
How much should companies charge for permitting access to information?
How can access to computers be provided for employees with disabilities?
Who will be provided with equipment needed for accessing information?
What information does a person or an organization have a right to obtain, under what
conditions, and with what safeguards?
Table
3.1
3.2 Privacy
In general, privacy is the right to be left alone and to be free of unreasonable personal intru-
sions. Information privacy is the right to determine when, and to what extent, information
about you can be gathered and/or communicated to others. Privacy rights apply to individuals,
groups, and institutions.
The defi nition of privacy can be interpreted quite broadly. However, court decisions in
many countries have followed two rules fairly closely:
1. The right of privacy is not absolute. Privacy must be balanced against the needs of society.
2. The public’s right to know supersedes the individual’s right of privacy.
These two rules illustrate why determining and enforcing privacy regulations can be diffi cult.
The right to privacy is recognized today in all U.S. states and by the federal government, either
by statute or in common law.
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70 CHAPTER 3 Ethics and Privacy
Rapid advances in information technologies have made it much easier to collect, store, and
integrate data on individuals in large databases. On an average day, data about you are gener-
ated in many ways: surveillance cameras on toll roads, in public places, and at work; credit card
transactions; telephone calls (landline and cellular); banking transactions; queries to search
engines; and government records (including police records). These data can be integrated to
produce a digital dossier, which is an electronic profi le of you and your habits. The process of
forming a digital dossier is called profi ling.
Data aggregators, such as LexisNexis (www.lexisnexis.com), ChoicePoint (www.choicepoint.
com), and Acxiom (www.acxiom.com), are good examples of profi ling. These companies col-
lect public data such as real estate records and published telephone numbers, in addition to
nonpublic information such as Social Security numbers; fi nancial data; and police, criminal,
and motor vehicle records. They then integrate these data to form digital dossiers on most
adults in the United States. They ultimately sell these dossiers to law enforcement agencies
and companies that conduct background checks on potential employees. They also sell them
to companies that want to know their customers better, a process called customer intimacy.
However, data on individuals can be used in more controversial manners. For example, a
controversial new map in California identifi es the addresses of donors who supported Proposi-
tion 8, the referendum that outlawed same-sex marriage in California (see www.eightmaps.
com). Gay activists created the map by combining Google’s satellite mapping technology with
publicly available campaign records that listed Proposition 8 donors who contributed $100
or more. These donors are outraged, claiming that the map invades their privacy and could
expose them to retribution.
Electronic Surveillance
According to the American Civil Liberties Union (ACLU), tracking people’s activities with
the aid of computers has become a major privacy-related problem. The ACLU notes that this
monitoring, or electronic surveillance, is rapidly increasing, particularly with the emergence
of new technologies. Electronic surveillance is conducted by employers, the government, and
other institutions.
In general, employees have very limited legal protection against surveillance by employers.
The law supports the right of employers to read their employees’ e-mail and other electronic
documents and to monitor their employees’ Internet use. Today, more than three-fourths of
organizations are monitoring employees’ Internet usage. In addition, two-thirds use software to
block connections to inappropriate Web sites, a practice called URL fi ltering. Further, organiza-
tions are installing monitoring and fi ltering software to enhance security by stopping malicious
software and to increase productivity by discouraging employees from wasting time.
In one organization, the chief information offi cer (CIO) monitored about 13,000 employ-
ees for three months to determine the type of traffi c they engaged in on the network. He then
forwarded the data to the chief executive offi cer (CEO) and the heads of the human resources
and legal departments. These executives were shocked at the questionable Web sites the em-
ployees were visiting, as well as the amount of time they were spending on those sites. The
executives quickly made the decision to implement a URL fi ltering product.
Surveillance is also a concern for private individuals regardless of whether it is conducted
by corporations, government bodies, or criminals. As a nation the United States is still strug-
gling to defi ne the appropriate balance between personal privacy and electronic surveillance,
especially when threats to national security are involved.
Personal Information in Databases
Modern institutions store information about individuals in many databases. Perhaps the most vis-
ible locations of such records are credit-reporting agencies. Other institutions that store personal
information include banks and fi nancial institutions; cable TV, telephone, and utilities compa-
nies; employers; mortgage companies; hospitals; schools and universities; retail establishments;
government agencies (Internal Revenue Service, your state, your municipality); and many others.
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SECTION 3.2 Privacy 71
There are several concerns about the information you provide to these record keepers.
Some of the major concerns are:
• Do you know where the records are?
• Are the records accurate?
• Can you change inaccurate data?
• How long will it take to make a change?
• Under what circumstances will personal data be released?
• How are the data used?
• To whom are the data given or sold?
• How secure are the data against access by unauthorized people?
Information on Internet Bulletin Boards, Newsgroups,
and Social Networking Sites
Every day you see more and more electronic bulletin boards, newsgroups, electronic discussions
such as chat rooms, and social networking sites (discussed in Chapter 9). These sites appear
on the Internet, within corporate intranets, and on blogs. A blog, short for “Weblog,” is an
informal, personal journal that is frequently updated and intended for general public reading.
How does society keep owners of bulletin boards from disseminating information that may be
offensive to readers or simply untrue? This is a diffi cult problem because it involves the con-
fl ict between freedom of speech on the one hand and privacy on the other. This confl ict is a
fundamental and continuing ethical issue in U.S. society.
There is no better illustration of the confl ict between free speech and privacy than the
Internet. Many Web sites contain anonymous, derogatory information on individuals, who typ-
ically have little recourse in the matter. Approximately one-half of U.S. fi rms use the Internet
in examining job applications, including searching on Google and on social networking sites.
Consequently, derogatory information that can be found on the Internet can harm a person’s
chances of being hired. This problem has become so serious that a company called Reputation
Defender (www.reputationdefender.com) will search for damaging content online and destroy it
on behalf of clients.
Social networking sites also can present serious privacy concerns. IT’s About Business 3.3
takes a look at Facebook’s problems with its privacy policies.
Privacy Codes and Policies
Privacy policies or privacy codes are an organization’s guidelines for protecting the privacy of
its customers, clients, and employees. In many corporations, senior management has begun to
understand that when they collect vast amounts of personal information, they must protect it.
In addition, many organizations give their customers some voice in how their information is
used by providing them with opt-out choices. The opt-out model of informed consent permits
the company to collect personal information until the customer specifi cally requests that the
data not be collected. Privacy advocates prefer the opt-in model of informed consent, which
prohibits an organization from collecting any personal information unless the customer spe-
cifi cally authorizes it.
One privacy tool currently available to consumers is the Platform for Privacy Preferences (P3P),
a protocol that automatically communicates privacy policies between an electronic commerce
Web site and visitors to that site. P3P enables visitors to determine the types of personal data that
can be extracted by the Web sites they visit. It also allows visitors to compare a Web site’s privacy
policy to the visitors’ preferences or to other standards, such as the Federal Trade Commission’s
(FTC) Fair Information Practices Standard or the European Directive on Data Protection.
Table 3.2 provides a sampling of privacy policy guidelines. In Table 3.2 the last section, “Data
Confi dentiality,” refers to security, as you will see in Chapter 4. All the good privacy intentions in
the world are useless unless they are supported and enforced by effective security measures.
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72 CHAPTER 3 Ethics and Privacy
International Aspects of Privacy
As the number of online users has increased globally, governments throughout the world have
enacted a large number of inconsistent privacy and security laws. This highly complex global
legal framework is creating regulatory problems for companies. Approximately 50 countries
have some form of data-protection laws. Many of these laws confl ict with those of other coun-
tries, or they require specifi c security measures. Other countries have no privacy laws at all.
The absence of consistent or uniform standards for privacy and security obstructs the
fl ow of information among countries, which is called transborder data fl ows. The European
Union (EU), for one, has taken steps to overcome this problem. In 1998 the European
Community Commission (ECC) issued guidelines to all its member countries regarding the
In December 2009, Facebook adopted a new privacy policy that
declared certain information, including lists of friends, to be pub-
licly available, with no privacy settings. Previously, Facebook
users could restrict access to this information. As a result of this
change, users who had set their list of friends as private were
forced to make the list public without even being informed. Fur-
ther, the option to make the list private again was removed. For
example, a user whose Family and Relationships information was
set to be viewable by Friends Only would default to being viewable
by Everyone (publicly viewable). Therefore, information such as
the gender of your partner, relationship status, and family relations
became viewable even to people who did not have a Facebook
account. Facebook CEO Mark Zuckerberg justifi ed this policy by
asserting that privacy is no longer a social norm.
To compound this issue, the new Facebook policy can also ex-
pose endorsements of various organizations and groups that you
make when you click the “Like” button. In addition, Facebook’s
“Instant Personalization” shares some of your data, without your
advance permission, with other Web sites.
The results of the privacy fi asco? The Facebook privacy policy
was protested by many people as well as privacy organizations
such as the Electronic Frontier Foundation (www.eff.org). In fact,
Iranian dissidents began deleting their Facebook accounts so that
the government could not track their contacts.
In another instance, four college students decided to build
a social network that would not force people to surrender their
privacy. They used an online Web site called Kickstarter (www.
kickstarter.com), which helps creative people fi nd support,
to raise $10,000. When they introduced their software, called
Diaspora (www.diaspora.com), in May 2010, they made the
source code openly available. Users can employ this software
to set up personal servers, create their own information hubs,
and control the information they share. The Diaspora “crew” at-
tracted more than 2,000 followers of “joindiaspora” on Twitter in
just a few weeks.
Facebook responded by rolling back requirements that some
content be public, such as promotional pages that users respond
to, or “Like,” in Facebook “language.” Facebook is also providing
a virtual one-click “off switch” that lets users block all access to
their information from third-party applications and Web sites. Fur-
ther, instead of being forced to make public every status update
and photo for “friends” or other individuals, users can put informa-
tion such as employment history and vacation videos into buckets
designated either for friends, friends of friends, or everyone on the
Internet.
In February 2011, Facebook revealed a new draft of its privacy
policy. The revised policy does not modify the social network’s
data-handling practices; rather, it organizes its content around more
practical headings such as “your information and how it is used”
and “how advertising works.” Facebook maintains that the new
policy is much more of a user guide to managing personal data.
Questions
1. Why did Facebook change its privacy policies in December
2009?
2. Make the argument in support of the privacy policy changes
that Facebook instituted in December 2009.
3. Make the argument against the privacy policy changes that
Facebook instituted in December 2009.
4. Discuss the trade-offs between conveniently sharing informa-
tion and protecting privacy.
Sources: Compiled from J. Angwin and G. Fowler, “Microsoft, Facebook
Offer New Approaches to Boost Web Privacy,” The Wall Street Journal,
February 26–27, 2011; C. Kang, “Facebook CEO Announces Revamped
Privacy Settings,” The Washington Post, May 27, 2010; M. Wagner, “Who
Trusts Facebook Now?” Computerworld Blogs, May 27, 2010; J. Perez,
“Facebook Earns Praise for Privacy Changes,” Computerworld, May 26,
2010; S. Gaudin, “Amid Backlash, Facebook Unveils Simpler Privacy Con-
trols,” Computerworld, May 26, 2010; S. Gaudin, “Facebook CEO Says
Mistakes Made, Privacy Changes Coming,” Computerworld, May 24,
2010; R. Pegoraro, “Facebook Meets the ‘Unlike’ Button,” Washington
Post, May 17, 2010; J. Sutter, “Some Quitting Facebook As Privacy Con-
cerns Escalate,” CNN.com, May 13, 2010; J. Dwyer, “Four Nerds and a
Cry to Arms Against Facebook,” The New York Times, May 11, 2010;
B. Johnson, “Privacy No Longer a Social Norm, Says Facebook Founder,”
The Guardian, January 11, 2010.
3.3 Your Privacy on Facebook
IT’s [about business]
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SECTION 3.2 Privacy 73
rights of individuals to access information about themselves. The EU data-protection laws
are stricter than U.S. laws and therefore could create problems for multinational corpora-
tions, which could face lawsuits for privacy violation.
The transfer of data into and out of a nation without the knowledge of either the authori-
ties or the individuals involved raises a number of privacy issues. Whose laws have jurisdiction
when records are stored in a different country for reprocessing or retransmission purposes?
For example, if data are transmitted by a Polish company through a U.S. satellite to a British
corporation, which country’s privacy laws control the data, and when? Questions like these will
become more complicated and frequent as time goes on. Governments must make an effort to
develop laws and standards to cope with rapidly changing information technologies in order to
solve some of these privacy issues.
The United States and the EU share the goal of privacy protection for their citizens, but
the United States takes a different approach. To bridge the different privacy approaches, the
United States Department of Commerce, in consultation with the EU, developed a “safe har-
bor” framework to regulate the way that U.S. companies export and handle the personal data
(such as names and addresses) of European citizens. See www.export.gov/safeharbor and http://
ec.europa.eu/justice_home/fsj/privacy/index_en.htm.
Privacy Policy Guidelines: A Sampler
Data Collection
Data should be collected on individuals only for the purpose of accomplishing a
legitimate business objective.
Data should be adequate, relevant, and not excessive in relation to the business objective.
Individuals must give their consent before data pertaining to them can be gathered.
Such consent may be implied from the individual’s actions (e.g., applications for credit,
insurance, or employment).
Data Accuracy
Sensitive data gathered on individuals should be verifi ed before they are entered into the
database.
Data should be kept current, where and when necessary.
The fi le should be made available so that the individual can ensure that the data are correct.
In any disagreement about the accuracy of the data, the individual’s version should be noted
and included with any disclosure of the fi le.
Data Confi dentiality
Computer security procedures should be implemented to ensure against unauthorized
disclosure of data. These procedures should include physical, technical, and
administrative security measures.
Third parties should not be given access to data without the individual’s knowledge or
permission, except as required by law.
Disclosures of data, other than the most routine, should be noted and maintained for as
long as the data are maintained.
Data should not be disclosed for reasons incompatible with the business objective for
which they are collected.
Table
3.2
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74 CHAPTER 3 Ethics and Privacy
For the Accounting Major
Public companies, their accountants, and their auditors have signifi cant ethical
responsibilities. Accountants now are being held professionally and personally
responsible for increasing the transparency of transactions and assuring compliance
with Generally Accepted Accounting Principles (GAAP). In fact, regulatory agencies
such as the SEC and the Public Company Accounting Oversight Board (PCAOB)
require accounting departments to adhere to strict ethical principles.
For the Finance Major
As a result of global regulatory requirements and the passage of Sarbanes-Oxley,
fi nancial managers must follow strict ethical guidelines. They are responsible for
full, fair, accurate, timely, and understandable disclosure in all fi nancial reports and
documents that their companies submit to the Securities and Exchange Commission
and in all other public fi nancial reports. Further, fi nancial managers are responsible
for compliance with all applicable governmental laws, rules, and regulations.
For the Marketing Major
Marketing professionals have new opportunities to collect data on their customers,
for example, through business-to-consumer electronic commerce (discussed in
Chapter 7). Business ethics clearly mandate that these data should be used only
within the company and should not be sold to anyone else. Marketers do not want to
be sued for invasion of privacy over data collected for the marketing database.
Customers expect their data to be properly secured. However, profi t-motivated
criminals want that data. Therefore, marketing managers must analyze the risks
of their operations. Failure to protect corporate and customer data will cause
signifi cant public relations problems and outrage customers. Customer relationship
management (discussed in Chapter 11) operations and tracking customers’ online
buying habits can expose unencrypted data to misuse or result in privacy violations.
For the Production/Operations Management Major
POM professionals decide whether to outsource (or offshore) manufacturing
operations. In some cases, these operations are sent overseas to countries that do not
have strict labor laws. This situation raises serious ethical questions. For example, is
it ethical to hire employees in countries with poor working conditions in order to
reduce labor costs?
For the Human Resources Management Major
Ethics is critically important to HR managers. HR policies explain the appropriate
use of information technologies in the workplace. Questions such as the following
can arise: Can employees use the Internet, e-mail, or chat systems for personal
purposes while at work? Is it ethical to monitor employees? If so, how? How much?
How often? HR managers must formulate and enforce such policies while at the
same time maintaining trusting relationships between employees and management.
For the MIS Major
Ethics might be more important for MIS personnel than for anyone else in the
organization, because these individuals have control of the information assets. They
also have control over a huge amount of the employees’ personal information. As
a result, the MIS function must be held to the highest ethical standards. In fact,
as you will see in the chapter-closing case about Terry Childs, regardless of what
he actually did, what one thinks of what he did, and whether his conviction was
justifi ed, a person in his situation has the opportunity to behave improperly, and
shouldn’t.
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Discussion Questions 75
[ Summary ]
1. Defi ne ethics, list and describe the three fundamental tenets of ethics,
and describe the four categories of ethical issues related to information
technology.
Ethics refers to the principles of right and wrong that individuals use to make choices that
guide their behavior.
Fundamental tenets of ethics include responsibility, accountability, and liability.
Responsibility means that you accept the consequences of your decisions and actions.
Accountability refers to determining who is responsible for actions that were taken. Liability
is a legal concept that gives individuals the right to recover the damages done to them by
other individuals, organizations, or systems.
The major ethical issues related to IT are privacy, accuracy, property (including intel-
lectual property), and access to information. Privacy may be violated when data are held in
databases or transmitted over networks. Privacy policies that address issues of data collec-
tion, data accuracy, and data confi dentiality can help organizations avoid legal problems
2. Identify three places that store personal data, and for each one, discuss
at least one personal threat to the privacy of the data stored there.
Privacy is the right to be left alone and to be free of unreasonable personal intrusions. Threats
to privacy include advances in information technologies, electronic surveillance, personal
information in databases, Internet bulletin boards, newsgroups, and social networking sites.
The privacy threat in Internet bulletin boards, newsgroups, and social networking sites is
that you might post too much personal information that many unknown people can see.
[ Chapter Glossary ]
accountability A tenet of ethics that refers to determining
who is responsible for actions that were taken.
code of ethics A collection of principles intended to guide
decision making by members of an organization.
digital dossier An electronic description of an individual and
his or her habits.
electronic surveillance Tracking people’s activities with the
aid of computers.
ethics The principles of right and wrong that individuals use
to make choices to guide their behaviors.
information privacy The right to determine when, and to
what extent, personal information can be gathered by and/or
communicated to others.
liability A legal concept that gives individuals the right to re-
cover the damages done to them by other individuals, organi-
zations, or systems.
opt-in model A model of informed consent in which a busi-
ness is prohibited from collecting any personal information
unless the customer specifi cally authorizes it.
opt-out model A model of informed consent that permits a
company to collect personal information until the customer
specifi cally requests that the data not be collected.
privacy The right to be left alone and to be free of unreason-
able personal intrusions.
privacy codes (see privacy policies)
privacy policies (also known as privacy codes) An organi-
zation’s guidelines for protecting the privacy of customers,
clients, and employees.
profi ling The process of forming a digital dossier.
responsibility A tenet of ethics in which you accept the con-
sequences of your decisions and actions.
[ Discussion Questions ]
1. In 2008, the Massachusetts Bay Transportation Author-
ity (MBTA) obtained a temporary restraining order bar-
ring three Massachusetts Institute of Technology (MIT)
students from publicly displaying what they claimed
to be a way to get “free subway rides for life.” Specifi –
cally, the 10-day injunction prohibited the students from
revealing vulnerabilities of the MBTA’s fare card. The
students were scheduled to present their fi ndings in Las
Vegas at the DEFCON computer hacking conference.
Are the students’ actions legal? Are their actions ethical?
Discuss your answer from the students’ perspective then
from the perspective of the MBTA.
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76 CHAPTER 3 Ethics and Privacy
2. Frank Abagnale, the criminal played by Leonardo Di-
Caprio in the motion picture Catch Me If You Can, ended
up in prison. After he left prison, however, he worked as a
consultant to many companies on matters of fraud.
a. Why do these companies hire the perpetrators (if
caught) as consultants? Is this a good idea?
b. You are the CEO of a company. Discuss the ethical
implications of hiring Frank Abagnale as a consultant.
[ Problem-Solving Activities ]
1. An information security manager routinely monitored the
Web surfi ng among her company’s employees. She dis-
covered that many employees were visiting the “sinful six”
Web sites. (Note: The “sinful six” are Web sites with mate-
rial related to pornography, gambling, hate, illegal activi-
ties, tastelessness, and violence.) She then prepared a list of
the employees and their surfi ng histories and gave the list
to management. Some managers punished their employ-
ees. Some employees, in turn, objected to the monitoring,
claiming that they should have a right to privacy.
a. Is monitoring of Web surfi ng by managers ethical? (It is
legal.) Support your answer.
b. Is employee Web surfi ng on the “sinful six” ethical?
Support your answer.
c. Is the security manager’s submission of the list of abus-
ers to management ethical? Why or why not?
d. Is punishing the abusers ethical? Why or why not? If
yes, then what types of punishment are acceptable?
e. What should the company do in this situation? (Note:
There are a variety of possibilities here.)
2. Access the Computer Ethics Institute’s Web site at www.
cpsr.org/issues/ethics/cei.
The site offers the “Ten Commandments of Computer
Ethics.” Study these rules and decide whether any others
should be added.
3. Access the Association for Computing Machinery’s code of
ethics for its members (see www.acm.org/constitution/code.
html). Discuss the major points of this code. Is this code
complete? Why or why not? Support your answer.
4. Access www.eightmaps.com. Is the use of data on this Web
site illegal? Unethical? Support your answer.
5. The Electronic Frontier Foundation (www.eff.org) has a
mission of protecting rights and promoting freedom in the
“electronic frontier.” Review the organization’s suggestions
about how to protect your online privacy, and summarize
what you can do to protect yourself.
6. Access your university’s guidelines for ethical computer
and Internet use. Are there limitations as to the types of
Web sites that you can visit and the types of material you
can view? Are you allowed to change the programs on
the lab computers? Are you allowed to download soft-
ware from the lab computers for your personal use? Are
there rules governing the personal use of computers and
e-mail?
7. Access http://www.albion.com/netiquette/corerules.html. What
do you think of this code of ethics? Should it be expanded?
Is it too general?
8. Access www.cookiecentral.com and www.epubliceye.com.
Do these sites provide information that helps you protect
your privacy? If so, then explain how.
9. Do you believe that a university should be allowed to
monitor e-mail sent and received on university computers?
Why or why not? Support your answer.
[ Team Assignments ]
1. Access www.ftc.gov/sentinel to learn how law enforcement
agencies around the world work together to fi ght consumer
fraud. Each team should obtain current statistics on one of
the top fi ve consumer complaint categories and prepare a
report. Are any categories growing faster than others? Are
any categories more prevalent in certain parts of the world?
[ Closing Case You Be the Judge ]
Terry Childs worked in San Francisco’s information tech-
nology department for fi ve years as a highly valued network
administrator. Childs, who holds a Cisco Certifi ed Internet-
work Expert certifi cation, the highest level of certifi cation
offered by Cisco, built San Francisco’s new multimillion-
dollar computer network, the FiberWAN. He handled most
of the implementation, including the acquisition, confi gu-
ration, and installation of all the routers and switches that
compose the network. The FiberWAN contains essential
city information such as offi cials’ e-mails, city payroll fi les,
confi dential law enforcement documents, and jail inmates’
booking information.
On July 13, 2008, Childs was arrested and charged with
four felony counts of computer tampering. Authorities accused
him of commandeering the FiberWAN by creating passwords
that granted him exclusive access to the system. In addition to
refusing to give city offi cials the passwords necessary to access
the FiberWAN, Childs has been accused of other actions.
Authorities allege that he implemented a tracing system to mon-
itor what administrators were saying and doing. Authorities also
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Closing Case: You Be the Judge 77
discovered dial-up and digital subscriber line (DSL) modems
(discussed in Chapter 6) that would enable an unauthorized
user to connect to the FiberWAN. They also found that he
had placed a command on several network devices to erase
critical confi guration data in the event that anyone tried to
restore administrative access to the devices. Further, he alleg-
edly collected pages of user names and passwords, including
his supervisor’s, to use their network login information. He was
also charged with downloading terabytes of city data to a per-
sonal encrypted storage device. The extent of Child’s activities
was not known until a June 2008 computer audit.
Childs had been disciplined on the job in the months
leading up to his arrest, and his supervisors had tried to fi re
him. Those attempts were unsuccessful, in part because of his
exclusive knowledge of the city’s FiberWAN.
After his arrest, Childs kept the necessary passwords to
himself for ten days, and then gave them to the mayor of
San Francisco in a secret meeting in the city jail. What was
he thinking? Had he become a rogue employee? His lawyer
paints a different picture of the man and his situation.
Childs seems to have taken his job very seriously, to the
point of arrogance. He worked very hard, including evenings
and weekends, and rarely took vacations. Because the Fiber-
WAN was so complex and Childs did not involve any of the
other network engineers in his unit, he was the only person
who fully understood the network’s confi guration. He appar-
ently trusted no one but himself with the details of the net-
work, including its confi guration and login information.
Childs had a poor relationship with his superiors, who were
all managerially oriented rather than technically oriented. He
considered his direct supervisor to be intrusive, incompetent,
and obstructive, and he believed the managers above him
had no real concept of the FiberWAN. In fact, he felt that his
superiors were more interested in offi ce politics than in getting
anything done. He also complained that he was overworked
and that many of his colleagues were incompetent freeloaders.
Childs’s lawyer maintained that his client had been the victim
of a “bad faith” effort to force him out of his post by incompetent
city offi cials whose meddling was jeopardizing the network that
Childs had built. He further charged that in the past, Childs’s
supervisors and co-workers had damaged the FiberWAN them-
selves, hindered Childs’s ability to maintain the system, and
shown complete indifference to maintaining it themselves.
Childs was the only person in the department capable of
operating the FiberWAN. Despite this fact, the department
had established no policies as to the appropriate person to
whom Childs could give the passwords. Childs maintains
that none of the persons who requested the passwords from
him was qualifi ed to have them.
Childs’ lawyer raised the question: “How could the depart-
ment say his performance was poor when he had been doing
what no one else was able or willing to do?” Interestingly, the
FiberWAN continued to run smoothly while Childs was hold-
ing the passwords.
As of May 2011, San Francisco offi cials maintained that they
had paid Cisco contractors almost $200,000 to fi x the problems
with the FiberWAN. The city has retained a security consulting
fi rm, Secure DNA (www.secure-dna.com), to conduct a vulner-
ability assessment of its network. It also has set aside a further
$800,000 to address potential ongoing problems.
On April 27, 2010, after nearly three days of deliberation,
a jury convicted Childs of one count of felony computer tam-
pering for withholding passwords to the city’s FiberWAN net-
work. On August 9, 2010, the judge sentenced Childs to four
years in prison.
Questions
1. Do you agree with the jury that Childs is guilty of computer tampering?
(a) Discuss the case from the perspective of the prosecutor of the City
of San Francisco.
(b) Discuss the case from the perspective of Childs’s defense lawyer.
2. A single point of failure is a component of a system that, if it fails, will
prevent the entire system from functioning. For this reason, a single
point of failure is clearly undesirable, whether it is a person, a network,
or an application. Is Childs an example of a single point of failure? Why
or why not? If he is guilty, then how should the City of San Francisco
(or any organization) protect itself from such a person?
Sources: Compiled from R. McMillan, “Network Admin Terry Childs Gets 4-Year
Sentence,” Bloomberg BusinessWeek, August 7, 2010; J. Niccolai, “Terry Childs Is
Denied Motion for Retrial,” PC World, July 30, 2010; J. Vijayan, “After Verdict,
Debate Rages in Terry Childs’ Case,” Computerworld, April 28, 2010; P. Venezia,
“Slouching toward Justice for Terry Childs,” InfoWorld, March 1, 2010; J. Van
Derbeken, “S.F. Offi cials Locked Out of Computer Network,” SFGate.com, July 15,
2008; Z. Church, “San Francisco IT Hack Story Looks a Bit Too Much Like
Chinatown,” SearchCIO-Midmarket.com, July 16, 2008; P. Venezia, “Why San
Francisco’s Network Admin Went Rogue,” InfoWorld, July 18, 2008; J. Van Derbeken,
“Lawyer Says Client Was Protecting City’s Code,” SFGate.com, July 23, 2008;
R. McMillan and P. Venezia, “San Francisco’s Mayor Gets Back Keys to the Network,”
Network World, July 23, 2008; R. McMillan, “Parts of San Francisco Network Still
Locked Out,” Network World, July 23, 2008; J. Vijayan, “City Missed Steps to Avoid
Network Lockout,” Computerworld, July 28, 2008; A. Surdin, “San Francisco Case
Shows Vulnerability of Data Networks,” Washington Post, August 11, 2008; R.
McMillan, “San Francisco Hunts for Mystery Device on City Network,” Computer-
world, September 11, 2008; B. Egelko, “S.F. Computer Engineer to Stand Trial,”
SFGate.com, December 27, 2008.
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