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Introduction to
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chapter 1 InformatIon SyStemS and PeoPle iii
Introduction to
Information Systems
PATRICIA WALLACE
Johns Hopkins University
Second Edition
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10 9 8 7 6 5 4 3 2 1
ISBN 10: 0-13-357175-0
ISBN 13: 978-0-13-357175-2
Library of Congress Cataloging-in-Publication Data
Wallace, Patricia.
Introduction to Information Systems/Patricia Wallace, Johns Hopkins University—Second edition.
p. cm.
Includes index.
ISBN 978-0-13-357175-2
1. Organizational change. 2. Management information systems. I. Title.
HD58.8.W345 2015
658.4’038011—dc23
2013030711

To Callie, Julian, and a bright future
of human–centered computing.

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chapter 1 InformatIon SyStemS and PeoPle vii
About the Author
P atricia Wallace is currently Senior Director for Information Technology and Online Programs at Johns Hopkins University Center for Talented Youth. Before joining JHU, she was Chief, Information Strategies, and
Executive Director, Center for Knowledge Management, at the Robert H. Smith
School of Business, University of Maryland, College Park. She also teaches
technology management courses as Adjunct Professor in the MBA Program of
the Graduate School of Management and Technology, University of Maryland
University College, where she previously served as CIO for 10 years. Wallace
earned her Ph.D. in psychology at the University of Texas at Austin and holds an
M.S. in Computer Systems Management. She has published 10 books, including
The Internet in the Workplace: How New Technologies Transform Work and The
Psychology of the Internet, several educational software programs, and numerous
scholarly and general articles.
vii

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chapter 1 InformatIon SyStemS and PeoPle ix
Brief Contents
Information Systems and People 2
Information Systems and Strategy 32
Information and Communications
Technologies: The Enterprise Architecture 62
Databases and Data Warehouses 94
Information Systems for the Enterprise 130
The Web, E-Commerce, and M-Commerce 164
Business Intelligence and Decision Making 196
Collaborating with Technology 226
Knowledge Management and E-Learning 256
Ethics, Privacy, and Security 288
Systems Development and Procurement 320
Project Management and Strategic Planning 348
Facebook and Instagram: Privacy Challenges 378
A Humanitarian Supply Chain for the Red Cross 382
Apple: Can the Company Pull Off Another Disruptive
Innovation? 385
Managing the Federal Government’s IT Project Portfolio 388
Glossary 393
Index 400
1
2
3
4
5
6
7
8
9
10
11
12
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C H A P T E R
C A s E s T u d i E s
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chapter 1 InformatIon SyStemS and PeoPle xi
Contents
Information Systems and People 2
Learning Objectives 2
Introduction 2
Information Systems in Action 4
MANAGING OPERATIONS 4
SUPPORTING CUSTOMER INTERACTIONS 6
MAKING DECISIONS 6
COLLABORATING ON TEAMS 7
GAINING COMPETITIVE ADVANTAGE 8
IMPROVING INDIVIDUAL PRODUCTIVITY 8
The Nature of Information 9
WHAT MAKES INFORMATION VALUABLE? 9
The Components of an Information System 11
PEOPLE 11
TECHNOLOGY 12
PROCESSES 12
DATA 15
Information Systems, the Discipline 16
Information Systems Throughout the Organization 17
INFORMATION SYSTEMS IN BUSINESS 17
INFORMATION SYSTEMS IN NONPROFITS AND GOVERNMENT 18
INSIDE THE IT DEPARTMENT 18
COLLABORATING ON INFORMATION SYSTEMS 19
IMPROVING YOUR OWN PRODUCTIVITY 21
Promises, Perils, and Ethical Issues 21
PRIVACY BREACHES AND AMPLIFICATION EFFECTS 22
THE ETHICAL FACTOR: Ethical Issues Surrounding Information Systems 23
Online Simulation 23
Chapter Summary 24
Key Terms and Concepts 24
Chapter Review Questions 24
Projects and Discussion Questions 25
Application Exercises 26
EXCEL APPLICATION: MANPOWER PLANNING SPREADSHEET 26
ACCESS APPLICATION: INFORMATION SYSTEMS IN BUSINESS 26
Case Study #1 Nasdaq’s Information Challenges: Facebook’s Botched Public Opening
and High Frequency Trading 27
Case Study #2 Breaking News: Twitter’s Growing Role in Emergencies and Disaster Communications 28
Preface xxiii
Acknowledgments xxxi
1C H A P T E R
xi

xii ContentS
E-Project 1 Analyzing the May 6 “Flash Crash” with Excel Charts 30
E-Project 2 Gathering, Visualizing, and Evaluating Reports from Twitter
and Other Sources During a Disaster 30
Chapter Notes 31
2C H A P T E R Information Systems and Strategy 32Learning Objectives 32
Introduction 32
Porter’s Five Competitive Forces 34
THREAT OF NEW ENTRANTS 35
POWER OF BUYERS 36
POWER OF SUPPLIERS 37
THREAT OF SUBSTITUTES 37
RIVALRY AMONG EXISTING COMPETITORS 38
Factors That Affect How the Five Forces Operate 38
DISRUPTIVE TECHNOLOGY AND INNOVATIONS 39
GOVERNMENT POLICIES AND ACTIONS 40
COMPLEMENTARY SERVICES AND PRODUCTS IN THE ECOSYSTEM 41
ENVIRONMENTAL EVENTS AND “WILDCARDS” 42
The Value Chain and Strategic Thinking 43
EXTENDING THE VALUE CHAIN: FROM SUPPLIERS TO THE FIRM TO CUSTOMERS 43
BENCHMARKING COMPONENTS OF THE VALUE CHAIN 44
THE ETHICAL FACTOR: Ethical Responsibility in an Extended Value Chain 45
IT BENCHMARKS 45
Competitive Strategies in Business 46
THE ROLE OF INFORMATION SYSTEMS IN STRATEGY 47
INFORMATION SYSTEMS: RUN, GROW, AND TRANSFORM THE BUSINESS 48
Information Strategies and Nonprofit Organizations 49
FUND-RAISING 50
VOLUNTEERING 50
INFORMATION STRATEGIES AND GOVERNMENT 51
Does IT Matter? 52
SPENDING ON RUNNING, GROWING, AND TRANSFORMING 52
LEVELING UP!: A STRATEGIC ANALYSIS 53
Online Simulation 54
Chapter Summary 55
Key Terms and Concepts 55
Chapter Review Questions 56
Projects and Discussion Questions 56
Application Exercises 57
EXCEL APPLICATION: IT BENCHMARKS 57
ACCESS APPLICATION: TELETHON CALL REPORTS 57
Case Study #1 Can GameStop Survive with Its Brick-and-Mortar Stores? 58
Case Study #2 The Open Internet Coalition and the Battle for Net Neutrality 59
E-Project 1 Identifying Company Strategy with Online Financial Chart Tools 60
E-Project 2 Analyzing Movie Download Times with Excel 60
Chapter Notes 61

ContentS xiii
Information and Communications Technologies:
The Enterprise Architecture 62
Learning Objectives 62
Introduction 62
The Hardware 64
INPUT AND OUTPUT 64
PROCESSING 68
STORAGE 69
THE ETHICAL FACTOR: Ethical Implications of Big Data 70
The Software 70
TYPES OF SOFTWARE 70
HOW IS SOFTWARE CREATED? 72
Networks and Telecommunications 74
TRANSMISSION MEDIA AND PROTOCOLS 74
TYPES OF NETWORKS 77
NETWORK PROTOCOLS 79
The Enterprise Architecture 81
TRENDS IN ENTERPRISE ARCHITECTURES 81
GUIDING THE ARCHITECTURE 84
Online Simulation 85
Chapter Summary 86
Key Terms and Concepts 87
Chapter Review Questions 87
Projects and Discussion Questions 87
Application Exercises 88
EXCEL APPLICATION: ANALYZING GROWTH IN COMPUTER STORAGE CAPACITIES 88
ACCESS APPLICATION: MANAGING ICT ASSETS WITH A DATABASE 89
Case Study #1 Google Glass and Wearable Technologies 89
Case Study #2 Rolling Out Its 4G Network, Sprint Nextel Competes with Rivals 90
E-Project 1 Voluntary Distributed Computing 92
E-Project 2 Using Excel to Analyze Cost Effectiveness for 4G Rollouts 92
Chapter Notes 93
4C H A P T E R Databases and Data Warehouses 94Learning Objectives 94
Introduction 94
The Nature of Information Resources 96
STRUCTURED, UNSTRUCTURED, AND SEMI-STRUCTURED INFORMATION 96
METADATA 97
THE QUALITY OF INFORMATION 97
Managing Information: From Filing Cabinets to the Database 99
TABLES, RECORDS, AND FIELDS 99
THE RISE AND FALL OF FILE PROCESSING SYSTEMS 100
DATABASES AND DATABASE MANAGEMENT SOFTWARE 102
Developing and Managing a Relational Database 105
PLANNING THE DATA MODEL 105
ACCESSING THE DATABASE AND RETRIEVING INFORMATION 109
THE ETHICAL FACTOR: Ethical Issues in Database Design: The Case of Ethnic Identification 110
MANAGING AND MAINTAINING THE DATABASE 111
3C H A P T E R

Multiple Databases and the Challenge of Integration 113
SHADOW SYSTEMS 114
INTEGRATION STRATEGIES AND MASTER DATA MANAGEMENT 114
Data Warehouses and Big Data 114
BUILDING THE DATA WAREHOUSE 116
THE CHALLENGE OF BIG DATA 116
STRATEGIC PLANNING, BUSINESS INTELLIGENCE, AND DATA MINING 118
The Challenges of Information Management: The Human Element 119
OWNERSHIP ISSUES 119
DATABASES WITHOUT BOUNDARIES 119
BALANCING STAKEHOLDERS’ INFORMATION NEEDS 120
Online Simulation 120
Chapter Summary 121
Key Terms and Concepts 122
Chapter Review Questions 122
Projects and Discussion Questions 122
Application Exercises 123
EXCEL APPLICATION: MANAGING CATERING SUPPLIES 123
ACCESS APPLICATION: DD-DESIGNS 124
Case Study #1 U.K. Police Track Suspicious Vehicles in Real Time with Cameras
and the License Plate Database 125
Case Study #2 Colgate-Palmolive Draws on Its Global Database to Evaluate Marketing Strategies 126
E-Project 1 Identifying Suspects with a License Plate Database:
Constructing Queries with Access 127
E-Project 2 Building a Database for Customer Records 128
Chapter Notes 129
5C H A P T E R Information Systems for the Enterprise 130Learning Objectives 130
Introduction 130
Finance Management 132
COMPONENTS OF FINANCIAL INFORMATION SYSTEMS 132
FINANCIAL REPORTING, COMPLIANCE AND TRANSPARENCY 134
Human Capital Management 135
COMPONENTS OF HUMAN CAPITAL MANAGEMENT SYSTEMS 135
HCM METRICS 137
Managing the Supply Chain 137
THE ETHICAL FACTOR: Ethics and Talent Management 138
SUPPLY CHAIN FUNDAMENTALS 138
MEASURING PERFORMANCE IN SUPPLY CHAINS 139
INFORMATION SYSTEMS AND TECHNOLOGY FOR SUPPLY CHAIN MANAGEMENT 141
Customer Relationship Management 144
CRM GOALS AND METRICS 144
CRM STRATEGIES AND TECHNOLOGIES 146
Enterprise Resource Planning (ERP): Bringing It All Together 149
ERP COMPONENTS 150
INTEGRATION STRATEGIES 152
IMPLEMENTATION ISSUES 153
xiv ContentS

ContentS xv
6C H A P T E R The Web, E-Commerce, and M-Commerce 164Learning Objectives 164
Introduction 164
Developing a Web Strategy 166
CHOOSING A GOAL 166
NAMING THE WEBSITE 167
Building the Website 170
WEBSITE DESIGN 170
THE ETHICAL FACTOR: Website Accessibility: Why Is Progress So Slow? 174
SOFTWARE DEVELOPMENT STRATEGIES FOR THE WEB 174
E-Commerce 177
THE ONLINE TRANSACTION AND E-COMMERCE SOFTWARE 177
E-COMMERCE SECURITY 177
E-COMMERCE TRUST 178
Mobile Devices and M-Commerce 178
WHY MOBILE MATTERS 178
DESIGNING WEBSITES AND APPS FOR MOBILE DEVICES 179
M-COMMERCE AND MOBILE PAYMENTS 180
Marketing the Website 180
SEARCH ENGINE OPTIMIZATION 180
WEB ADVERTISING 182
Web 2.0 and Beyond 183
CROWDSOURCING AND COLLECTIVE INTELLIGENCE 184
EXPANDING DATA AND SENSORY INPUT: THE “INTERNET OF THINGS” 184
THE LEARNING WEB 185
Online Simulation 186
Chapter Summary 187
Key Terms and Concepts 188
Chapter Review Questions 188
Projects and Discussion Questions 188
Application Exercises 189
WEBSITE APPLICATION: HERITAGE DOGS 189
EXCEL APPLICATION: HERITAGE DOGS WEBSITE METRICS 190
ACCESS APPLICATION: SPRINGFIELD ANIMAL SHELTER 190
Online Simulation 154
Chapter Summary 155
Key Terms and Concepts 156
Chapter Review Questions 156
Projects and Discussion Questions 156
Application Exercises 157
EXCEL APPLICATION: PERFORMANCE BICYCLE PARTS 157
ACCESS APPLICATION: VSI CONSULTANTS 157
Case Study #1 Helping the Homeless: A Customer-Centric Approach with CRM Software 159
Case Study #2 Winning the War for Talent: The Mandarin Oriental’s Talent Management System 160
E-Project 1 CRM for Human Services Agencies 161
E-Project 2 Evaluating Employment and Recruitment Websites 161
Chapter Notes 162

xvi ContentS
Case Study #1 Mobile Payments and the Digital Wallet 191
Case Study #2 Pandora Internet Radio: The Net Threatens the Music Business (Again) 192
E-Project 1 Examining Top M-Commerce Sites 193
E-Project 2 Exploring Pandora’s Web Analytics 193
Chapter Notes 194
8C H A P T E R
Business Intelligence and Decision Making 196
Learning Objectives 196
Introduction 196
Levels of Decision Making 198
OPERATIONAL LEVEL 198
TACTICAL LEVEL 198
STRATEGIC LEVEL 199
Sources of Business Intelligence 200
TRANSACTIONAL DATABASES, DATA WAREHOUSES, AND INTERNAL DATA SOURCES 200
EXTERNAL DATA SOURCES AND BIG DATA 200
THE ETHICAL FACTOR: The Ethics of Tagging Faces in Photos 202
Data Mining and Analytics 202
ANALYZING PATTERNS, TRENDS, AND RELATIONSHIPS 202
SIMULATING, OPTIMIZING, AND FORECASTING 205
ARTIFICIAL INTELLIGENCE 207
Web Analytics 210
WEB METRICS 210
ANALYZING TRAFFIC AND ACHIEVING SUCCESS 212
Putting It All Together: Dashboards, Portals, and Mashups 213
DASHBOARDS 213
PORTALS 214
MASHUPS 215
BUSINESS INTELLIGENCE: THE HUMAN ELEMENT 217
Online Simulation 217
Chapter Summary 218
Key Terms and Concepts 218
Chapter Review Questions 219
Projects and Discussion Questions 219
Application Exercises 220
EXCEL APPLICATION: ANALYZING REVENUE AND EXPENSES FOR CITY HOSPITAL SEMINARS 220
ACCESS APPLICATION: MARKETING CITY HOSPITAL SEMINARS 221
Case Study #1 Cracking Fraud with Government’s Big Data 221
Case Study #2 TV and Twitter: How Nielsen Rates Programs with “Social TV” 222
E-PROJECT 1 Detecting Suspicious Activity in Insurance Claims 223
E-PROJECT 2 Analyzing Nielsen TV Ratings with Excel 224
Chapter Notes 225
7C H A P T E R
Collaborating with Technology 226
Learning Objectives 226
Introduction 226

ContentS xvii
The Evolution of Collaborative Technologies 228
EMAIL 228
DISCUSSION FORUMS 230
INSTANT MESSAGING AND TEXTING 230
GROUP DECISION SUPPORT SYSTEMS (GDSS) 232
WEB CONFERENCING 233
INTERACTIVE VIDEO 233
SHARED WORKSPACES 234
Web 2.0 Collaborative Technologies 235
BLOGS 235
WIKIS 236
SOCIAL NETWORKING 237
MICROBLOGGING 238
VIRTUAL WORLDS 239
Unified Communications 241
CAPABILITIES FOR UNIFIED COMMUNICATIONS 241
UNIVERSAL DASHBOARDS 241
The Human Element and Collaborative Technologies 242
PSYCHOLOGICAL CHARACTERISTICS OF ONLINE ENVIRONMENTS 242
THE ETHICAL FACTOR: Flash Mobs and Free Speech: Should Police Block Mobile
Messaging Services? 244
MANAGING ONLINE IMPRESSIONS 245
GROUP DYNAMICS IN VIRTUAL TEAMS 245
MAKING VIRTUAL TEAMS WORK 247
Online Simulation 248
Chapter Summary 249
Key Terms and Concepts 249
Chapter Review Questions 249
Projects and Discussion Questions 250
Application Exercises 251
EXCEL APPLICATION: GOING GREEN! 251
ACCESS APPLICATION: CLOUD 9 251
Case Study #1 “Telepresence Robots” Support Remote Collaboration 251
Case Study #2 Yahoo! Bans Telecommuting: Was It the Right Move? 253
E-Project 1 Estimating Breakeven Pricing for Telepresence Robots Using a Spreadsheet 254
E-Project 2 Estimating Savings for Virtual Work Using an Excel Model 254
Chapter Notes 255
9C H A P T E R Knowledge Management and E-Learning 256Learning Objectives 256
Introduction 256
The Nature of Intellectual Capital 258
TYPES OF INTELLECTUAL CAPITAL 258
TYPES OF KNOWLEDGE 258
MANAGING INTELLECTUAL CAPITAL 259
Knowledge Management Strategies and Technologies 260
IDENTIFY THE GOAL 260
LOCATE THE SOURCES 260
CAPTURE THE KNOWLEDGE 263
ORGANIZE, SHARE, AND VALUE KNOWLEDGE 265

xviii ContentS
Knowledge Management: Pitfalls and Promises 268
THE HUMAN ELEMENT: WHY SHARE KNOWLEDGE? 268
INCENTIVES FOR KNOWLEDGE SHARING 269
THE ETHICAL FACTOR: Knowledge Sharing in Fast-Paced Industries: The Case
of Formula One Racing 269
TECHNOLOGY HURDLES AND CONTENT ISSUES 270
THE SEMANTIC WEB 270
PRACTICAL TIPS FOR LAUNCHING A KNOWLEDGE MANAGEMENT PROJECT 270
E-Learning 271
COMPARING E-LEARNING APPROACHES 271
Creating an E-Learning Program 273
COURSE DEVELOPMENT 273
LEARNING OBJECTS 274
CONTENT AUTHORING TOOLS 274
COLLABORATION TOOLS 275
STRATEGIES TO PREVENT CHEATING 276
LEARNING MANAGEMENT SYSTEMS 277
E-Learning in Education 277
DIFFERENCES BETWEEN CORPORATE AND EDUCATION E-LEARNING 278
COMPARING E-LEARNING AND CLASSROOM LEARNING 278
Online Simulation 280
Chapter Summary 281
Key Terms and Concepts 282
Chapter Review Questions 282
Projects and Discussion Questions 282
Application Exercises 283
EXCEL APPLICATION: TOP TALENT 283
ACCESS APPLICATION: TOP TALENT 283
Case Study #1 Lynda.com: How an E-Learning Entrepreneur Rides Waves of Change 283
Case Study #2 Diplopedia: Managing State Department Knowledge with a Wiki 285
E-Project 1 Exploring the World of Online Courses 286
E-Project 2 Managing the Human Element on Wikipedia with Technology 286
Chapter Notes 287
10C H A P T E R Ethics, Privacy, and Security 288Learning Objectives 288
Introduction 288
Ethics 290
ETHICAL FRAMEWORKS 290
ETHICS AND THE LAW 290
ETHICAL ISSUES AND INFORMATION AND COMMUNICATIONS TECHNOLOGIES 291
Information Ethics 292
INTELLECTUAL PROPERTY AND DIGITAL RIGHTS MANAGEMENT 292
PLAGIARISM 294
Privacy 295
TRADING PRIVACY FOR CONVENIENCE AND FREEBIES 296
ANONYMITY 297
SURVEILLANCE 298
“THE RIGHT TO BE FORGOTTEN” 299

ContentS xix
Information Security 299
RISK MANAGEMENT 299
IDENTIFYING THREATS 299
THE ETHICAL FACTOR: Ethical Dilemmas in a Distributed Denial of Service Attack 302
ASSESSING VULNERABILITY 302
ADMINISTRATIVE SECURITY CONTROLS 303
TECHNICAL SECURITY CONTROLS 304
INFORMATION SECURITY AND CLOUD COMPUTING 307
The Human Element in Information Ethics, Security, and Privacy 307
COGNITIVE ISSUES AND PRODUCTIVITY 307
SOCIAL ENGINEERING AND INFORMATION SECURITY 308
SECURITY AWARENESS AND ETHICAL DECISION MAKING 310
Online Simulation 311
Chapter Summary 312
Key Terms and Concepts 312
Chapter Review Questions 313
Projects and Discussion Questions 313
Application Exercises 314
EXCEL APPLICATION: CITYWIDE COMMUNITY COLLEGE 314
ACCESS APPLICATION: CITYWIDE COMMUNITY COLLEGE 314
Case Study #1 Zynga Kills Petville and Angers Virtual Pet Owners 315
Case Study #2 Community Policing on the Internet: Spamhaus Targets Worldwide Spammers
and Draws a Massive Distributed Denial of Service Attack 316
E-Project 1 Tracking the Trackers: Investigating How Third-Party Cookies Steer the Ads You See 317
E-Project 2 Analyzing Spammers by Country, Using Excel Pivot Tables 317
Chapter Notes 318
11C H A P T E R Systems Development and Procurement 320Learning Objectives 320
Introduction 320
Systems Development Life Cycle 322
PLANNING 322
ANALYSIS 323
DESIGN PHASE 325
DEVELOPMENT PHASE 327
TESTING PHASE 328
IMPLEMENTATION 328
MAINTENANCE 330
Software Development Strategies 331
THE ETHICAL FACTOR: Developing Systems That Promote Ethical Decision Making
and Social Responsibility 331
WATERFALL SOFTWARE DEVELOPMENT 332
ITERATIVE METHODS 332
AGILE METHODS 333
Comparing Software Development Approaches 334
TYPE OF PROJECT 334
ORGANIZATIONAL CULTURE 334
IS WATERFALL DEAD? 335

xx ContentS
Software Procurement: The “Buy” Strategy 335
PROS AND CONS OF BUILD AND BUY 335
THE PROCUREMENT PROCESS 336
ADAPTATION AND CUSTOMIZATION 337
The Human Element in Systems Development and Procurement 338
CROSS-FUNCTIONAL TEAMS 338
THE ROLE OF SENIOR MANAGEMENT 339
WORKING WITH CONSULTANTS 339
Online Simulation 340
Chapter Summary 341
Key Terms and Concepts 341
Chapter Review Questions 342
Projects and Discussion Questions 342
Application Exercises 343
EXCEL APPLICATION: JAY’S BIKES 343
ACCESS APPLICATION: MANAGING A RECIPE COLLECTION 343
Case Study #1 Baby Steps Toward Scrum: How Babycenter.com Made the Cultural Transition
to Agile Software Development 344
Case Study #2 Extreme Programming at the U.S. Strategic Command 345
E-Project 1 Watching Babycenter.com Change over Time with the Internet Archive 346
E-Project 2 Analyzing Software Defect Rates Using Excel 346
Chapter Notes 347
12C H A P T E R Project Management and Strategic Planning 348Learning Objectives 348
Introduction 348
What Is a Project? 350
PROJECTS VS. PROCESSES 350
THE TRIPLE CONSTRAINT: TIME, COST, AND SCOPE 351
Project Management 351
THE FIVE PROJECT MANAGEMENT PROCESSES 352
THE ROLE OF THE PROJECT MANAGER 355
THE ETHICAL FACTOR: Code of Ethics for Project Managers 356
Project Management Software 356
MANAGING TIME 356
MANAGING PEOPLE AND RESOURCES 357
MANAGING COSTS 357
Why Projects Succeed, and Why They Fail 358
WHY DO PROJECTS FAIL? 358
SUCCESS FACTORS FOR PROJECT MANAGEMENT 358
Strategic Planning for Information Systems 359
VISION, PRINCIPLES, AND POLICIES 360
PROJECT PORTFOLIO MANAGEMENT 362
DISASTER RECOVERY AND BUSINESS CONTINUITY 363
TECHNOLOGY AND INDUSTRY TRENDS 364
Planning for the Future: The Human Element 365
COGNITIVE BIASES AND STRATEGIC PLANNING 365
THE BLACK SWAN 367

ContentS xxi
Online Simulation 368
Chapter Summary 369
Key Terms and Concepts 370
Chapter Review Questions 370
Projects and Discussion Questions 370
Application Exercises 371
EXCEL APPLICATION: CREATING A GANTT CHART WITH EXCEL 371
ACCESS APPLICATION: APPRENTICE PROJECT MANAGERS 372
Case Study #1 Predicting the Future: Gartner’s Research Informs Strategic Planning 373
Case Study #2 JetBlue and WestJet: A Tale of Two Software Implementations 374
E-Project 1 Checking on Gartner’s Predictions 376
E-Project 2 Analyzing Airline Performance with Excel Pivot Tables 376
Chapter Notes 377
Case Studies 378
Glossary 393
Index 400

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chapter 1 InformatIon SyStemS and PeoPle xxiii
Preface
What’s New in the 2nd Edition
The information systems field is fast-moving, and this 2nd edition introduces and
updates many important concepts and technologies. We changed the title to Introduction
to Information Systems to better reflect the contents and the course. This edition includes
more figures, graphs, and tables to illustrate topics in visual ways, and the references,
examples, data, and case studies are all updated. Larger fonts are used for the tables, and
the text portion of each chapter has been shortened, most notably by tightening up the
chapter introductions to get into the chapter content more quickly. The online simula-
tions are converted to HTML5 so they are accessible from iPads and iPhones, and the
scores go into the gradebook.
Major new features for the 2nd edition include the following:
▶ Extended coverage of big data and the technologies used to store and analyze it has
been added, along with a new “Ethical Factor” box that explores the ethics of big data.
▶ Expanded discussion of mobile devices and m-commerce is featured in Chapter 6,
including a review of evolving mobile payment technologies using near field com-
munications and strategies for mobile-friendly software development.
▶ The “Internet of Things” is highlighted in several chapters because of its growing
impact on network architecture and bandwidth, and its rapidly increasing role in
data collection, analysis, privacy, and surveillance.
▶ The 2nd edition expands the discussion of cloud computing, personal clouds, mobil-
ity, and the BYOD (bring your own device) trend, especially as they affect strategic
planning for the organization.
▶ A new comprehensive case study at the end of the text charts Apple’s disruptive inno-
vations, and encourages students to predict the company’s future business strategy.
▶ Twitter’s role in social TV and the “multiscreening” phenomenon are featured in a
new case study about Nielsen’s program rating system, so students see how tweeting
fits into the entertainment industry’s strategies.
Chapter-Specific Changes
CHAPTER 1: INFORMATION SYSTEMS AND PEOPLE
▶ Apple’s Siri and competitive advantage
▶ New self-quiz on student’s use of technology: “How Productive Are You?”
▶ New “Productivity Tip” on digital footprints
▶ Revised case study on Nasdaq OMX to include Facebook’s botched public opening
▶ Five new figures
CHAPTER 2: INFORMATION SYSTEMS AND STRATEGY
▶ Updated examples of disruptive innovations
▶ Examples of new government policies affecting strategy (e.g., Internet tax)
▶ New “Productivity Tip” on personal cloud use
▶ Updated IT expenditure benchmarks
▶ App.net, example of an ad-free social network
▶ Case on GameStop updated with new data
xxiii

xxiv InformatIon SyStemS In organIzatIonSxxiv prefaCe
▶ Case on Net Neutrality updated with new events and lawsuits
▶ Four new figures and several charts updated with recent data
CHAPTER 3: INFORMATION AND COMMUNICATIONS TECHNOLOGIES:
THE ENTERPRISE ARCHITECTURE
▶ New QR code figure for students to read with smartphone app
▶ In-memory computing is introduced and described as a key term
▶ New “Did You Know?” anecdote on detection of gestures without contact with
the screen
▶ Expanded discussion on why businesses should be concerned with operating system
market shares, especially for mobile devices
▶ Updated figures and charts on operating system market shares
▶ Simplified discussion of last mile
▶ Added 802.11 currently in draft (802.11ac and 802.11ad)
▶ Six new or updated figures
▶ New Case Study #1: Google Glass and Wearable Technologies
▶ Updated Case Study #2 on Sprint Nextel
CHAPTER 4: DATABASES AND DATA WAREHOUSES
▶ Improved discussion of relational databases
▶ New figure showing data definitions in Access
▶ Updated statistics in figures
▶ Updated “Productivity Tips”
▶ New figure describing characteristics of big data
▶ Expanded section on data warehouses to include big data technologies
▶ Data scientist described
▶ Updated case studies
CHAPTER 5: INFORMATION SYSTEMS FOR THE ENTERPRISE
▶ Added discussion of machine-readable financial data to improve transparency
▶ New figure on paperless workflow
▶ Discussion of supply chain fundamentals and collaboration made more concise
▶ Updated discussion of virtual worlds for CRM
▶ Expanded discussion of mobile CRM strategies
▶ New figure describing portals into an ERP for higher education
▶ Improved organization of ERP section with subtitles
▶ Deleted Supply Chain Operations Reference (SCOR) from key terms
▶ Updated case studies with recent information
CHAPTER 6: THE WEB, E-COMMERCE, AND M-COMMERCE
▶ Expanded discussion of how infomediaries take advantage of the growing amount
of information in XML format
▶ Updated discussion on HTML 5 and its features
▶ New discussion of social commerce (s-commerce) relying on social networks
▶ New figure comparing mobile apps and mobile-friendly websites
▶ New figures illustrating mobile-friendly design, and a list of tips to achieve it
▶ Updated discussion of search engine marketing, including Facebook’s Graph Search
▶ Updated examples of crowdsourcing
▶ New key terms: mobile commerce (m-commerce), near field communications
▶ Updated Case Study #3 on mobile payments and the digital wallet
▶ Updated Case Study #2 on Pandora
▶ Clarified steps in E-Project #1
CHAPTER 7: BUSINESS INTELLIGENCE AND DECISION MAKING
▶ Updated discussion of data mining to include predictive analytics
▶ Expanded discussion of data visualization with new figure of interactive map

prefaCe xxv
▶ New “Did You Know?” anecdote about the use of text mining
▶ Expanded discussion of AI and data from sensors
▶ New figure on website metrics drawn from online simulation (Chocolate
Lovers Unite)
▶ Key term deleted: executive information system
▶ Key term added: predictive analytics
▶ New Case Study #1, “Cracking Fraud with Government’s Big Data”
▶ New E-Project #2: “Analyzing Nielsen TV Ratings with Excel,” with downloadable
TV ratings data for analysis
▶ New “Productivity Tip” on managing your own big data
CHAPTER 8: COLLABORATING WITH TECHNOLOGY
▶ New figure showcasing top corporate blogs
▶ New figure on reasons for taking a break from Facebook
▶ Discussion of recently introduced collaborative technologies such as Vine and
Instagram
▶ Revised section on unified communications to feature critical capabilities
▶ Major revision of Case Study #1, now called “‘Telepresence Robots’ Support
Remote Collaboration”
▶ New Case Study #2, “Yahoo! Bans Telecommuting: Was It the Right Move?”
CHAPTER 9: KNOWLEDGE MANAGEMENT AND E-LEARNING
▶ Expanded discussion about incentives for knowledge sharing
▶ New discussion on technologies to prevent cheating in e-learning courses
▶ New “Did You Know?” anecdote about telepresence robots who attend classes
▶ New discussion about massive open online courses (MOOCs), also added as a key
term
▶ New “Productivity Tip” about taking an online course
▶ New Case Study #1, “Lynda.com: How an E-Learning Entrepreneur Rides Waves
of Change”
▶ Updated Case Study #2, “Diplopedia: Managing State Department Knowledge
with a Wiki”
CHAPTER 10: ETHICS, PRIVACY, AND SECURITY
▶ New discussion of Apple’s unique approach to music piracy with iTunes Match
▶ New figure on recent software piracy survey
▶ New discussion on an emerging “right to be forgotten” law, to ensure people can
erase their digital footprints
▶ New details added to discussion of encryption strategies
▶ Expanded discussion of mobile devices and security
▶ New Case Study #1: “Zynga Kills Petville and Angers Virtual Pet Owners”
▶ Updated Case Study #2 to include recent massive DDoS on Spamhaus
▶ Revised and simplified E-Project #1
CHAPTER 11: SYSTEMS DEVELOPMENT AND PROCUREMENT
▶ New “Did You Know?” anecdote on smartphone app
▶ Updated examples of feasibility studies
▶ New “Productivity Tip” about clarifying the scope of work to avoid disagreements
▶ Updated examples on consulting
▶ Updated Case Study #2 with recent research findings on agile methods
CHAPTER 12: PROJECT MANAGEMENT AND STRATEGIC PLANNING
▶ Tightened up discussion of the five project management processes
▶ New figure showing the top strategic technology trends currently underway
▶ Updated Case Study #1 with current information on technologies and their location
on the hype cycle

xxvi Preface
▶ New figure on hype cycle with current technologies
▶ Updated E-Project #1 with more recent Gartner predictions
End-of-Book Comprehensive Case Studies
▶ New Case Study #3: “Apple: Can the Company Pull Off Another Disruptive
Innovation?” (replaces case on Clearwire)
▶ Red Cross case updated to include the Safe and Well Website.
▶ Facebook case updated and revised to include uproar over Instagram’s privacy and
ownership challenges
▶ Updated “Managing the Federal Government’s IT Project Portfolio” to incorporate
recent steps by federal government to get control over IT spending
To the Student
Any college student thinking about the job market can’t help but notice how valuable it
is to have skills related to information systems. In this course you will learn what infor-
mation systems are all about and why they are so fundamental to business and society. It
will be an exciting journey, filled with revelations about business strategies, technology
trends and innovations, and also tips that will help you work smarter as a student. Here
are the main features of this text and its supplements:
Learn by Doing: The Interactive, Online Role-Playing Simulations
A course on information systems should tap their power for active, experiential learning.
This text includes interactive role-playing simulations in MyMISLab™ (mymislab.com)
in which students can apply their knowledge and actually experience what each chapter
is about, not just memorize key terms and concepts. You will enter realistic and often
tense situations, interacting with the characters via a simulated smartphone or laptop,
and using email, text messages, web conferencing, video chat, voicemail, dashboards,
ordering screens, and other applications. Each simulation is scored and students receive
extensive feedback on the choices they make. Each one also includes key terms from the
chapter (with rollover definitions) so you see how they are used in context, which will
help you more easily remember their meanings.
The simulations bring the chapter alive, as you enter authentic settings in which
people struggle to solve a problem involving information systems. Some examples:
▶ In World of Mammals (Chapter 1), you help the harried director of a wild ani-
mal preserve interview candidates for the CIO position, after the former CIO leaves
abruptly. What skills does a CIO need? What kind of experience would fit best?
▶ Chocolate Lovers Unite (Chapter 7) challenges you to resolve a heated debate over
which online marketing pitch works best by conducting tests, analyzing the results,
and drawing on data-driven decision making.
▶ In Green Wheeling, the simulation on software development and procurement
(Chapter 11), you join a task force charged with replacing a college’s obsolete fund-
raising system. You and your team members weigh the pros and cons of “build” or
“buy,” and you will see how the outcome can change based on your decisions.
▶ Vampire Legends drops you into a fast-paced, tense situation in which the material in
Chapter 10 (Ethics, Privacy, and Security) comes to life in an online game company that
is racing to launch a sequel. When troubling things begin happening that involve the
company’s data center and information security, you will have difficult choices to make.
I’ve done research on games and simulations in education, and have led several proj-
ects to create software that draws on the compelling features of these environments for
learning. While online flash cards, Q&A games, and other interactive applications can
help students memorize terms or review the chapter contents, simulations that immerse

prefaCe xxvii
students in a relevant and authentic case can do more. Research shows they create en-
gagement, improve learning outcomes, and build critical thinking skills through active,
student-centered involvement. You will find it much easier to learn and remember the
material in the textbook when you can engage in simulations like this.
The Human Element in Information Systems
In addition to the simulations, this text brings a fresh perspective to the introductory
course in information systems that combines comprehensive and up-to-date coverage
with a stronger focus on the human element in businesses, nonprofits, and other organi-
zations. It covers all the major topics for the course in a rigorous way, without skimping
on any of the fundamentals. But it enriches those topics with probing discussions about
the roles people play in building, shaping, implementing, and sometimes obstructing
information systems.
In Chapter 8 on collaborative technologies, for example, students learn how different
channels affect the tone of human communications, and how to choose the best channel
for each task to support virtual teamwork, management, negotiation, and leadership.
Chapter 12 on project management and strategic planning shows how human biases can
creep into the process.
The text also stresses the processes and policies that people devise to manage infor-
mation systems. Why do some high-tech companies ban telecommuting, even though em-
ployees have well-equipped home offices? Why do organizations implement surveillance?
Exploring Technology Battlegrounds
Grand battles over technology directions help students understand the close links be-
tween competitive business strategies and information systems. The stakes are very high
in debates about topics such as net neutrality, 4G standards, wireless spectrum auctions,
cloud computing, programming languages, mobile operating systems, mobile payment
systems, and social network privacy. Billions of dollars are on the line for winners and
losers. Yet most people know little about these battlegrounds because the underlying
technology issues are out of reach. After reading this text, students will look at online
ads, privacy policies, social networks, and their own smartphones with a new apprecia-
tion for the fierce business competitions unfolding before their eyes.
Reaching a Changing Student Body
The text recognizes the growth in the number of women, minorities, international stu-
dents, online students, and nontraditional students who enroll in this course, drawing
on examples and settings that will resonate with them. Devon, for instance, is starting
her own web design business, and students learn about relational databases by helping
her build one for her small business (Chapter 4). International student Prakash is the
cofounder of Leveling UP!, a smartphone app that is the centerpiece for the interactive
role-playing simulation on business strategy (Chapter 2). In the chapter on knowledge
management and e-learning (Chapter 9), Sally takes an online course in nonprofit man-
agement as she nears retirement and helps her own company build an e-learning course
for the coworkers she’s leaving behind.
Balancing Coverage of Business, Government, and Nonprofits
This text broadens the coverage about information systems to include all the varied set-
tings in which students work (or will work). It draws on timely examples from multina-
tional corporations, nonprofits, government agencies, midsized businesses, start-ups,
charities, volunteer organizations, student clubs, and other settings. The text highlights
how these different organizations launch information systems to fulfill their missions,
whether that means generating profits, attracting donations, or serving citizens.

xxviii prefaCe
The strategies that underlie cell-phone marketing, for instance, work as effectively
for nonprofits that want to mobilize citizens as they do for businesses that tempt new
customers with discount coupons. And competitive advantage is not just for business.
Charities compete for volunteers and donations, and they benefit from customer relation-
ship management systems.
Changing Student Roles
Just as students are gaining employment in a wide variety of organizations, they are
taking on more varied roles within them. Though some will become information sys-
tems managers, many more will become consultants, business analysts, accountants,
marketing professionals, talent development specialists, volunteers, virtual team leaders,
forensic experts, legal advisors, and project managers. The text introduces emerging pro-
fessions, as well, such as data scientist.
Examples in the text, case studies, and simulations feature all these different roles,
showing how successful information systems emerge from a broad base of stakehold-
ers with different perspectives and specialties. Carlos, for instance, is the instructional
designer on a corporate e-learning development team, adding his knowledge of usability
and accessibility for people with disabilities (Chapter 9). In Chapter 11, Lily is a senior
manager for an online grocery who comes up with a clever website to capture a valuable
market—busy singles who forgot to buy groceries.
Emphasizing Ethics
Ethical concerns weave throughout the text, touching on very human ethical dilemmas
such as the one Wikipedia founder Jimmy Wales faced when asked to delete any posts
that mentioned the name of a journalist kidnapped by the Taliban. That action was
directly opposed to his site’s fervent commitment to free speech, and Wales raised a fire-
storm within the Wikipedia community when he had to make a choice.
A special feature in each chapter titled “The Ethical Factor” explores timely ethical
issues such as corporate responsibility in extended supply chains (Chapter 5), or the eth-
ics of massive surveillance and collection of big data by governments and corporations
(Chapter 3). In Chapter 10 on ethics, privacy, and security, students take a survey to
learn more about how they judge situations that touch on information ethics. The online
simulation for that chapter immerses students in a tense situation in which security is
compromised and they face some difficult ethical dilemmas.
Here is a list of all the “Ethical Factor” boxes:
1. Ethical Issues Surrounding Information Systems, p. 23
2. Ethical Responsibility in an Extended Value Chain, p. 45
3. Ethical Implications of Big Data, p. 70
4. Ethical Issues in Database Design: The Case of Ethnic Identification, p. 110
5. Ethics and Talent Management, p. 138
6. Website Accessibility: Why Is Progress So Slow? p. 174
7. The Ethics of Tagging Faces in Photos, p. 202
8. Flash Mobs and Free Speech: Should Police Block Mobile Messaging
Services? p. 244
9. Knowledge Sharing in Fast-Paced Industries: The Case of Formula One
Racing, p. 269
10. Ethical Dilemmas in a Distributed Denial of Service Attack, p. 302
11. Developing Systems That Promote Ethical Decision Making and Social Respon-
sibility, p. 331
12. Code of Ethics for Project Managers, p. 356
Working Smarter, Not Harder: Productivity Tips for Students
Every chapter includes several “Productivity Tips” that suggest ways students can im-
prove their own productivity by applying what they’ve learned.

prefaCe xxix
In Chapter 2 on information systems and strategy, for instance, a tip invites students
to check out the software trial versions that came preinstalled on their computers to see
how companies leverage this valuable product positioning, and then remove them to save
space and improve the computer’s performance. A tip in the section on neural networks
in Chapter 7 advises students to alert their credit card companies before traveling abroad
because a neural net may trigger a very ill-timed block on the card. Another tip points to
solid productivity gains for people who use two monitors, which is especially helpful for
students with laptops.
These tips are not only immediately useful. They help you learn chapter material by
applying it so you can work smarter, not harder.
Highlighting Globalization and International Contexts
Information systems play a key role in globalization, especially through the Internet and
all the creative destruction it unleashed. Examples abound throughout the text, high-
lighting how Baidu captured the search engine market in China (Chapter 2) or how Ikea
manages a global supply chain (Chapter 5). The global financial crises underscore the
important work of the International Accounting Standards Board—to promote trans-
parent and enforceable financial reporting for companies around the world using XBRL
tags—from the XML family of standards (Chapter 5). The international emphasis also
unfolds in working relationships across national borders. For example, the chapter on
collaboration (Chapter 8) follows a team planning a campaign to launch a string of
clubs in several major cities, and the team’s members hail from Dallas, Texas, and Hong
Kong. As they use collaborative technologies that span the Pacific, this dynamic virtual
team works through differences in time zones, communication styles, and culture.
Inspiring Students to Pursue Promising Careers
Finally, an important goal of this text and its supplements is to convey the sheer excite-
ment and limitless potential of this field, with an eye toward inspiring students to go fur-
ther. Inside are countless examples of how savvy men and women leverage information
systems to transform organizations of all stripes, and even build new empires. The text
includes many job descriptions, job growth rates, and projected salaries, as well.
Some of the excitement comes from groundbreaking technological advances, such
as IBM’s “Watson”—the supercomputer that competed on “Jeopardy!” and soundly de-
feated the game’s human champs in a dramatic live broadcast. The disruptive innovations
that topple some industries and open star-studded paths for others are also part of the
excitement. GPS dealt a crushing blow to map makers, and the Internet did the same to
print newspapers. But both events opened up vast new territory for innovative start-ups.
To further stimulate interest, each chapter includes short “Did You Know?” snippets
to highlight an engaging or amusing application of the chapter’s topic. For example, the
chapter on hardware, software, and networks (Chapter 3) features a coffee shop whose
zany owner constantly renames the free wireless network to different messages, such as
“BuyAnotherCupYouCheapskate.”
If students catch some of this energy and enthusiasm, they may decide to pursue this
field. Those who do will have outstanding career prospects in the private and public sec-
tors, and they’ll never be bored.
supplements
The following supplements are available at the Online Instructor Resource Center,
accessible through www.pearsonhighered.com/wallace:
Instructor’s Manual
The Instructor’s Manual, assembled by Jollean Sinclaire and John Hupp, includes a list
of learning objectives and answers to all end-of-chapter questions.

www.pearsonhighered.com/wallace

xxx prefaCe
Test Item File
The Test Item File, prepared by ANSR Source, Inc., contains more than 1,300 ques-
tions, including multiple choice, true/false, and essay. Each question is followed by the
correct answer, the learning objective it ties to, a course learning objective, and difficulty
rating. In addition, certain questions are tagged to the appropriate AACSB category.
Powerpoint Presentations
The Instructor PowerPoints, prepared by John Hupp, highlight text learning objectives
and key topics and serve as an excellent aid for classroom presentations and lectures.
Image Library
This collection of the figures and tables from the text offers another aid for classroom
presentations and PowerPoint slides.
TestGen
Pearson Education’s test-generating software is available from www.pearsonhighered.
com/irc. The software is PC/MAC compatible and preloaded with all of the Test Item
File questions. You can manually or randomly view test questions and drag-and-drop to
create a test. You can add or modify test-bank questions as needed. Our TestGens are
converted for use in BlackBoard, WebCT, Moodle, D2L, and Angel. These conversions
can be found on the Instructor’s Resource Center. The TestGen is also available in Re-
spondus and can be found on www.respondus.com.
CourseSmart
CourseSmart eTextbooks were developed for students looking to save on required or
recommended textbooks. Students simply select their eText by title or author and pur-
chase immediate access to the content for the duration of the course using any major
credit card. With a CourseSmart eText, students can search for specific keywords or
page numbers, take notes online, print out reading assignments that incorporate lecture
notes, and bookmark important passages for later review. For more information or to
purchase a CourseSmart eTextbook, visit www.coursesmart.com.

www.pearsonhighered.com/irc

www.respondus.com

www.coursesmart.com

chapter 1 InformatIon SyStemS and PeoPle xxxi
Acknowledgments
Many thanks go to all the reviewers who took time to comment on manuscripts, sim-
ulation storyboards, case studies, and other features of the text. Their feedback and
suggestions were extremely valuable, and they help ensure the text and its ancillaries
will meet the needs of faculty and students.
Dennis Adams, University of Houston
Joni Adkins, Northwest Missouri State University
Sven Aelterman, Troy University
Solomon Antony, Murray State University
John Appleman, State University of New York
College at Brockport
Bay Arinze, Drexel University
Janine Aronson, University of Georgia
John Kirk Atkinson, Western Kentucky University
Robert Balicki, Cleary University
Cynthia Barnes, Lamar University
Stephen Barnes, Regis University
Peggy Batchelor, Furman University
Jon Beard, George Mason University
Hossein Bidgoli, California State University—Bakersfield
Robert Bonometti, MGB Enterprises LLC
Ted Boone, University of Kansas
Uptal Bose, University of Houston; Rainer
David Bradbard, Winthrop University
Jason Chen, Gonzaga University
Joselina Cheng, University of Central Oklahoma
Steve Clements, Eastern Oregon University
Phillip Coleman, Western Kentucky University
Emilio Collar, Jr., Western Connecticut State University
Steve Corder, Williams Baptist College
Dave Croasdell, University of Nevada, Reno
Albert Cruz, National University
Mohammad Dadashzadeh, Oakland University
Don Danner, San Francisco State University
Dessa David, Morgan State University
Carolyn Dileo, Westchester Community College
Michael Douglas, Millersville University
Doris Duncan, California State University—East Bay
Barbara Edington, St. Francis College
Kurt Engemann, Iona College
John Erickson, University of Nebraska at Omaha
William Figg, Dakota State University
David Firth, The University of Montana
Anne Formalarie, Plymouth State University
Saiid Ganjalizadeh, The Catholic University of America
Richard Glass, Bryant University
Tanya Goette, Georgia College & State University
Sandeep Goyal, University of Southern Indiana
Martin Grossman, Bridgewater State University
Bin Gu, University of Texas at Austin
Laura Hall, University of Texas—El Paso
Rosie Hauck, Illinois State University
Jun He, University of Michigan—Dearborn
Devanandham Henry, Stevens Institute of Technology
Michelle Hepner, University of Central Oklahoma
John Hupp, Columbus State University
Jerry Isaacs, Carroll University
Brian Janz, University of Memphis
Jon (Sean) Jasperson, Texas A&M University
Brian Jones, Tennessee Technological University
Junghwan Kim, Texas Tech University
Philip Kim, Walsh University
Sung-kwan Kim, University of Arkansas at Little Rock
Charles S. Knode, University of Maryland University
College
Brian Kovar, Kansas State University
Bill Kuechler, University of Nevada at Reno
Louis LeBlanc, Berry College
Albert Lederer, University of Kentucky
Ingyu Lee, Troy University
Mary Locke, Greenville Technical College
xxxi

xxxii aCknowledgmentS
Sanchita Mal-Sarkar, Cleveland State University
Nancy Martin, Southern Illinois University Carbondale
Prosenjit Mazumdar, George Mason University
Roger McHaney, Kansas State University
William McMillan, Madonna University
Tonya Melvin-Bryant, North Carolina Central University
Kimberly Merritt, Oklahoma Christian University
Allison Morgan, Howard University
Fui Hoon (Fiona) Nah, University of Nebraska—Lincoln
Sandra Newton, Sonoma State University
Ravi Paul, East Carolina University
Adriane Randolph, Kennesaw State University
Betsy Ratchford, University of Northern Iowa
Mandy Reininger, Chemeketa Community College
Nicolas Rouse, Phoenix College
Paula Ruby, Arkansas State University
Werner Schenk, University of Rochester
Daniel Schmidt, Washburn University
Aaron Schorr, Fashion Institute of Technology
Paul Seibert, North Greenville University
Narcissus Shambare, College of St. Mary
Larry Smith, Charleston Southern University
Toni Somers, Wayne State University
Todd Stabenow, Hawkeye Community College
James Stewart, University of Maryland University College
Joe Teng, Troy University Troy Campus
Evelyn Thrasher, Western Kentucky University
Jan Tucker, Argosy University
Jonathan Whitaker, University of Richmond
Bruce White, Quinnipiac University
Anita Whitehill, Mission College
G. W. Willis, Baylor University
Charles Willow, Monmouth University
Marie Wright, Western Connecticut State University
Jigish Zaveri, Morgan State University
Chen Zhang, Bryant University
Thanks also go to the excellent work of Ilene Kahn and Kaylee Rotella at Pearson
Education, and Emily Bush at S4Carlisle Publishing Services also deserves special
mention. As in any organization, there are many people behind the scenes whose ef-
forts make all the difference in a project like this, and though unnamed, they deserve
recognition and thanks.
I also want to thank Jollean K. Sinclaire of Arkansas State University and John
Hupp of the Columbus State University who made the end-of-chapter materials and
Instructor’s Manual into the best resources I’ve seen for a text like this. They are filled
with thoughtful questions, engaging projects, and useful material for both students
and faculty.
Many thanks to Bob Horan, my editor, whose commitment to this project has
always been unwavering. He eagerly supported the development of the online simula-
tions, even when they were just sample storyboards loaded with branching scripts and
“if-then” pseudocode. Bob knows the introductory MIS world better than anyone,
and his instincts about what works for students and faculty are right on target.
And finally, thanks to Julian and Callie, and also Keiko, Lili, and Marlene, a list
that includes my very supportive human family and our four-footed companions.
Your Feedback is Welcome
To all of you who are using this book, as professors, teaching assistants, and students,
I welcome your thoughts and feedback. Please email your comments, questions, and
suggestions, and I’ll be eager to hear how your course goes.
Patricia Wallace, Ph.D.
pwallace@jhu.edu

Introduction to
Information Systems

Learning Objectives
Describe the main roles that information systems play in organizations.
Compare the terms data, information, and knowledge, and describe three characteristics that make
information valuable.
Describe the four main components of an information system and the role that each plays.
Identify several research areas in the discipline of management information systems (MIS).
Provide examples of how business, nonprofit, and government managers, as well as information technology
departments, depend on information systems knowledge.
Explain how information systems present both promises and perils, and pose ethical questions.6
1
4
2
5
3
C H A P T E R
1 information systems and People
AT THE HEART OF EVERY ORGANIZATION IS ITS INFORMATION
SYSTEMS, and that is what this course is all about. Google,
Twitter, Microsoft, and Facebook are all popular companies
on the cutting edge of technology, and their innovations and
competitive battles make front page news. But even orga-
nizations that don’t seem very high tech—from a family-
owned restaurant to a fitness gym—can hardly do without
information systems, or without people who know how to
build and manage them.
Consider The World of Mammals, for example, the ani-
mal preserve featured in the interactive simulation for this
chapter. Director Yolanda Whalen is a veterinarian, but she
knows very well that this preserve won’t succeed without top
notch information systems and a qualified person to provide
leadership. She is asking you, as an enthusiastic volunteer
and a student learning about information systems, to help
interview potential candidates and join the team that will
decide who is best suited for this role. What skills, knowl-
edge, and abilities should this person have—beyond manag-
ing payroll and ticket sales—to take advantage of innovative
technologies that will make The World of Mammals the most
successful preserve in the country?
This opening chapter highlights information systems in
action, the nature of information itself, and the four main
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.
# 149079 Cust: Pearson Au: Wallace Pg. No. 2
Title: Introduction to Information Systems/ 2e Server:
C/M/Y/K
Short / Normal
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S4carliSle
Publishing Services

chapter 1 InformatIon SyStemS and PeoPle 3
components of every information system. You will see how
the information systems (IS) discipline is changing and
growing, and why a solid understanding of this subject will
give you a critical edge, regardless of your major or career
path. Finally, the chapter examines the promises and perils of
information systems and the many ethical issues that arise
with the phenomenal power within everyone’s reach.
Information is an organization’s most important asset. Creating, capturing, organizing, storing, retrieving, ana-lyzing, and acting on information are fundamental activi-
ties in every organization. The skill with which you carry
out those tasks will be the deciding factor for not just your
company’s success, but for your own as well. This book is
about information and the systems that people develop and
manage to perform all those tasks and more.
You will see how these systems work, why they are cre-
ated, how they have become the organization’s central ner-
vous system, and why they sometimes fail. You will also learn
to tap the power of information systems to help your com-
pany compete or your organization become more effective.
Finally, you will become more productive yourself—working
smarter, not harder—in college, in your career, at home, and
throughout your life.
Like the information they manage, information systems
cover a very broad scope and contribute to many different
activities in an organization. What roles do they play and
how do they transform work? The next section shows the
enormous variety of settings in which innovative informa-
tion systems play a role, well beyond the very useful Google
searches.
The World of Mammals
A Role-Playing Simulation on Choosing a New CIO for an Animal Preserve
Sh
ut
te
rs
to
ck
.
MyMISLab Online Simulation
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Title: Introduction to Information Systems/ 2e Server:
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Publishing Services

4 IntroductIon to InformatIon SyStemS
InfoRmATIon SySTEmS In ACTIon
▶ Dancing with the Stars became a smash reality TV hit by engaging millions of
viewers in judging the contestants. Hopeful celebrity couples compete each week
with a novel dance routine, and audience members cast a vote for their favorite by
phoning, sending text messages, or logging into the show’s website. An information
system on the back end tallies the results, which count for half the couple’s score.
The system must be able to handle enormous incoming volume in a very short time
period to get accurate tallies.
▶ Hurricane Sandy arrived just before the November 2012 elections in the United
States, and many voters could not make it to the polls. Officials in New Jersey
decided to let people vote by email, but county clerks were overwhelmed by the vol-
ume in their inboxes. Although glitches and security concerns are not uncommon
with electronic voting, information systems are playing a more important role every
year. Disabled voters, for instance, can now use tablets to vote, eliminating the need
for expensive custom-made voting machines.
▶ Walmart, with some $446 billion in net sales in 2012, pioneered the globe’s most effi-
cient information system to track shipments as they move from supplier factories to
warehouses to retail stores. Tags attached to pallets transmit information wirelessly,
so Walmart execs know exactly where merchandise is in the supply chain and can
spot trouble immediately.
When those bulky computers first entered company basements
in the 1970s, the term information system brought up images of
payroll programs, general ledgers, invoice tracking, and inventory
management. Those back-office functions are still critically impor-
tant, but today’s information systems have migrated into every facet
of an organization, touching every employee from the mail clerk to
the CEO. They also extend well beyond the company’s boundaries,
reaching out to customers, clients, suppliers, partners, citizens, and all
kinds of stakeholders. Their hardware might be as vast as Google’s
data centers or far smaller than Walmart’s pallet tags. And their con-
nections could be the thick fiber-optic cables on the ocean floor or
electromagnetic waves in the air around you.
Multinational firms, small businesses, nonprofits, governments,
volunteer organizations, self-employed entrepreneurs, universities,
and other organizations rely on information systems for a host of rea-
sons, and they continue to adapt, expand, and interconnect them to
achieve their strategic objectives. These systems play critical roles in
six major areas (Figure 1-1).
Managing Operations
Every successful organization must excel at operations management, which involves the
design, operation, and improvement of the systems and processes the organization uses
to deliver its goods and services. Some of these deal with several very basic functions that
are part of every business. Information systems are crucial for tracking employee pay-
roll, taxes, benefits, and timesheets. Accounting information systems are essential to track
accounts receivable, to process transactions, to procure goods and services, and to pay the
suppliers. Organizations also must manage their assets and inventories, from the comput-
ers and the desks they sit on to the massive factories and equipment located in far corners
of the globe. Eric Schmidt, former CEO of Google, once remarked that he had no idea
how many data centers Google actually managed. He might not have known, but his back-
office information systems certainly did.
Information systems designed to handle the processes involved in these functions
must also meet compliance standards set by governments and other regulatory agencies,
Describe the main roles that information
systems play in organizations. 1
Collaborating
on Teams
Gaining
Competitive
Advantage
The Six Major
Roles of
Information
Systems
Supporting
Customer
Interactions
Managing
Operations
Improving
Individual
Productivity
Making
Decisions
FIGURE 1-1
The major roles of information systems in organizations.
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chapter 1 InformatIon SyStemS and PeoPle 5
operations management
The area of management concerned with
the design, operation, and improvement of the
systems and processes the organization uses
to deliver its goods and services.
which may change from time to time and also vary by country or state. Reports must
be filed, audits passed, and changing regulations followed. Extensive regulations put
into place after the global financial crisis of 2009, for example, set tighter standards
for accounting practices—particularly in banking—and demanded more transparent
reporting.
Many organizations choose commercially produced information systems to handle
their back-office information needs, relying on software packages such as SAP, Oracle,
NetSuite, or QuickBooks. Some organizations are moving these functions to service
providers or even outsourcing them entirely. India became known as the world’s
“back office” because so many companies moved these applications there,1 and now the
Philippines is becoming the world’s biggest operator of call centers.2
Depending on their missions, organizations also need information systems to manage
industry-specific operations, such as these:
▶ Manufacturers need systems to manage assembly lines, product quality, production
schedules, and just-in-time supply deliveries (Figure 1-2).
▶ Colleges and universities need systems to manage student academic records, class
scheduling, faculty assignments, and student financial aid (Figure 1-3).
▶ Transportation companies rely on information systems equipped with GPS to track
their fleets, optimize routes, and conserve gas.
▶ Companies that buy products from suppliers around the globe need real-time
updates on their global supply chains to manage inventories and reduce costs.
Achieving excellence in operations can provide enormous cost savings and competi-
tive advantage, as companies shave every ounce of fat out of their processes without
sacrificing quality. UPS drivers, for instance, know to avoid left turns on their delivery
routes when possible, because they take a few seconds longer, wasting time and gas.
Systems that support operations are discussed in Chapter 5.
Safety Metrics
P
ro
d
u
ct
io
n
V
o
lu
m
e
P
ro
d
u
ct
io
n
V
o
lu
m
e
Production Volume by Category
Temperature Humidity
70
Production Volume by Hour
60
50
40
30
20
10
0
7 8 9 10 11 12 13 14
Hour
Hour
15 16 17 18 19 20 21 22 23 24
70
60
50
40
30
20
10
0
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 247 9 101 111 121 131 141 151 161 171 181 191 202 22 232 242212 28
Rejected
Quality Metrics
High
Medium
Low
A
B
C
D
26
15
25
23
FIGURE 1-2
Manufacturing information system
displaying production volumes and
other metrics.
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6 IntroductIon to InformatIon SyStemS
Supporting Customer Interactions
Interactions with customers, clients, students, patients, taxpayers, citizens, and others
who come to your organization desiring a product or service are fundamental to success.
Your customers pay the bills. Customer relationship management (CRM) systems, discussed
in Chapter 5, build and maintain relationships and support all the processes that
underlie them.
A brick-and-mortar retail store, for example, needs a sales system that identifies each
product in the shopper’s basket, tallies the total, feeds the data to the inventory sys-
tem, and accepts various kinds of payment. Shoppers want fast checkouts, and they get
annoyed by clumsy, inefficient processes. When an item lacks its barcode, impatient cus-
tomers may just abandon it rather than wait for a salesclerk to track it down. Strategies
to prevent theft, such as the check on weights added to the bag, also anger shoppers
when they do not function properly.
Web-based shopping and self-service transform relationships with customers, free-
ing them from time-consuming phone calls. These web-based processes often mimic
the brick-and-mortar versions, with “shopping carts” and “checkouts” clearly labeled.
A web application offers many opportunities to build stronger relationships and also
better understand the motives and desires of each person who visits.
Scattered throughout Amazon.com’s site, for example, are recommendations based
on previous purchases, encouragements to “review this book” or “rate this item,” special
discounts and coupons, storage space for your wish lists and gift ideas, and many other
innovative features to map out your preferences and build a stronger relationship. All of
this data contributes to Amazon’s customer relationship management excellence and the
company’s understanding of what each customer wants.
Infinite variations in customer interaction exist, from American Idol’s cell-phone vot-
ing to the Internal Revenue Service’s e-file system. Developing these relationships is not
just about improving sales and collecting receipts. It is about building long-term loyalty
and satisfaction by listening to customers and learning what is most important to them.
That also includes sensitivity to their privacy concerns, as we discuss in Chapter 10.
Making Decisions
How should a restaurant manager make decisions like the ones in Figure 1-4?
Managers make decisions every day, and many rely mainly on their own judgment.
In fact, researchers surveyed 250 executives and learned that 40% of major corporate
decisions were based on gut instincts.3 Smart managers, however, know that informa-
tion systems support data-driven decision making, which draws on the billions of pieces
of data to reveal important trends and patterns. For example, the sales system will show
how much the restaurant makes in the last hour of business, and that data will help the
manager make a good decision about closing early.
Business intelligence refers to all the information managers use to make decisions,
and it can come from many sources beyond the organization’s own information systems.
MyCollege MyTools MyClasses MyProfile
Update contact info
View schedules
Submit request
View requirements
Register for courses
Course Days Time Location
Bus 111 MW 14:00–15:00 Macintyre
Bus 111 MW 15:00–16:00 Doyle
Bus 112 T-TH 9:00–10:45 Student Services
Bus 112 – – Online
Bus 112 M 9:00–11:45 Garcia
Bus 113 W 1:00–2:45 Doyle
FIGURE 1-3
Student information system with
online services for students and
faculty.
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chapter 1 InformatIon SyStemS and PeoPle 7
data-driven decision making
Decision making that draws on the billions
of pieces of data that can be aggregated to
reveal important trends and patterns.
social networking sites
Online communities of people who create
profiles for themselves, form ties with others
with whom they share interests, and make
new connections based on those ties.
business intelligence
The information managers use to make
decisions, drawn from the company’s own
information systems or external sources.
The restaurant manager, for example, might combine customer records with publicly avail-
able information about income levels by zip code to help make a smart decision about
where to open another branch.
Decision support systems and business intelligence, discussed in Chapter 7,
encompass a growing and varied category that blends rapid analysis of informa-
tion sources with artificial intelligence
and human knowledge. For knowl-
edge workers, in particular, the value
of knowing how to draw upon those
vast mountains of information to make
wise decisions is extremely high.
Collaborating on Teams
Collaboration and teamwork have considerable support from innovative information systems
that allow people to work together at any time and from any place. Regardless of where they
live and work, participants can hold online meetings, share documents and applications, and
interact using microphones, video cameras, and whiteboards. Social networking sites support
online communities of people who create profiles for themselves, form ties with others with
whom they share interests, and make new connections based on those ties. These social groups
exploded in popularity as people jumped at the chance to share news, photos, videos, and
tidbits. Figure 1-5 shows usage rates for the larger social networking sites. Services that target
business users, such as Microsoft’s Sharepoint, offer additional useful services such as shared
calendars and group document editing.
The huge success of social networks prompts many corporations to launch experi-
ments to see how their collaborative features could support business. Research analysts
predict that 50% of large companies will depend heavily on internal social networks for
customer relationship management
(CRM) system
An information system used to build customer
relationships, enhance loyalty, and manage
interactions with customers.
Can we save
money by closing
an hour earlier?
Where should we
open another
branch of our
restaurant?

Should we add
more fish to the
menu?
Should we offer
free wifi to
customers?

FIGURE 1-4
How do managers answer questions like these?
Did You Know?
Your online behavior is one of the most important sources of business intelligence.
The sites you visit and the links you click reveal your interests and intentions, and
marketers try to display ads that match just what you are looking for. Spending
for digital ads should top $55 billion by 2016.4
S
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rc
e:
A
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on
A
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/S
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8 IntroductIon to InformatIon SyStemS
their employees by 2016, and that, for many of them, the network will be at least as
important as email is now.5
Developing information systems for collaboration takes ingenuity and attention to
the ways in which people really do work together. The possibilities are endless, and differ-
ent groups have different preferences. In online university courses, for example, debates
about whether students should turn on their webcams during virtual class sessions are
common. Many prefer to keep them turned off, valuing the privacy that invisibility
creates. (One can doze off in a virtual class with little concern for detection.)
The information systems that support virtual teamwork, discussed in Chapter 8, are
in some respects still in their infancy—especially compared to the more mature systems
used to manage operations. Expect many improvements as we learn more about what
features work best for different people and different situations.
Gaining Competitive Advantage
Information systems play what could be their most valuable role when they are tied
closely to strategy and to the major initiatives that will help achieve competitive advan-
tage—a topic we take up in Chapter 2. Competitive advantage, which is anything that
gives a firm a lead over its rivals, can be gained through the development and applica-
tion of innovative information systems. Information systems are a fundamental part of a
company’s strategic vision. Indeed, the vision itself is often shaped by what these systems
can achieve today and what is possible for the future.
Consider how Apple’s iPhone got the jump on smartphone competitors with Siri,
the intelligent personal assistant. Siri responds to spoken commands such as “Tell my
brother I’ll be late,” and also answers questions like “Any Italian restaurants near here?”
The iPhone’s market share rose to over 50%, in part because no other smartphone had
anything like Siri. But competitive advantage can be fleeting, and IBM has plans to
develop a supercharged personal assistant for mobile phones based on “Watson,” the
supercomputer that surprised the world by defeating two Jeopardy champions.6 Time
will tell which personal assistant wins the most hearts.
Strategy is equally important to nonprofit organizations and government agencies, and
their information systems break new ground by offering new services to the public, stream-
lining operations, and improving decision making. For instance, U.S. citizens can apply for
social security benefits online, rather than wait in line. Government strategies to combat
terrorism also involve information systems—and analysis of immense volumes of data.
Those strategies raise important ethical dilemmas, discussed in Chapters 3 and 10.
Improving Individual Productivity
Tools to help people improve their own productivity abound, from the smartphones that
combine voice calls with web browsing, contact databases, email, music, and games, to the
many software applications that eliminate tedious work. Even word processing has trans-
formed work in every organization, and many students aren’t aware of all the ways that
software can make them more productive. You can, for example, automatically create and
properly format your term paper references by integrating a bibliographic manager such
as EndNote or RefNote. Online libraries and reference databases offer links to export the
% Internet Users Who Use . . .
Any social networking site 67%
Facebook 67%
LinkedIn 20%
Twitter 16%
Pinterest 15%
Instagram 13%
Tumblr 6%
FIGURE 1-5
Social networking sites and their
demographics.
Sources: Duggan, M., &
Brenner, J. (February 14, 2013).
The demographics of social media
users – 2012. http://pewinternet
.org/Reports/2013/Social-media-
users.aspx, accessed March 25,
2013. Carlson, N. (February 27,
2012). Infographic: Who really uses
LinkedIn? Business Insider, http://
www.businessinsider.com/infographic-
who-really-uses-linkedin-2012-2,
accessed March 25, 2013.
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http://pewinternet.org/Reports/2013/Social-media-users.aspx

chapter 1 InformatIon SyStemS and PeoPle 9
competitive advantage
Anything that gives a firm a lead over
its rivals; it can be gained through the
development and application of innovative
information systems.
information
Data or facts that are assembled and
analyzed to add meaning and usefulness.
data
Individual facts or pieces of information.
citation in any format, so typing
is unnecessary.
To improve productivity at
work, people can choose from a
bewildering variety of computer
software and electronic devices,
but more is not necessarily bet-
ter. You should select carefully,
with an eye to the functions
you need most, ease of use, and
short learning curves. No one
likes reading thick instruction
manuals. Throughout this book,
you will see productivity tips
in boxes—like the ones on this
page—that will help you improve
your own productivity.
THE nATuRE of InfoRmATIon
Except for words like the, a, and, if, and it, the word information was once one of the most
common words on the Internet. No wonder people called the net an “information” storehouse.
The term information is critical to understanding how information systems work, but it can
be very slippery.
Facts, data, intelligence, knowledge, and even tips are synonyms for information,
and they all touch on characteristics of the “stuff” that information systems can man-
age. For our purposes, the term data refers to individual facts or pieces of information,
and information refers to data or facts that are assembled and analyzed to add meaning
and usefulness. A patient’s single high-temperature reading at a 24-hour walk-in clinic
in Maryland is one piece of data. But entered into the clinic’s information system, and
combined with the patient’s other symptoms and previous medical records, it becomes
far more valuable as a diagnostic tool.
We gain even more from this one temperature reading by combining it with data from
other patients entering all clinics that week. The patterns may warn of a flu outbreak, or even
a major epidemic. The health staff at the Centers for Disease Control in Atlanta, Georgia,
draw on data like this to map the spread of diseases and take swift action to protect the public.
Refining, analyzing, and combining information makes it more and more useful
and meaningful, and the effort adds to our ability to use it to make decisions and take
action. The path from data to information, and then to knowledge, is a continuum, and
Figure 1-6 shows some examples. No clear dividing lines separate these categories;
they blend together and form a continuum as more meaning and usefulness are created
through skillful analysis and human insight.
What Makes Information Valuable?
Separating useful information from the trivial is no easy task given the sheer volume of
information on the planet. Three characteristics stand out, however, that contribute to
making some information very valuable: (1) timeliness, (2) accuracy, and (3) completeness
(Figure 1-7).
Timeliness matters a great deal in some settings, and near real-time information often
costs more. For example, people pay monthly fees to financial services to get up-to-the
minute stock prices, rather than the delayed price reports shown on free stock tickers you
PRODUCTIVITY TIP
Time management experts advise that you process your email inbox to zero,
flagging important messages and rerouting others by using automated
filtering tools. Stop devoting time to tasks that technology can do for you,
and don’t be a slave to your email.
PRODUCTIVITY TIP
Many colleges and universities have agreements with software companies to
offer discounts to their students. Before you buy software, check with your
IT department. Once you leave student status behind, you’ll be hard-pressed
to find deals like the ones you can get now.
2 Compare the terms data, information, and knowledge, and
describe three characteristics that
make information valuable.
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10 IntroductIon to InformatIon SyStemS
can add to your own browser. Riswan Khalfan of TD Securities says his system can han-
dle a breathtaking 5 million pieces of data per second, far more than most other banks.
He points out that “if you fall behind, you’re dealing with stale data and that puts you
at a disadvantage.” With timely, up-to-date trading data, Khalfan’s systems can make
quicker decisions, which he argues are better (Figure 1-8).7
Accuracy may seem like an obvious feature of valuable information, but there actu-
ally are degrees of accuracy. The more accurate you want the information to be, the
longer it may take to obtain, making extreme accuracy a trade-off to timeliness. A CEO
who wants to know how much competitors charge for a rival product, for example, might
wait too long for staff to scour all the distribution channels and assemble the data. An
approximate but timely answer is more valuable.
Completeness adds value, particularly as a means to avoid bias or spin. A marketing
survey that polls customers as they enter a store will completely miss those who shop
online, for example. The survey results would be incomplete without taking greater care
to assess the interests of all the customers. Striving for complete information, however,
may also introduce delays that affect timeliness.
Data Information Knowledge
Patient’s temperature at walk-in
clinic on Dec. 15 = 103.9º F.
Table showing flu diagnoses
in region during month of
December
Worldwide map of flu outbreaks
suggesting pandemic
01010011 01001111 01010011 Binary code for SOS HELP!!!
Microsoft (MSFT) closing
stock price
Graph of Microsoft highs and
lows for one year
Combined with analysis of other
information, leads to broker’s
recommendation to buy, hold,
or sell stock
CWOT Complete Waste of Time
(text messaging abbreviation)
May be interpreted as an insult
GPS coordinates Map showing location with
push pin
Location of Taj Mahal in India
Invoice #259 Total Amount =
$139.23
Total Sales for Southern Region
in First Quarter = $2,156,232
Fastest growing sales region;
consider broader marketing
campaign
Timeliness
Accuracy
Completeness
FIGURE 1-6
Examples of the continuum from
data to information to knowledge,
as meaning and usefulness grow.
FIGURE 1-7
What makes information valuable?
FIGURE 1-8
Timeliness is a critical attribute for
certain kinds of information, such as
stock prices.“If you fall behind, you’re
dealing with stale data.” –Riswan
Khalfan
Source: Shutterstock
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chapter 1 InformatIon SyStemS and PeoPle 11
information system
A system that brings together four critical
components to collect, process, manage,
analyze, and distribute information; the
four components are people, technology,
processes, and data.
Web 2.0
The second generation of web development
that facilitates far more interactivity, end-user
contributions, collaboration, and information
sharing compared to earlier models.
user-generated content (UGC)
The content contributed to a system
by its users.
THE ComPonEnTS of An
InfoRmATIon SySTEm
An information system, whether it is that speed camera network, a company’s payroll system,
or a social networking service, brings together four critical components to collect, process,
manage, analyze, and distribute information: (1) people, (2) technology, (3) processes, and
(4) data (Figure 1-9).
People
The design, development, launch, and maintenance of any information system involves
teams of people. They play a number of different roles—as visionaries, developers, and man-
agers of information systems, and also as analysts, liaisons, users, customers, contributors,
and sometimes roadblocks. Often underestimated, the human element plays a crucial role in
the success or failure of most information systems, and you will see many examples of that
throughout this book.
Leaders may be first to propose a system that will accomplish an important strategic
objective for the company. However, innovative ideas for such systems come from every
level, provided the organization’s culture openly encourages people to think about how
information systems can help. Managers and staff from many departments participate
on teams with technologists to design a new system or evaluate commercial systems that
might be purchased. The information technology team usually works closely with staff in
marketing, finance, human resources, and other functional areas to launch user-friendly,
people-oriented systems.
Many systems draw from a much wider pool of people, involving users as contributors
and developers, not just customers or clients. User-generated content (UGC), for example,
makes up most of the information in systems such as Wikipedia, eBay, Craigslist, YouTube,
Facebook, and Twitter. These systems would not exist without generous contributions
from the community. UGC is an important ingredient in Web 2.0, the second generation of
3 Describe the four main components of an information system and the role
that each plays.
People Technology
DataProcesses
FIGURE 1-9
The four components of an
information system.
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12 IntroductIon to InformatIon SyStemS
web development that facilitates far more interactivity, end-user contributions, collabora-
tion, and information sharing compared to earlier models. Social networking and virtual
meetings are all features of Web 2.0.
The people who manage systems that tap UGC work hard to promote the positive
contributions and even harder to keep the criminals and pranksters from taking over. For
instance, scammers in Texas copied photos from legitimate “Home For Sale” ads, then
posted them as “For Rent” on Craigslist. People who wanted to rent one of the houses
sent in their deposits to the fake landlord who was “out of town,” only to learn later the
home was never for rent at all. Craigslist founder Craig Newmark tirelessly helps the
organization deal with issues like that one. The number one tip is to “deal locally with
folks you can meet in person.”
Technology
Information technology (IT) includes hardware, software, and telecommunications. IT
is one of the four components of an information system, though people often use
the terms interchangeably. Rack after rack of servers in Google’s windowless data
centers are examples of this component, along with all the desktop computers, lap-
tops, netbooks, tablets, cell phones, navigation devices, digital cameras, scanners, and
sensors. Anything capable of collecting, processing, storing, or displaying electronic
data is potentially part of an information system. The transponder chip on your car’s
windshield that allows electronic toll collection is another example. The battery-
powered device sends a signal to the tollbooth; in some areas, drivers don’t even need
to slow down.
Software ranges from the code needed to boot up a computer to programs with arti-
ficial intelligence and their own learning capabilities. The Internet and the World Wide
Web unleashed an explosion of software creativity, transforming businesses around the
globe. Organizations can create applications that their partners, suppliers, and customers
can access anywhere on the planet.
Telecommunications and networks are also part of IT, and the term information
and communications technology (ICT) is often used to refer to the broader collection. The
main role of the telecommunications component is to move electronic signals from one
place to another, route traffic, and add features to improve transmission speeds, elimi-
nate noise, increase security, or analyze traffic patterns. The infrastructure includes
both wired and wireless transmission.
Increasingly, people favor wireless transmission because of its flexibility and reduced
cost, though speed still lags. Many developing countries that can’t afford to build wired
networks are transforming their communications and expanding Internet access through
wireless transmission. In much of sub-Saharan Africa, for example, copper wiring may
never be deployed at all. Wireless is also more likely to stay up and running during storms
that bring down utility poles and wires.
While the “people” component and UGC play key roles in Web 2.0 developments,
technology is a major driver of what some call “Web 3.0.” As hundreds of millions
of sensors are embedded in vehicles, doorways, livestock, warehouse shelves, ocean
buoys, and anything else, and all are connected to the net, we begin to glimpse the
power of “the Internet of things.” The sensors can pick up geographic location, tem-
perature, motion, wind speed, pollution indicators, heart rate, and much more. When
combined with traditional data sources and UGC, these immense, rapidly growing
collections are known as “big data,” and they offer stunning opportunities for innova-
tion. As the web continues to evolve, new skills and tools will be needed to analyze big
data intelligently.8
Processes
A business process is a set of activities designed to achieve a task. Organizations imple-
ment information systems to support, streamline, and sometimes eliminate business
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chapter 1 InformatIon SyStemS and PeoPle 13
information technology (IT)
The hardware, software, and
telecommunications that comprise the
technology component of information
systems; the term is often used more broadly
to refer to information systems.
information and communications
technology (ICT)
The term encompasses the broad
collection of information processing and
communications technologies, emphasizing
that telecommunication technology is a
significant feature of information systems.
processes. Countless decisions are made about how each process should operate, what
rules it should follow, how information should be handled from input to output, and
especially how the information system will support the process. For example, should
the system log every change an employee makes to the data? Will the system require
supervisors to electronically approve all purchases or just those above a certain value?
What decisions can the information system make on its own based on incoming data
and rules, and which ones require human judgment?
Managers develop policies that affect information system processes and the systems
can enforce those policies. A major policy category involves security. How will the system
authenticate the user, and what access will he or she be granted? If the system requires a
password, how long should it be, and when will it expire?
The steps in any process are affected by thousands of decisions people make, and these
are influenced by the way people look at process improvements. For example, some orga-
nizations try to design systems that just reproduce what employees were doing, thereby
reducing labor. In a college registrations office, employees might send letters to students
who could not enroll in a class that they selected to explain why they were denied. One
improvement might be to design a feature that automatically generates form letters to
those students with their name and address, the class they selected, and a list of the most
common reasons they could not register. Instead of typing the letter, the employees can
check the reason and stuff the letter into an envelope (Figure 1-10). The staff would be
pleased with this handy new efficiency, though students might think the new letters are a
bit mechanical.
A closer look at the process, however, might lead to far more radical changes.
Moving to online registrations, for instance, could eliminate the process entirely. If a
class is full, or if the student isn’t eligible to take it, the registration system should not
allow the student to choose it, thus eliminating the need to send letters at all. This new
NARA SELLERS
143 LA GUARDIA STREET
JACKSON, AZ
Dear Student:
We are sorry to inform you that we are unable to confirm your registration for the
class listed below for the reason checked:
FALL BMGT 322 SECTION 5
◻ The class is full.
◻ Your records show you have not fulfilled the prerequisites.
◻ The class is only open to juniors or seniors.
◻ Your tuition payment has not yet been received.
◻ Other_________________________________
Please contact the Registrations Office if you have any questions.
Sincerely,
Registrations
FIGURE 1-10
Although automatically generating
letters like this one provides some
process improvement, information
systems can do much more. This
process could be eliminated entirely.
business process
A set of activities designed to achieve a task;
organizations implement information systems
to support, streamline, and sometimes
eliminate business processes.
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14 IntroductIon to InformatIon SyStemS
design, shown in Figure 1-11, would please students because they would get instant
confirmation that their class choices were available. Also, they would no longer receive
frustrating form letters that foil their academic plans. Registrations staff, however, may
worry about layoffs.
Business process management (BPM) is the field that focuses on designing, optimizing,
and streamlining processes, taking into account the human element. Analysts look at
processes from many different angles to weigh input from all stakeholders, suggest inno-
vative approaches that leverage the power of information systems, and propose tweaks
at every step. Software is available to simulate business processes and conduct “what if”
experiments to assist with the analysis.
Efforts to manage business processes also take into account the overall organiza-
tional culture and its approach to information systems. Does the organization need very
tight controls over every piece of information and employees’ use of it? Banks, hospitals,
military units, and many other institutions bear heavy responsibilities to develop crystal
clear policies. They must safeguard sensitive information, and their missions affect the
way processes are designed. Free use of the Internet may not be permitted, and employ-
ees may not be able to take files home on portable USB flash drives to catch up over the
weekend. Some organizations even push epoxy glue into the desktop computers’ USB
ports to prevent anyone from copying data. In contrast, people involved in a free-wheeling
start-up or a volunteer organization may not be too concerned with where or when peo-
ple work, how secure their information is, or whether staff post party photos on the
company servers.
Business processes and organizational policies must also be reviewed frequently
because circumstances change quickly. Numerous corporate scandals, for example, have
led to stiff laws about retaining electronic documents. If there is a pending legal case,
businesses have a duty to preserve electronic files that might be relevant, including email.
E-discovery refers to the processes by which electronic data that might be used as legal
evidence are requested, secured, and searched. Electronic documents that might be rel-
evant to a case cover a very wide scope, and they can be quite slippery to manage as
people edit, cut and paste, and make copies–not just on the company’s computers but on
their own smartphones and tablets.9
Is student
eligible to
take class?
Is class full?
Student logs into
registration system
System retrieves
student records and
class records
System does not
allow student to
choose class
System does not
allow student to
choose class
System allows
student to choose
class
Yes
Yes No
No
FIGURE 1-11
Process diagram for a smarter
registration system.
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business process management (BPM)
Focuses on designing, optimizing, and
streamlining business processes throughout
the organization.
e-discovery
The processes by which electronic data
that might be used as legal evidence are
requested, secured, and searched.
Data
Data are the grist for every information system, and these raw facts can present them-
selves in an enormous variety of shapes and forms. Figure 1-12 shows many examples
of data that become part of information systems. Using a mercury thermometer, for
example, a patient’s temperature reading would appear as the height of the mercury bar
in a glass tube. Data reflecting time intervals might appear as seconds on a stopwatch.
Data from spoken language are becoming especially important for smartphones and
other technologies that accept and analyze voice commands. VoicePrism, a Chicago-
based company that creates information systems to analyze vocal patterns, focuses on
the streams of data contained in phone conversations between call center agents and
customers. Although the words people use in these conversations reveal some informa-
tion about service quality, even more can be gathered from the tone of voice, tempo,
and other nonverbal data. When a customer’s vocal patterns suggest emotional stress, a
signal alerts a manager who can intervene to prevent any further escalation. Figure 1-13
shows an example of how voice sound waves vary.
Regardless of its initial form, incoming data is converted into digital format, which
allows it to be integrated in information systems, read by computer programs, and shared
across systems. Letters, numbers, money, colors, the tiny dots on an X-ray, air pollution
levels, musical notes, vocal frequencies, time intervals, and much more can all be repre-
sented in digital format.
FIGURE 1-12
Examples of data.
Photos: © Maxim Pavlov/Alamy, © D. Hurst/Alamy, ©Sandra Baker/Alamy, © PaulPaladin/Alamy,
© StockShot/Alamy, © Picture Press/Alamy.
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InfoRmATIon SySTEmS,
THE dISCIPlInE
The study of information systems—how people, technology, processes, and data work
together—is a lively discipline involving university faculty, private-sector analysts,
government researchers, and more. Many refer to the field as management information
systems (MIS), and academic departments in colleges and universities often bear that
name. (That term also is used to describe a type of information system that supports
decision making at the managerial level, discussed in Chapter 7.)
The field draws researchers and practitioners from business, computer science, psy-
chology, sociology, public administration, and many other subjects, all of whom have an
interest in learning more about how we can create systems to help organizations do more
with less, make companies more competitive, increase productivity, and improve the lot of
people around the world. Areas that attract much of the interest are shown in Figure 1-14.
MIS is a young discipline—barely 25 years old—and is changing rapidly. Examining
the articles in the major journals since the mid-1980s, researchers found a fascinating shift
in the topics.10 Hardly anyone was investigating the impact of IT on markets in the early
days, but the Internet changed that picture. The Internet offers remarkable opportunities to
invent global e-marketplaces for stocks, real estate, music, used books, rare antiques, and
FIGURE 1-13
Voice sound waves.
Source: Viktorus/Shutterstock
Identify several research areas
in the discipline of management
information systems (MIS).
4
Topic Sample Research Questions
Development of information
systems
What are the best ways to develop new software?
How should end-users be involved in the development process?
IT in organizations How should managers introduce change when new systems are
implemented?
What kinds of IT policies about “acceptable use” work best in
different organizations?
IT and individuals How should IT develop systems for the disabled?
What kinds of interfaces are easiest for people to use?
IT and collaboration in groups Why do virtual teams succeed or fail?
How can managers use social networking to promote innovation?
IT and markets How does the Internet affect the real estate business?
How should businesses promote online sales?
FIGURE 1-14
Major research topics in MIS.
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chapter 1 InformatIon SyStemS and PeoPle 17
management information systems (MIS)
The study of information systems—how
people, technology, processes, and data work
together. Also used to describe a special type
of information system that supports tactical
decision making at the managerial level.
even future spouses. How organizations
build trust and make a profit in these
worldwide e-markets are very hot topics.
Research on IT and group collabo-
ration, especially when team members
are dispersed around the world, is far
more important now because of virtual
teams and globalization. The psychol-
ogy of group dynamics subtly changes
when team members use online tools,
and the shifts are not always positive. Investigations of successful and unsuccessful teams
shed light on strategies people can use to make virtual teams more successful. Most stu-
dents engage in some virtual teamwork, especially those who take some or all of their
courses online. Virtual teamwork and collaboration skills are critical.
The “people” component of information systems is clearly growing in importance,
and this book stresses that element. Just making technology work is not enough to create
a successful information system.
InfoRmATIon SySTEmS THRougHouT
THE oRgAnIzATIon
Why should you learn about information systems? Consider these comments:
“My career is marketing, developing creative ad campaigns. Those IT folks
speak their own language and I speak mine.”
“I’m in human resources—the only system we use is the one the company set up.
It’s really a disaster, too. We really need a way to train new people faster, before
the ones who have all the knowledge here leave.”
“We’re a nonprofit volunteer organization. We can’t spend money on expensive
overhead like IT, so what’s the point? We don’t need anything fancy—just email
and word processing.”
These students don’t realize that the demand for people who are savvy about
information systems and how those systems can contribute to the whole organization’s
success, is skyrocketing.
Information Systems in Business
Information systems underlie most of the business activities and processes that thread their
way through every functional business unit, from the CEO’s suite to the Marketing Depart-
ment. Just about everyone uses email, cell phones, and the Internet, and most also rely on the
many information systems that support the company’s business processes. Strategic initia-
tives involving these systems can and should come from any corner of the organization to
streamline processes, reduce costs, increase revenue, or launch that “killer app.”
Whether your chosen career is marketing, finance, management, human resources,
research, sales, law, medicine, manufacturing, or as an entrepreneur, information systems
will be fundamental to your success. Consider these examples:
▶ A marketing manager who knows how to analyze the data from online ads will make
much smarter decisions about how to spend the marketing budget. This person can
finally counter that old joke about marketing: “I know that half the money we spend
on marketing is wasted. . . . I just don’t know which half!”
Did You Know?
As of 2013, almost 2.5 billion people are Internet users—about 34% of the world’s
population. Asia boasts the largest number of users, topping 1 billion. However,
Africa has the fastest growth rate, and many users there depend on wireless access.
Visit www.internetworldstats.com for data on specific countries.
5 Provide examples of how business, nonprofit, and government managers,
as well as information technology
departments, depend on information
systems knowledge.
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18 IntroductIon to InformatIon SyStemS
▶ A talent development professional who knows how to launch effective e-learning
modules will reach more employees for far less money, compared to the trainer who
hands out three-ring binders in face-to-face classes. The online learning programs
can also be easily updated, while information in the binders grows stale quickly.
▶ Self-employed consultants with some basic IT skills can launch websites, build social
networks, and purchase online ads—all for very little money.
Information Systems in Nonprofits and Government
If your career leads you to service in government, teaching, law enforcement, charities,
or other nonprofit areas, information systems will also be critical. In some of these orga-
nizations, however, funding for IT may not be high on the priority list. Beth Kanter, who
helps nonprofits adopt IT, says, “Typically, your nonprofit volunteer was a ‘do-er’ who
simply delivered their experience face-to-face.” But you can make an enormous contri-
bution to your organization’s success with knowledge of information systems. Consider
these examples:
▶ The most successful fund-raisers know how to draw on information systems to
analyze the preferences and motivations of potential donors. Linking demographic
data from the U.S. Census Bureau or other sources helps fund-raisers target their
audiences and develop far more effective campaigns compared to those who just
blanket a community with postcards or telemarketing.
▶ UNICEF relief workers who know how to create inexpensive podcasts and
“vodcasts” (podcasts with video) can relay the plight of children from war or
disasters in troubled parts of the world. Rather than spending money on radio or
TV broadcasts, workers freely distribute the short, timely, and compelling video
messages worldwide through the net.
▶ Many people say they want to volunteer to help a worthy cause, but they often don’t
unless the process is quick and efficient. Do-it, a website that matches volunteers in the
United Kingdom to places that need help, does just that. Every 45 seconds someone
finds what he or she is looking for, and Do-it’s research suggests that 30% of these peo-
ple wouldn’t have started volunteering without the user-friendly online matching system.
Inside the IT Department
The business unit responsible for planning, managing, and supporting information systems is
often called “Information Technology,” “Department of Information Systems,” “Enterprise
Information Systems,” or something similar. Within the department are more specialized
groups or individuals who oversee different areas. Figure 1-15 shows a hypothetical depart-
ment with some common subunits, but many variations exist. For instance, organizations
might outsource some responsibilities, working with vendors to provide services. Figure 1-16
describes the functions of common subunits.
Heading the department is the chief information officer (CIO), Vice President of
Information Systems, or similar title. The CIO might report directly to the CEO or to
another vice president—often the one responsible for finance and administration.
What characteristics does a CIO need? Strong leadership abilities, excellent commu-
nication skills, and knowledge of information and communications technologies are all
important, though the CIO does not need to be an expert in all technology areas. Relevant
experience and an educational background in business, information systems, or a related
field are also very helpful. As a senior executive, the CIO’s job is not just to oversee the
department, but also to help shape the organization’s strategic goals and ensure that the
information systems support them.
Working with the CIO, especially in larger organizations and major companies, are
more staff positions with “chief” in their titles, such as those in Figure 1-17. Their roles
span the activities of all the IT subunits and, indeed, the whole organization. “Chief”
seems to have caught on in IT, as it did in some other business areas. Even “Chief
Wisdom Officer” is turning up.
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chief information officer (CIO)
The person who heads the department
responsible for managing and maintaining
information systems, and ensuring they
support the organization’s strategic goals.
Collaborating on Information Systems
Nikia Sabri, marketing director at a Los Angeles consulting firm, thought she had a bril-
liant idea to reduce costs and improve her department’s results. Her eight-person staff was
frequently shorthanded because of traffic jams, sick kids, or closed schools; however, all
of them had computers and Internet access at home. Her boss had rejected work-at-home
proposals in the past, but she thought she could make a solid case for it—with the help
of the IT department. All staff had phones and email, of course, and most had accounts
CEO
CIO
Chief Privacy Officer
Enterprise Systems
Telecommunications
and Network Services
Data Center Operations
Systems Administration
Chief Security Officer
End-User Support
and Help Desk
FIGURE 1-15
Sample organizational chart for the
Information Systems Department.
IS Department Areas Function
Help Desk Provides services to internal and external customers on technology
issues; answers the phone or e-mail “help desk” and troubleshoots
problems; installs and maintains desktop equipment.
Systems Administration Installs, manages, and updates servers.
Operations Maintains the environmentally controlled areas in which servers
and communications equipment are located; handles backups
and archiving.
Enterprise Systems
and Applications
Develops, installs, maintains, and oversees the organization’s
mission-critical software applications.
Telecommunications
and Network Services
Installs and manages communications technologies and networks,
including voice, cell phones, and wireless networks.
FIGURE 1-16
Common functional areas in an
Information Systems Department.
Title Description
Chief Information Security
Officer
Oversees security, ensuring that confidential information is protected
from hackers, disasters, accidents, and rogue employees.
Chief Privacy Officer Manages privacy issues and helps shape policy about how sensitive
and confidential data about customers, citizens, employees, patients,
and others are handled and protected.
Chief Technology Officer Position is usually more technical compared to the CIO, overseeing
technology solutions and innovative uses.
Chief Knowledge Officer Manages efforts to improve the organization’s ability to capture,
nurture, and disseminate knowledge and expertise.
FIGURE 1-17
Besides the CIO, other “chiefs” play
leadership roles in an organization.
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20 IntroductIon to InformatIon SyStemS
on a social networking site, but she wanted heightened awareness of one another’s pres-
ence. Creative marketing people like to bounce ideas off each other, and she was looking
for a way to simulate the easy communication that nearby office cubicles create, in which
you might roll back your chair and ask your neighbor to take a quick look at your latest
drawing. Surely there were web-based applications and tools that would support this.
Where should she start? Her IS department published only a Help Desk number to sub-
mit a trouble ticket, so she tried that first. That unit’s software logged the ticket and sent out
its automated message. “Thank you for your message. The Help Desk will respond within
24 hours. For faster service, please check the Knowledge Base to see if the answer to your
question is there.” Although puzzled by her request, a technician stopped by and installed
a headset with microphone, wanting to be helpful and thinking that was what she needed.
Disconnects in communication between IT staff and others in the organization are not
uncommon, partly because of the jargon barrier. Frustrations rise when IT doesn’t respond
immediately to someone like Nikia. Like all functional business units, IT has a full plate of
ongoing projects, prioritized by the CIO working with the CEO and other top executives
to ensure that resources are wisely spent with a solid return on investment. The technician
had to move onto the next trouble ticket and wasn’t in a position to decide whether Nikia’s
project was worthwhile. Does that mean Nikia should forget her project? Absolutely not.
Successful organizations rely on innovations like this from people who know their work
best. Figure 1-18 lists some tips on how to improve communications between people like
Nikia and the IT department, which may sometimes seem impenetrable.
If you have good ideas like Nikia, taking this course will prepare you to interact
with the IT staff on projects. In fact, information technology and strategy are so closely
integrated with every aspect of business that everyone in the organization is really an
“information officer” who can contribute.11
For the CIO and IT Staff:
▶ Focus on business goals. The objective of a project is not to “upgrade all the servers,” but to
improve productivity, attract more customers, reduce costs, earn revenue, increase customer
loyalty, reduce carbon emissions, etc.
▶ Avoid jargon. Learn to speak the language your colleagues in other departments understand, and
reserve the technical jargon for internal IT communications.
▶ Communicate the value of IT. Although many focus on how much IT costs, the savings or revenue
IT generates through improved productivity or added sales are captured in other departments.
▶ Emphasize return on investment. Evaluate projects in terms of their ultimate payoff, the same way
business managers judge other kinds of initiatives.
▶ Be proactive. Propose and support innovative projects with clear business goals, rather than just
react to problems and proposals as they arise. Ensure that people like Nikia know how to contact
IT to discuss their innovative ideas.
▶ Embrace customer service. Strive for the highest level of customer satisfaction for your internal
customers, not just the ones who buy your company’s products and services.
▶ Become a hybrid. The most successful IT professionals have solid technology skills, but are also
very well grounded in the business so they can easily communicate.
For People in Other Areas:
▶ Describe your end goal, not the means to get there. The more your IT colleagues understand
what you want to accomplish, the better equipped they will be to help.
▶ Learn how to contact IT for different purposes. If you are not sure, ask.
▶ Be familiar with how information systems are already supporting your organization. Explore the
company’s intranet and review announcements about new initiatives.
▶ Network. Keeping in touch with your colleagues in and out of IT builds trust and creates networks
of people who can share knowledge.
▶ Do your homework. Especially after taking this course, you will be prepared to research your ideas
and the information system solutions others have attempted, so you are more familiar with what is
possible.
▶ Be an active partner. As your project develops, keep in close touch with IT to provide timely
assistance and feedback at every step. If you do not, the result may be quite different from what
you expected.
FIGURE 1-18
Tips for collaborating on information
systems.
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If you are in IT or want to be, taking this course will give you a much broader vision of
how information systems support strategic objectives and business goals, and how you can
collaborate with people in finance, human resources, and other units on high-profile projects.
Improving Your Own Productivity
How productive are you? Take the short quiz in Figure 1-19.
To find your score, add up the numbers for all questions except 4 and 6. For those
two questions, first reverse the score by giving yourself 1 point if you chose 7, 2 points if
you chose 6, and so on. Then add the reversed score to your total. If your total is higher
than 50, you have some good habits that are associated with high productivity, including
the use of information systems that can help you streamline.
High scores on this quiz also suggest you understand that some technologies are dis-
tracting and can reduce your productivity. If your total was much lower than 50, you can
make many improvements. You are also not alone. Microsoft surveyed 38,000 people in
200 countries to learn more about their productivity and the role that technology played.12
Though people reported working an average of 45 hours a week, they considered just 28
of those hours to be productive. And just 34% said they used computer-based scheduling
and other productivity tools.
Learning how information systems support organizations and their missions will
be critical to your success. Gaining the technical know-how to increase your own
productivity is just as important. This book will help you do that. Do you spend too
much time hunting for documents? Can you quickly find a phone number when you
need it? Are you managing your email and text messages effectively? Do you miss
deadlines? Do you rely on easily lost handwritten notes? The tips in each chapter
highlight ways to maximize your own personal productivity so you can work smarter,
not harder.
PRomISES, PERIlS, And ETHICAl ISSuES
Google’s corporate mission is to “organize the world’s information”—a daunting task
that stretches the imagination and promises to be an uphill climb. Yet information sys-
tems set off game-changing innovations every year, surprising even savvy technology
Not at All
True for Me
Very True
for Me
1. I empty my email inbox every day. 1 2 3 4 5 6 7
2. I keep a to-do list, and always keep it up to
date. 1 2 3 4 5 6 7
3. I use email filters to sort messages by how
important they are. 1 2 3 4 5 6 7
4. I stay logged into my social network most of
the day so I am alerted when updates occur
or messages appear.
1 2 3 4 5 6 7
5. I rarely print anything out. 1 2 3 4 5 6 7
6. I send and receive text messages very
frequently, though most are unimportant.
1 2 3 4 5 6 7
7. I focus on the most important projects and
can ignore distractions. 1 2 3 4 5 6 7
8. I have a clear vision of what I want to achieve
and make priorities. 1 2 3 4 5 6 7
9. I keep my calendar online rather than on
paper, and I keep it up to date.
1 2 3 4 5 6 7
10. My electronic files are very well organized. 1 2 3 4 5 6 7
FIGURE 1-19
How do you use technology to improve
your productivity? Take this short quiz.
Explain how information systems
present both promises and perils,
and pose ethical questions.
6
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22 IntroductIon to InformatIon SyStemS
leaders. In 1943, former IBM Chairman Thomas Watson said, “I think there is a world
market for maybe five computers.” But it was his own company that introduced the
IBM-PC, transforming not just the workplace itself, but the kind of work each of us is
capable of performing.
In the next chapter, examples of the promise of information systems for strategic ini-
tiatives are plentiful. Their perils, however, are not inconsiderable, particularly because of
the sheer scope of their impact. Information systems are so powerful, and the data they
contain so vast and personal, that everyone must appreciate the ethical issues involved in
their development and use.
Privacy Breaches and Amplification Effects
Privacy breaches present major risks. In the United Kingdom, for example, two com-
puter disks were misplaced by government workers. The tiny platters contained personal
data, including bank account information, on 25 million residents, and their black mar-
ket value was estimated at US$2.5 billion. Events like this one, in which information sys-
tems play a central role, can threaten the privacy and security of millions. These events
were once highly improbable, but because information systems have become ever more
powerful and interconnected, the risks are far greater.13 Minor mistakes are amplified
and a misplaced disk erupts into a major crisis.
Reputations are also far more vulnerable, given the power individuals have to spread
damaging information at lightning speed. Few corporations are equipped to respond to
such blitzes—accurate or not—that spread virally through channels such as YouTube.
When two disgruntled Domino’s Pizza employees uploaded a stomach-turning video shot
in the restaurant kitchen showing how they defiled the sandwiches, Domino’s corporate
office failed to respond for 2 days. The employees claimed it was just a prank, but before
it was taken down, the video had been viewed almost 1 million times.14 Domino’s eventu-
ally tackled the crisis head on and earned high marks for limiting the damage, but their
response during the first 24 hours was sluggish. Every organization’s crisis management
team, which is responsible for identifying, assessing, and addressing threats from unfore-
seen circumstances, must be on high alert for signs of any online firestorms. The teams
have very little time to take action.
The way modern informa-
tion systems amplify any com-
munication may put your own
reputation and livelihood at risk
as well. Any email you send or
photo you upload can be for-
warded or posted online for mil-
lions to view—and for attorneys
to collect as evidence. Text, pho-
tos, and videos uploaded to your social networking site can easily be distributed to a far
wider audience beyond your own network. It is also absurdly easy to make your own
blunders by clicking “reply to all” by mistake, and sending email to many more people
than you intended.17
These promises and perils make the study of information systems critically impor-
tant for us all, regardless of where we work or what kind of work we do. We all share
the responsibility for both harnessing the power of these systems and minimizing
their risks.
PRODUCTIVITY TIP
Digital footprints are extremely hard to erase, but services are emerging
that try to address people’s concerns.15 With mobile phone app Snapchat,
for instance, people can send a photo to a friend’s phone, and the image
disappears in 10 seconds. Even so, privacy is not guaranteed and users should
never assume the photo won’t spread far and wide.16
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chapter 1 InformatIon SyStemS and PeoPle 23
crisis management team
The team in an organization that is
responsible for identifying, assessing,
and addressing threats from unforeseen
circumstances that can lead to crisis
situations.
Situations like those described in this chapter raise troubling ethical issues:
▶ Who is responsible for damage caused by accidental leaks of private
information? The United Kingdom government worker who misplaced
the disks? The information systems professionals who designed a
flawed system? The person who found the disks and didn’t return
them? The citizens who failed to check credit reports?
▶ In the Domino’s case, did the employees who created and then
uploaded the video violate ethical principles? Is YouTube partly respon-
sible for allowing uploads of false, damaging, or illegal videos?
▶ Do people who send harsh emails deserve what they get if the infor-
mation leaks out? Is it ethical to broadcast a message you receive that
was accidentally misdirected?
Many of these questions have no easy answers. People tend to judge
the severity of ethical violations partly on the basis of the number of peo-
ple affected. When the power of information systems and the Internet are
involved, the potential for harm is exponentially amplified.
THE ETHICAL FACTOR Ethical Issues Surrounding Information Systems
You volunteer at The World of Mammals, the region’s largest enclosed animal preserve. Far more than a
zoo, the nonprofit preserve provides a reasonably natural
habitat for many endangered mammal species, and puts
the visitors in the “cages” rather than the animals. Miles of
chain-link-covered paths crisscross the preserve so people
can safely view the animals behaving normally, not pacing
back and forth in cramped exhibits. Visitors can also drive
around in specially protected jeeps, equipped with night
vision goggles after dark. The zoo’s revenue comes from
ticket and concession sales, special events, and donations,
but veterinary bills keep rising, and personnel costs for the
200+ employees continue to outpace what the zoo takes in.
The zoo’s chief information officer (CIO) left abruptly,
and zoo director Yolanda Whalen asked you—a longtime
supporter—to help select a new CIO. When you’re ready,
log in to meet Yolanda, learn about the zoo’s needs, and
start interviewing the finalists. . . .
MyMISLab Online Simulation
The World of Mammals
A Role-Playing Simulation on Choosing a New CIO for an Animal Preserve
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Key terms and concepts
Learning Objectives
Organizations rely on information systems for a host of reasons, and they play critical roles in
several contexts: operations management, customer interactions, decision making, collaboration
and teamwork, strategic initiatives, and individual productivity.
Data, information, and knowledge are terms along a continuum that reflect how raw facts can be
combined, assembled, and analyzed to add meaning and value. Characteristics of information
that add to its value include timeliness, accuracy, and completeness.
The four components of any information system are (1) people, (2) technology, (3) processes,
and (4) data. The “people” component covers far more than just the IT staff. It encompasses the
human element and involves people from many different parts of the organization. Customers
and suppliers also participate in improving processes and eliminating waste. Customers may
become contributors through user-generated content and Web 2.0 applications.
The young discipline of information systems attracts faculty and students from many fields,
private-sector analysts, government workers, and more. Research trends show the changing
nature of the field. Interest in subjects such as the role of IT in markets and in collaborative
group work has increased considerably.
Information systems contribute to success in every functional department and in all different
types of organizations. Learning how they make these contributions, and how you can lead
efforts to leverage their power, are important regardless of which career you pursue. This
knowledge will also improve your own productivity so you can work smarter, not harder.
Although information systems hold extraordinary promise, they also present risks and ethical
concerns, especially because of amplification effects. Privacy breaches occur frequently and the
damage can affect millions. Reputations are also more vulnerable because messages, whether
accurate or not, can spread so quickly.
1
4
2
5
3
6
operations management
customer relationship
management (CRM) system
data-driven decision making
business intelligence
social networking sites
competitive advantage
data
information
information system
user-generated content (UGC)
Web 2.0
information technology (IT)
information and
communications
technology (ICT)
business process
business process
management (BPM)
e-discovery
management information
systems (MIS)
chief information
officer (CIO)
crisis management team
1-1. What are the six primary roles that information sys-
tems play in organizations? How are information sys-
tems used in each context?
1-2. How is data different from information? How is infor-
mation different from knowledge? What are examples
of each?
1-3. What are the three characteristics that make information
valuable? Why is each a critical attribute of information?
1-4. What are the four components of an information
system? Describe each component. What are the five
functions that these components provide?
1-5. How are information systems important to manag-
ers in a variety of functional business units? What are
examples of ways that information systems are impor-
tant to the success of a marketing department, a human
resources department, and a small business owner?
chapter review Questions
C H A P T E R
1 chapter summary
24
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chapter 1 InformatIon SyStemS and PeoPle 25
1-6. What are the functional areas that are common to most
information technology departments?
1-7. What is the role of the chief information officer?
1-8. How do information systems offer promises to orga-
nizations? What are some of the perils of information
systems? What are some of the ethical questions asso-
ciated with the use of information systems?
1-9. As customers, students, patients, taxpayers, and citizens,
we are surrounded by information systems that support
customer interactions. Identify and describe two such
systems that you have used. Briefly describe the types of
customer interactions you have experienced with these
systems and compare what you found to be important
features of each one. Are there features or functions
that you would change or add to either system?
1-10. Web conferencing has been available for many years. In
this market space, products from Adobe, Cisco, Citrix,
IBM, and Microsoft compete with lower-cost or free web-
conferencing applications from AnyMeeting, Yugma,
and others. What are some of the advantages of using a
virtual meeting space? Are there disadvantages? Search
the web to learn more about online meeting rooms and
prepare a 5-minute presentation of your findings.
1-11. Information systems play a very large role in decision
making, and many would argue that you can always
use more information to make better decisions. But
sometimes digging deeply for more information leads
to troubling ethical dilemmas. Visit 23andme.com, the
website of a company that offers to read your DNA
from saliva for $99 and provide reports about disease
risk factors, ancestral lineage, and more. If you learn
of a significant health risk, should you tell siblings
who chose not to investigate their own DNA? Should
you tell your fiancée? List factors you should take
into account when making decisions about whether to
obtain information like this, and how to use it.
1-12. One way to be more productive and manage time is
to use the calendar feature of your email system. If
you use Microsoft Outlook, visit Microsoft.com and
search for “Outlook tutorial” or search the Internet
for an Outlook “how to” web page to learn how to set
up a calendar. Then create a calendar for the semester
that shows class times as well as test dates and project
due dates. Which reminder option did you select for
class times? Which reminder option did you select for
project due dates? Briefly describe several benefits of
using the Outlook calendar feature.
1-13. Who hasn’t heard of Netflix? Although Internet users
bemoan its annoying pop-up ads, the world’s leading
DVD rent-by-mail company has grown to more than
33 million customers who now have the option to stream
movies and TV episodes instantly over the Internet to
their TV, computer, iPad, or iPhone. Describe Netflix
in terms of (1) the types of information technology it
uses and (2) its customer-facing business processes.
1-14. Consider the information that is maintained by a bank.
In addition to customer records, the bank maintains
records on accounts and loans. Figure 1-20 and
Figure 1-21 are two examples of database tables for
a regional bank. How might this data be aggregated
and analyzed to create information and knowledge?
1-15. Parking is a problem at many universities across the
United States. Is it a problem on your campus? Describe
the business process to acquire a parking pass at your
school. Can you get a parking pass online? Can you get
one in person? How does your process compare to that
of a smaller school that uses a paper form to apply for
a parking permit? How can the smaller school use an
information system to improve this business process?
Can you think of a business process at your school that
can be improved with an information system?
1-16. A typical information technology department is com-
prised of common functional areas, and each requires
skills and competencies unique to that area. Search the
web or visit an online job search site such as careerbuilder
.com or monster.com to learn more about the IT func-
tional areas described in Figure 1-15. Select two func-
tional areas and compare job postings for each. In a brief
report, contrast the differences in education, experience,
and technical certification that are required for each job.
projects and discussion Questions
CustomerID Name Address City State Zip
100001 Don
Baker
1215 E.
New York
Aurora IL 60504
100002 Yuxiang
Jiang
1230 Douglas
Road
Oswego IL 60543
100003 Emily
Brown
632 Fox
Valley Road
Aurora IL 60504
100004 Mario
Sanchez
24 E. Ogden Naperville IL 60563
CustomerID
Account
Number
Account
Type
Date
Opened Balance
100001 4875940 Checking 10/19/1971 2500.00
100001 1660375 Savings 08/10/1973 1200.00
100002 1783032 Savings 05/15/1987 500.00
100002 4793289 Checking 05/15/1987 3200.00
100003 6213690 Checking 02/14/1996 6700.00
100004 1890571 Savings 10/16/2007 5300.00
100004 8390126 Checking 12/02/2008 2700.00
FIGURE 1-20
Customer table.
FIGURE 1-21
Accounts table.
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26 IntroductIon to InformatIon SyStemS
1-17. In June 2010, a security breach in the AT&T network
exposed the email addresses of 114,000 Apple iPad 3G
owners, many of whom were well-known business exec-
utives. The list of subscribers whose data were released
included Diane Sawyer of ABC News, New York City
Mayor Michael Bloomberg, and former White House
Chief of Staff Rahm Emanuel. Work in a small group
with classmates to consider the severity of this leak of
private information. In this case, is the severity of the
breach measured by the number of affected individu-
als or by the high-profile status of some of the sub-
scribers? What criteria are best for judging the severity
of a data leak? Prepare a brief summary of your group
discussion.
1-18. Information systems are fundamental to the success
of every functional business unit within an organi-
zation, from marketing to manufacturing to finance.
Work in a small group with classmates to share your
career choice and discuss how information systems
support processes within your field. Can you name
types of software applications that are used in your
chosen career?
application exercises
1-19. ExcEl ApplicAtion:
Manpower planning Spreadsheet
Precision Products specializes in custom-manufactured
metal parts. The production manager has asked you to create
an Excel spreadsheet to help manage operations. The com-
pany needs a way to calculate staffing requirements (num-
ber of employees) based on different levels of production.
The five manufacturing operations are fabrication, welding,
machining, assembly, and packaging. One unit of produc-
tion requires 1.5 hours for fabrication, 2.25 hours for weld-
ing, 0.7 hours for machining, 3.2 hours for assembly, and
0.5 hours for packaging. Create the Excel spreadsheet shown
in Figure 1-22 to calculate the weekly staffing required, at
40 hours per week, for production levels of 200, 300, 400,
and 500 units. How does the total required for each level of
production change if Precision Products operates a 45-hour
production schedule?
1-20. AccESS ApplicAtion:
information Systems in Business
Seconds Later, a clothing consignment shop, is fast becoming
a favorite place to shop. The owner has asked you to create
an Access database to help manage inventory. Download and
import the information provided in the spreadsheet Ch01Ex02
to create a database with two tables (Consignors and Items).
The owner wants you to add a calculated field to the Items
table that shows the net selling price after he has paid the com-
mission to the consignors. Start with two reports: an Inventory
Report and a Consignor Report. The Inventory Report sum-
marizes the inventory by item type. This report will include the
number of items and the total selling price for each item type,
plus the total sales value of each inventory type. It will also
include the potential commission that the consignors will earn
if the owner sells all items. The Consignor Report will list the
total number of items and the total selling price and commis-
sion for each consignor. What other reports could you make
with this data that would be useful to the owner?
FIGURE 1-22
Managing operations of Precision Products using Excel.
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chapter 1 InformatIon SyStemS and PeoPle 27
case study #1
The world’s largest “floorless” exchange handles hun-dreds of millions of trades every day. Buys and sells happen so fast that each trade has to be time-stamped
to the nanosecond. First launched in 2000, Nasdaq OMX is, above
all, a technology company, and it successfully competes against
the venerable New York Stock Exchange (NYSE) on its breathtaking
trading speed.
When most people think of an exchange, they think of NYSE’s
enormous building on Wall Street, with loud-mouthed traders on the
floor shouting orders, racing stock tickers, and giant LCD screens laden
with charts, numbers, and ticker symbols. In fact, most exchanges are
in data centers, not in neoclassical buildings. And they are also for-
profit businesses that compete for companies to list their shares, and
for investors and brokers to conduct their trades.
Speed matters, and Nasdaq OMX technology can handle 1 million
messages per second. It matters so much that some heavy traders—
Goldman Sachs, for example—pay Nasdaq OMX for the privilege of
locating their own server in Nasdaq’s data center, just to avoid the tiny
communication delay from Goldman offices. A trader’s servers can
instantly detect any delay and can then automatically check other
exchanges to see if the trade can be rerouted.
As in other businesses, improved information systems and tech-
nology drive prices down. In the early 2000s, NYSE and Nasdaq OMX
shared 90% of the market, but competition pushed that figure down
to 45%. Traders can use other exchanges with cheaper prices or
they can buy and sell stocks in “dark pools”—private groups whose
members trade with one another.
Facebook’s Public Offering
Nasdaq’s focus on technology and lightning fast trading speed were
reasons Mark Zuckerberg chose to use that exchange to take Face-
book public in 2012, so people could invest in the company directly.
The choice was a major competitive win for Nasdaq, which also car-
ries high tech companies such as Apple, Google, Groupon, and Zynga.
However, Nasdaq lost out to other exchanges for Yelp, LinkedIn, and
Pandora. Facebook’s initial public opening (IPO) was expected to be
one of the largest in history.
During the first few hours of the first trading day, however, techni-
cal glitches at Nasdaq caused many delays and chaos, and the ex-
change had to switch to a secondary system. At some points, they
even had to complete orders manually. The botched opening caused
many clients to lose millions, and the technical issues added to un-
certainty about pricing.
Critics blamed poor decision making at Nasdaq for the costly
mess, insisting that the company put profits ahead of risk manage-
ment. For example, Citigroup claimed that the decision to switch to an
untested backup system rather than interrupt trading to fix the prob-
lems was a major mistake, one that was mainly driven by a desire to
avoid embarrassment during such a high profile event.
After the first days of trading, Facebook’s share price dropped
about 18%, and those who purchased the new stock suffered huge
losses. While other factors may have contributed to the bungled open-
ing, Nasdaq took responsibility for the technical problems and is at-
tempting to make amends. The company agreed to pay $62 million to
clients who suffered losses as a result of the glitches, but lawsuits are
still pending. Some clients claim to have lost over $350 million.
High Frequency Trading
Another looming problem for Nasdaq OMX is computer trading based
on algorithms, or “algo-trading.” With machines talking to machines,
racing with one another to close the deal at the best price, trading
volume can skyrocket quickly. Humans use their judgment to craft the
mathematical rules; once in place, however, the systems can trigger
frenzied rounds of trading.
Some argue that these high-frequency trades make the markets
more efficient and equitable, so the big players on the trading floor
don’t have an advantage. While Nasdaq OMX and other exchanges
compete for the growing number of algo-traders, analysts worry that
the sheer technological speed introduces serious risks. When mar-
kets dropped a gut-wrenching 9% on one afternoon in 2010, some
suspected a clumsy algo-trader who accidentally triggered the event
(Figure 1-23). Though the real cause of that roller-coaster “flash crash”
was never clear, such programmed trades were the clear cause of a
similar event back in 1987.
But algo-traders defend their strategy by pointing out that they
could not easily trade large numbers of shares at fair prices with-
out the “speed of light,” because the trades would signal their in-
tent to other traders. Once that happened, the prices would change
dramatically.
The Securities and Exchange Commission is studying how these
rapidly advancing technologies are affecting the markets, but unlike
the Nasdaq OMX trades, their work is not at the speed of light.
Nasdaq’s Information Challenges: Facebook’s Botched Public Opening
and High Frequency Trading
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28 IntroductIon to InformatIon SyStemS
FIGURE 1-23
Flash crash on May 6, 2010.
Source: Staffs of the CFTC and SEC to the Joint Advisory Committee on Emerging Regulatory Issues,
“Preliminary Findings Regarding the Market Events of May 6, 2010,” May 18, 2010. http://www.sec.gov/
sec-cftc-prelimreport
.
discussion Questions
1-21. How has Nasdaq’s business benefited from the use
of information systems?
1-22. What risks do information systems pose for Nasdaq OMX’s
business?
1-23. This chapter discusses the value of information. What types
of information are handled through Nasdaq systems, what
are the key characteristics of this information, and how do
Nasdaq customers use this information to create value?
1-24. What does the example of Goldman Sachs paying to locate
its server in the Nasdaq data center say about the relation-
ship between information systems and physical operations?
Sources: Father of algorithmic trading seeks speed controls. (November 28, 2012).
Traders’ Magazine.com, http://www.tradersmagazine.com/news/father-of-algo-trading-
seeks-speed-controls-110574-1.html, accessed March 20, 2013.
Geron, T. (2013). Quantopian brings algorithmic trading to the masses. Forbes, http://
www.forbes.com/sites/tomiogeron/2013/01/23/quantopian-brings-algorithmic-trading-to-
masses/, accessed March 20, 2013.
Grant, J. (2010). “Algo-trading” changes speed of the game on Wall Street. Financial Times,
May 8, p. 2. Document ID: 2028321931.
Heires, K. (2013). Nasdaq and AX trading look at block trade alternative to HFT. Institutional
Investor, http://search.proquest.com/docview/1319779107?accountid=11752, accessed
June 9, 2013.
Lynch, S. N. (March 5, 2013). SEC shares expertise with FBII on algorithmic trading. Reuters,
http://www.reuters.com/article/2013/03/05/sec-algo-fbi-idUSL1N0BXHRV20130305,
accessed March 20, 2013.
McCrank, J. (April 8, 2013). Citi files claim with Nasdaq for compensation from Facebook
IPO. Reuters, http://www.reuters.com/article/2013/04/08/us-citigroup-nasdaq-facebook-
idUSBRE93713720130408, accessed April 13, 2013.
Schaefer, S. (2012). Report: UBS Lost $350 Million on Facebook IPO, Prepping Suit Against
Nasdaq. Forbes.Com, 30.
SEC Denies Nasdaq Algo Plan. (2013). Compliance Reporter, 12.
Strasburg, J., Ackerman, A., & Lucchetti, A. (June 11, 2012). Nasdaq CEO lost touch amid
Facebook chaos. The Wall Street Journal, A.1, http://search.proquest.com/docview/1019610
028?accountid=11752 accessed June 9, 2013.
case study #2
When a city councilman in Atlanta, Georgia, spot-ted a woman on the street suffering a seizure, he quickly pulled out his cell phone. It showed
low on battery, so instead of dialing 911 and getting stuck on hold,
Councilman Hall tapped out a short tweet:
“Need a paramedic on corner of John Wesley Dobbs
and Jackson st. Woman on the ground unconscious. Pls
ReTweet”
Several of the councilman’s followers immediately saw his text
message and dialed 911. Paramedics arrived quickly to take the
woman to the hospital.
Twitter, the microblogging service best known for trivial updates
on everyday events that might amuse or bore one’s followers, has a
growing role in emergency response. The service empowers people
with the ability to gather and disseminate information about emer-
gencies and disasters, and this information can be far timelier than
Breaking News: Twitter’s Growing Role in Emergencies and Disaster Communications
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http://www.sec.gov/sec-cftc-prelimreport

http://www.tradersmagazine.com/news/father-of-algo-trading-seeks-speed-controls-110574-1.html

http://www.forbes.com/sites/tomiogeron/2013/01/23/quantopian-brings-algorithmic-trading-to-masses/

http://www.reuters.com/article/2013/03/05/sec-algo-fbi-idUSL1N0BXHRV20130305

http://www.reuters.com/article/2013/04/08/us-citigroup-nasdaq-facebook-idUSBRE93713720130408

http://www.forbes.com/sites/tomiogeron/2013/01/23/quantopian-brings-algorithmic-trading-to-masses/

http://www.reuters.com/article/2013/04/08/us-citigroup-nasdaq-facebook-idUSBRE93713720130408

http://search.proquest.com/docview/1319779107?accountid=11752

http://search.proquest.com/docview/1019610,028?accountid=11752

chapter 1 InformatIon SyStemS and PeoPle 29
anything government authorities or organizations such as the Red
Cross can provide.
During the Red River Valley flood in 2009, for example, millions
of tweets tracked the location and timing of flooding events, rising
in volume with the water. The short messages offered on-the-ground
observations of conditions, along with the worry, fear, and finally joy
that residents felt when the floodwaters receded. They also passed
along—or “retweeted”—official news from regular sources, such as
TV or state government. When a rare earthquake hit the east coast in
2011, Twitter users sent messages to reassure one another, and some
of them outpaced the quake itself so recipients knew it was coming
minutes before the news reported it.
Twitter was widely used to communicate during and after
Hurricane Sandy in 2012, and over a third of the 20 million tweets
shared news and eyewitness accounts. Tweeters appreciated the real-
time updates from fellow victims. For example, they heard first-hand
accounts of how high the water was rising on different streets. No
news channel carried such detail, and when mistaken information
was posted, other Tweeters quickly corrected it.
In the aftermath of a major earthquake in Haiti, a graduate stu-
dent at the University of Colorado launched a project to improve
Twitter’s usefulness, called “Tweak the Tweet.” Kate Starbird’s goal
was to develop syntax for tweets originating from the disaster sites,
so they could be better organized and read by computer programs
(Figure 1-24). The freewheeling unstructured tweets about victims
who needed help were repurposed into more structured messages
with “hash tags”—keywords preceded by a pound sign (#). Computer
programs can read these to categorize who is involved, what is
needed, where the problem is, and what else might be happening.
With this syntax, the tweets can be fed into disaster response systems
that can aggregate information from many sources, mapping areas
of need, the location of victims, sources of supplies, and much more.
The Red Cross and other disaster response organizations recog-
nize that people are relying more heavily on social media such as
Twitter for support during emergencies. In fact, social media are so
prevalent that, in one survey, more than a quarter of the respondents
said they would send a direct Twitter message to emergency respond-
ers, not realizing that aid organizations are not well prepared to moni-
tor Twitter and other services. They also have few means to assess
the value of information received in this way. It may be timely, but is
it accurate? It might be a child’s exaggerated report or a hoax from
some scammer.
Despite the drawbacks, Twitter’s value for emergency response
and disaster communications may be phenomenal. Japan is pilot-
ing a disaster communication system that takes advantage of Twitter,
having learned that regular phone lines often fail during devastating
earthquakes and floods. People can use their mobile phones or com-
puters to summon help or report problems. Craig Fugate, an admin-
istrator at the Federal Emergency Management Center, said, “Social
media can empower the public to be part of the response, not as
victims to be taken care of.”
discussion Questions
1-25. What are the potential benefits of Twitter and other social
media for emergency and disaster communications?
1-26. What are the potential risks of using Twitter and other social
media for emergency and disaster communications?
1-27. What types of education would be necessary at the user level
to make Twitter and other social media more effective for
emergency and disaster communications?
1-28. What would need to happen on the part of aid organizations
and traditional media for Twitter and other social media to be
effective in emergency and disaster communications?
Sources: Atlanta councilman chooses Twitter over 911 to report emergency. (May
19, 2009). EMS World, http://www.emsworld.com/news/10339592/atlanta-councilman-
chooses-twitter-over-911-to-report-emergency, accessed March 20, 2013.
Berfield, S. (2012). For many, Twitter replaced traditional news sources during storm.
Businessweek.Com, 3.
Huang, R. (March 13, 2013). Japan to trial disaster warning system using social networks.
ZDNet, http://www.zdnet.com/japan-to-trial-disaster-warning-system-using-social-
networks-7000012, accessed March 17, 2013.
Palen, L., Starbird, K., et al. (2010). Twitter-based information distribution during the 2009
Red River Valley flood threat. Bulletin of the American Society for Information Science &
Technology, 36(5), 13–17.
Swann, P. (2013). Spooking Salem: How social media calmed Superstorm Sandy fears. Public
Relations Tactics, 20(1), 20.
Twitter a key source of news for many during Hurricane Sandy. (November 14, 2012). Pew
Research Center, http://www.pewresearch.org/daily-number/twitter-a-key-source-of-news-
for-many-during-hurricane-sandy/, accessed March 17, 2013.
Original Tweet:
Sherline Birotte aka Memen. Last seen at 19 Ruelle Riviere
College University of Porter a 3 story schol building
Restructured Tweet:
#haiti #ruok Sherline Birotte aka Memen. Last seen #loc 19 Ruelle
Riviere College University of Porter #info a 3 story schol building
FIGURE 1-24
Reformatting tweets to improve disaster response.
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http://www.zdnet.com/japan-to-trial-disaster-warning-system-using-social-networks-7000012

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30 IntroductIon to InformatIon SyStemS
e-project 1
On May 6, 2010, the stock market showed mind-boggling turbulence for
a few minutes, and investigators hypothesize that it was due to a flood of
computer-generated trades. This e-project shows how to create charts
using Excel, using downloaded stock data from that period so you can
see what happened.
1-29. Download the Ch01_AAPL Excel file, which contains the high,
low, and closing prices for Apple Computers between May 3 and
May 14. (AAPL is the ticker symbol for Apple.) Open the file to see
how the data are arranged in columns, with the first row showing
the column headers.
a. What was the closing price for Apple on May 6?
b. What was the volume of trading for this stock on May 6?
1-30. Create a line graph from the AAPL data, in which the dates are
on the x-axis (horizontal), and the stock prices are on the vertical
(y ) axis. Include the opening price, high, low, and closing price
on the graph. Add a title to the top of your chart.
1-31. Download Expedia stock prices (ticker symbol EXPE) for the
same time period (May 3–May 14, 2010) from http://finance.
yahoo.com. (Click on Historical Prices, under QUOTES.)
a. Create a line graph to compare the low and closing prices for
Apple stock and Expedia stock. You do not need to include
open and high prices on this graph.
b. How do you compare the activity on those two stocks?
Analyzing the May 6 “Flash Crash” with Excel Charts
The Ushahidi platform is open-source software that organizations use to
aggregate, map, and visualize information about disasters or other emer-
gencies. Originally developed to map reports of violence in Kenya after
an election, software developers around the world continue to improve
Ushahidi, which means “testimony” in Swahili. It can be adapted to the
needs of different communities experiencing a variety of emergencies,
from social unrest and violence to “snowmaggeddon,” the huge snow-
storm that paralyzed the eastern United States in 2010. Combined with
another open-source product called “Swift River,” the platform can help
filter and manage real-time data coming in through Twitter, text mes-
sages, email, the web, or other sources.
During the oil spill and recovery in the Gulf of Mexico, Tulane
University students worked with the Louisiana Bucket Brigade and
a private company to launch a site with Ushahidi to aggregate, map,
and verify reports sent in by people using Twitter, text message, smart-
phone apps, email, and web forms (Figure 1-25). Download the Excel file
called “Ch01_OilSpill,” which contains sample reports, and answer the
following questions:
1-32. First, select columns B through F and reformat them with word
wrap, so you can easily see the actual comments people sent in.
Gathering, Visualizing, and Evaluating Reports from Twitter
and Other Sources During a Disaster
e-project 2
FIGURE 1-25
Mapping reports from Twitter, text messages, and
other sources during the Gulf Oil Spill; www.oilspill
.labucketbrigade.org, accessed March 25, 2013.Source: Copyright © Louisiana Bucket Brigade. www.oilspill.labucketbrigade.org
1-33. Suppose you have a friend who lives in Bay
Champagne. First sort the table by LOCATION,
and scroll down to Bay Champagne. How
many reports do you find using this strat-
egy? Why would this approach be limited in
terms of its ability to find all the events that
may have affected your friend?
1-34. For crisis management, timeliness is
important, but so is accuracy. How many
reports in this sample were not verified (NO
in the Verified column)? You can use Excel’s
countif function to determine the number of
NOs and YESes. What is the percentage of
total reports that have not been verified?
1-35. Sort the file by CATEGORY then by
LOCATION. Take a look at the reports that
are categorized as Health Effects in Grand
Isle. Why do you think many of these reports
are not verified? Visit www.ushahidi.com/
platform and examine the map showing the
current and projects that are using it. Click
on one near your home and explore how the
organization is using the tools.
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chapter 1 InformatIon SyStemS and PeoPle 31
chapter notes
1. Prater, E., Swafford, P. M., & Yellepeddi, S. (2009).
Emerging economies: Operational issues in China and
India. Journal of Marketing Channels, 16(2), 169–187.
2. At the front of the back office: Business-process out-
sourcing. (June 23, 2012). The Economist, 403, 8790.
3. Wailgum, T. (January 12, 2009). To hell with business
intelligence: 40 percent of execs trust gut. CIO.com.
4. Sepe, V. (2012). U.S. digital ad spending to top $37 billion
in 2012 as market consolidates. eMarketer, http://www
.emarketer.com/newsroom/index.php/tag/us-digital-
ad-spending/, accessed June 26, 2013.
5. Gartner evaluates social business efforts. (March, 2013).
Toledo Business Journal, 29(3), 16.
6. Worstall, T. (September 2, 2012). Apple’s Siri versus IBM’s
Watson: Which will win? Forbes. http://www.forbes.com/
sites/timworstall/2012/09/02/apples-siri-versus-ibms-
watson-which-will-win/, accessed June 26, 2013.
7. Hamm, S. (2009). Big Blue goes into analysis.
BusinessWeek, 4128, 16–19.
8. Gobble, M. M. (2013). Big data: The next big thing in
innovation. Research Technology Management, 56(1),
64–66. Retrieved from Business Source Complete,
Ipswich, MA, accessed April 14, 2013.
9. Logan, D., & Dulaney, K. (October 24, 2011). Handling
e-discovery compliance issues on tablets, smart-
phones, and other mobile devices. Gartner Research,
ID:G00217510, accessed July 1, 2013.
10. Sidorova, A., et al. (2008). Uncovering the intellec-
tual core of the information systems discipline. MIS
Quarterly, 32(3), 467–482.
11. Fazio Maruca, R. (2000). Are CIOs obsolete? Harvard
Business Review, 78(2), 55.
12. Survey finds workers average only three productive
days per week. (March 15, 2005). www.microsoft.com/
presspass/press/2005/mar05/03-15threeproductivedayspr
.mspx, accessed April 30, 2011.
13. Rosenoer, J., & Scherlis, W. (2009). Risk gone wild.
Harvard Business Review, 87(5), 26.
14. York, E. B., & Wheaton, K. (2009). What Domino’s
did right—and wrong—in squelching hubbub over
YouTube video. Advertising Age, 80(14), 1–24.
15. Metz, R. (2013). Now you see it, now you don’t:
Disappearing messages are everywhere. MIT
Technology Review, http://www.technologyreview.com/
news/513006/now-you-see-it-now-you-dont-disappearing-
messages-are-everywhere/, accessed April 10, 2013.
16. Smith, A. (March 14, 2013). Here’s why your Snapchat
photos are not private. Mashable, http://mashable
.com/2013/03/14/heres-why-snapchat-photos-arent-
private/, accessed March 26, 2013.
17. Bernstein, E. (March 8, 2011). Reply all: The but-
ton everyone loves to hate. Wall Street Journal, http://
online.wsj.com/article/SB1000142405274870338670457
6186520353326558.html, accessed July 1, 2013.
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http://www.emarketer.com/newsroom/index.php/tag/us-digital-ad-spending/

http://www.forbes.com/sites/timworstall/2012/09/02/apples-siri-versus-ibms-watson-which-will-win/

www.microsoft.com/presspass/press/2005/mar05/03-15threeproductivedayspr.mspx

http://www.technologyreview.com/news/513006/now-you-see-it-now-you-dont-disappearing-messages-are-everywhere/

http://mashable.com/2013/03/14/heres-why-snapchat-photos-arent-private/

http://online.wsj.com/article/SB10001424052748703386704576186520353326558.html

Learning Objectives
Describe Porter’s five competitive forces that shape industry competition.
Explain how disruptive innovations, government policies, complementary products and services, and other
factors affect how the competitive forces operate.
Identify the components of the value chain and explain its extended version.
Describe how information systems apply to competitive strategies for business.
Explain how information systems apply to strategy for non-profit organizations and governments.
Explain why the role of information systems in organizations shifts depending on whether the systems are
deployed to run, grow, or transform the business.
1
4
2
5
3
C H A P T E R
2 information systems and Strategy
COMPANIES COMPETE FOR YOUR DOLLARS, YOUR LOYALTY,
AND YOUR ATTENTION, and start-ups face huge challenges
as they try to develop a strategy that will lead to success.
Dana and Prakash, for example, are the two entrepreneurs
in the online role-playing simulation that accompanies this
chapter, and they ask you to help them make some impor-
tant decisions. They’re creating a smartphone app that will
help high school students prepare for the SAT, but it’s not just
another boring set of online flash cards or multiple-choice
questions. Instead, it’s a game called Leveling UP! in which
players gain points and advance levels as they get better and
better. They are going up against some big names in this
industry, like Kaplan and Princeton Review, and they need a
very sound strategy.
This chapter explores strategy, starting with the forces
that shape industry competition and why some industries
are more profitable than others. You will see how entire
industries are occasionally transformed by events that
sweep away dying business models and unleash a flood of
new opportunities for clever players like Dana and Prakash.
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.
6
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chapter 2 InformatIon SyStemS and Strategy 33
MyMISLab Online Simulation
Leveling UP!
A Role-Playing Simulation on Business Strategy for a New Smartphone App
fl
yd
ra
go
n/
Sh
ut
te
rs
to
ck
.
Whether times are calm or stormy, the reasons companies
choose one strategy over another—and how they use infor-
mation systems to implement them—help explain why some
companies succeed and others fail.
Smart strategy helps explain why the search engine called Baidu dominates the Chinese market despite Google’s aggressive attempts to take hold in that mar-
ket, and its rich assortment of tools and features. But Baidu
focuses like a laser on Chinese Internet users, and claims
to know them better than Google. On Baidu, they find easier
ways to enter Chinese keywords, download free music, and
identify relevant websites, all in Chinese. The written Chinese
language, with its tens of thousands of complex characters, is
not easy to enter for human beings typing on keyboards with a
standard QWERTY layout. And a syllable typed in English letters,
such as ma, could represent different characters with quite dif-
ferent meanings (Figure 2-1). Baidu claims its shortcuts and
intelligent interfaces make life a bit easier for Chinese speakers
struggling with a keyboard whose grandparent was the type-
writer, designed in the United States by English speakers. Baidu
earns revenue from online marketers, much as Google does, by
showing paid links relevant to the user’s search terms.
The strategies companies devise to win customers, earn
market share, make profits, and grow their business are tied
closely to information systems, like Baidu’s search engine
or the Leveling UP! game. In today’s high-tech, globalized
business environment, those strategies often rely heavily on
innovative information technology (IT) and its application to
any area, from marketing and human resources to manu-
facturing and supply chains. As you will see, some of the
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34 IntroductIon to InformatIon SyStemS
IT-related strategies have the potential to completely trans-
form an industry, catapulting the company and its founders
into stardom and pushing rivals into bankruptcy.
Industries differ, and in some it is more difficult to make
a profit—or even survive—than others. Why this is so, and
how IT can be such a powerful force for strategists, will
become clear, drawing especially on Michael Porter’s classic
analysis of the forces that affect industry competition and
shape strategy.1,2 We will also see how nonprofit organiza-
tions develop strategies involving information systems to
dramatically improve their ability to achieve their missions.
Although the goals themselves are different, strategic think-
ing and strategic deployment of information systems are just
as important.
PoRTER’s FIvE ComPETITIvE FoRCEs
Glancing at the industries with their average net profit margins in Figure 2-2, you might
breathe a sigh of relief if you are not in the airline industry. Some industries enjoyed
margins during this time, with many successful companies. In other industries, the firms
struggled just to stay afloat, and many lost money. These conditions are not due to
smart managers in the high-profit industries and boneheaded CEOs elsewhere, though
the strategies these people implement certainly play a role. Instead, based on Porter’s
model, the reasons lie with five interrelated forces that influence industry competition
(Figure 2-3):
1. Threat of new entrants
2. Power of buyers
3. Power of suppliers
4. Threat of substitutes
5. Rivalry among existing competitors
Describe Porter’s five
competitive forces that
shape industry competition.
1
FIGURE 2-1
The syllable “ma” typed on a
QWERTY keyboard can refer to many
different Chinese characters with
different meanings. The spoken
language distinguishes among them
through tones, or slight changes
in vocal pitch, as the syllable is
pronounced.
Industry Net Profit Margin
Application software 23.2%
Semiconductors 18.0%
Drug manufacturers 16.7%
Wireless communications 14.0%
Toys and games 9.7%
Oil and gas 8.5%
Hospitals 4.3%
Sporting goods stores 3.9%
Major airlines 2.2%
FIGURE 2-2
Profitability of selected U.S. industries.3
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chapter 2 InformatIon SyStemS and Strategy 35
threat of new entrants
The threat new entrants into an industry pose
to existing businesses; the threat is high when
start-up costs are very low and newcomers
can enter easily. This is one of Porter’s five
competitive forces.
To see how these forces play out, let’s look more closely at graduate students Prakash
and Dana, who want to launch that smartphone app for high school students. Needing
extra money, they plan to develop an appealing and effective way for students to prepare
for the SATs. Prakash and Dana know that students are notorious procrastinators, but
they also have many small slots of time—usually wasted on daydreaming, game playing,
or texting—throughout the day.
To make preparation less painful and also less costly compared to hiring personal tutors
for long, tiring sessions, these cofounders want to draw on some of the compelling features
of cell-phone games. Rewards, fast-paced action, competition, and special ringtones to indi-
cate a student’s advancing level as he or she gains mastery should help motivate students to
practice SAT problems whenever they have a spare moment. As students improve, they can
make up their own questions to add to the pool. Prakash and Dana like the name Leveling
UP! for their company, reflecting the game world’s jargon for advancing your skills or your
character’s capabilities. Think about how the strategic concepts in this chapter apply to
their innovative idea, and then log into the online simulation to help them plan.
Threat of New Entrants
The threat of new entrants in an industry is very high when start-ups like Leveling UP!
can open shop with little capital, few employees, and next to no experience. Industry
incumbents must find ways to ward off newcomers, and profitability often suffers.
Thinking too narrowly about who those new entrants might be can be dangerous. The
big players in the SAT preparation business—Kaplan and The Princeton Review—know
well that small start-ups can enter relatively easily. But new entrants might also come from
established companies in other industries, whose leaders decide to diversify and encroach on
one another. At one time, Apple just invented and manufactured computers and consumer
electronics, and companies that distributed music and videos on CDs and DVDs didn’t
think of Apple as a rival. That is, they didn’t until Apple launched iTunes. By 2012, iTunes
claimed an estimated 64% of the digital music market, and 29% of all retail music sales.4
For their part, the existing incumbents in an industry try to keep newcomers out
in many different ways, often drawing on innovative use of information systems.
Threat
of New
Entrants
Threat of
Substitute
Products
Buyer
Power
Rivalry
Among
Competitors
Supplier
Power
FIGURE 2-3
The five forces that shape competition in industries.
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36 IntroductIon to InformatIon SyStemS
FIGURE 2-4
Price comparison website.
They already have certain advantages, such as higher volumes, which can mean lower
costs per unit of production. A large customer base can be significant because of
network effects, which refer to the increased value of a product or service that results
simply because there are more people using it. The value of Facebook, for example, is
low if you can only connect a few people. But the more people who use that social net-
work, the more valuable it becomes to everyone. Another example involves the wireless
cellular carriers that try to foster network effects by offering free calling to any cell phone
on the same network. They hope you will persuade your friends and family to select the
same carrier. Their tactic also makes it cost-effective for businesses to stick with a
single carrier for all its employees.
Incumbents devise strategies to
raise switching costs, which are the
costs customers incur when they
change suppliers. Carriers do this by
offering a “free” cell phone with a
2-year contract, but the phone is not
really free. They jack up the monthly
fees to cover the phone’s initial
cost, and then charge customers a
hefty penalty if they terminate the
contract early.
Loyalty programs also raise switching costs and discourage new entrants.
Frequent flyers earn valuable rewards for racking up all their flying miles with a
single airline, including automatic upgrades and free companion tickets. Travelers
go out of their way to stick with their favorite airline and continue to grow their
point balance.
For information systems that organizations buy to manage their own records, switch-
ing costs can be extremely high. To switch, organizations would pay new licensing fees,
and would also have to change their business processes, migrate their data, and train their
employees on the new system. Companies that use software such as SAP or Oracle to man-
age their business functions are reluctant to switch, even if their licensing costs go up and
competitors offer cheaper pricing. This is one reason the application software industry
enjoys very high profitability (Figure 2-2).
Power of Buyers
The power of buyers rises when they have leverage over suppli-
ers and can demand deep discounts and special services. If a
supplier has a small number of buyers, the supplier is at a dis-
advantage because losing even one could be devastating. Com-
panies whose main customer is the government, for instance,
deal with a very powerful buyer. Buyer power also rises when
many suppliers offer similar products and the buyer can switch
easily. For airline tickets on the most popular and competitive
routes, for example, buyers have high power. Unless passengers
are tied to one airline with a loyalty program, they can search
for the best price, a factor that holds down the airline industry’s
profitability.
The balance of power between buyers and suppliers for
many industries shifted dramatically when markets went online
and customers could switch from one seller to another with a
single click. To make price comparisons for similar products
even easier, dozens of websites gather up-to-the-minute prices
from sellers so that visitors can easily compare them in a single
list (Figure 2-4). On PriceGrabber.com, visitors can enter the
Did You Know?
Groupon offers daily deals by email, and was once praised as “the fastest growing
company ever.” The founder’s decision to turn down Google’s offer of $6 billion
to buy them out was a big mistake. After going public, Groupon’s stock price
plummeted over 80%, and growth is slowing. The problem is that focusing just on
growth is a temporary strategy, especially when the threat of new entrants is high
and the “daily deal” may be a temporary fad.5,6
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chapter 2 InformatIon SyStemS and Strategy 37
power of buyers
The advantage buyers have when they have
leverage over suppliers and can demand
deep discounts and special services. This is
one of Porter’s five competitive forces.
switching costs
Costs that customers incur when they
change suppliers.
network effects
The increased value of a product or service
that results simply because there are more
people using it.
product they want and pull up a list of all the merchants who sell it, along with their
prices. To empower buyers further, the site asks visitors to rate the transaction when they
purchase something from a seller on the list. These reviews tip off prospective buyers in
case the seller fails to deliver or sends defective products.
Power of Suppliers
The power of suppliers is high when they are just about the only game in town and thus
can charge more for their products and services. Microsoft is an example. Given the domi-
nance of its Windows operating system on desktop computers, PC assemblers around
the world risk losing customers if
they don’t install it. Not only can
Microsoft demand higher prices,
but it can also insist on additional
perks, such as adding desktop
icons for trial versions of its own
software products. Windows’ lead
on desktops is shrinking, though,
as Apple gains share, and free
products attract more customers.
Walmart’s thousands of suppliers have far less power than Microsoft. There are few
products made by a single supplier for which Walmart couldn’t find an alternative close
enough to please consumers. Also, Walmart’s suppliers have invested in information sys-
tems that link their inventories to the company’s legendary supply chain system.
High switching costs also add to supplier power. The loyalty programs described ear-
lier do this. An even more powerful way to raise switching costs is through technology.
You might spend weeks entering all the addresses and account numbers for your bills
into your online banking system, and a competing bank would need to be very persua-
sive to get you to switch. Companies also promote their own technology formats to raise
switching costs. For example, if you wanted to switch from Microsoft Excel to the free
Google Sheets, you would need to import all of your spreadsheets, and then check to
see what features were mangled or lost.
Threat of Substitutes
The threat of substitutes is high when alternative products are available, especially if
they offer attractive savings. For example, high-quality videoconferencing offers an
alternative to face-to-face meetings that can greatly reduce a company’s travel bud-
get (Figure 2-5). The technological advances eliminate the distracting choppiness and
poorly synched voice transmissions that turned off businesspeople in the past. With
rising fuel costs and tight travel budgets, videoconferencing is a viable substitute for
business travel.
Substitutes, which provide the same product or service through a different means, can
be quite difficult to predict and even harder to combat. What airline executives would
have imagined that California-based Cisco, a leader in computer networking products,
would grab their market? The substitute product puts even more pressure on an industry
in which profitability is already low.
power of suppliers
The advantage sellers have when there is a
lack of competition and they can charge
more for their products and services. This is
one of Porter’s five competitive forces.
threat of substitutes
The threat posed to a company when buyers
can choose alternatives that provide the
same item or service, often at attractive
savings. This is one of Porter’s five competitive
forces.
PRODUCTIVITY TIP
Take a close look at the software trial versions that came preinstalled on your
computer to see which products the PC manufacturer is promoting with this
valuable positioning. As long as you have a recovery disk in case of problems,
you can uninstall the ones you don’t want to reduce clutter and improve your
computer’s performance.
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38 IntroductIon to InformatIon SyStemS
Information technology plays a key role in many examples of substitution threats,
from online learning modules that replace face-to-face training classes to Internet video
that threatens cable TV companies. The number of cable subscribers has been shrinking
since 2000, and analysts expect the trend to continue.
The threat of substitutes may come from any direction, making it critical for strate-
gists to pay attention to developments on a much wider scale. Although drug makers
with patented products know that generic substitutes will rapidly take market share once
the patent expires, other industries are taken by surprise when potent substitutes arise.
The newspaper industry, for instance, failed to grasp how quickly subscribers would
switch to the free news available online to save both money and trees. Cutting prices for
print subscriptions or classified ads only worsened their financial situations. Today, few
print newspapers enjoy healthy balance sheets.
Rivalry Among Existing Competitors
An industry’s profitability and its competitive structure are affected by the intensity of
rivalry among existing competitors, particularly with respect to how they are competing
and what they compete on. If firms compete mainly on price, rivalry is high and the
industry as a whole becomes less profitable, because price cutting triggers rounds of
damaging price wars. Online, price cuts can occur with breath-taking speed, with no need
to attach new price tags to physical merchandise. Price wars can also affect the behavior
of buyers, who pay more attention to price long after the war ends, essentially remind-
ing them to shop around for bargains and reducing profitability industry-wide.7 The one
who strikes first in a price war may benefit somewhat, but overall, all competitors are
wounded. Consumers enjoy terrific deals, though.
Slow growth can also lead to intense rivalry among existing competitors. If sales are
flat, any competitive strategy from one company will steal market share from the others,
so incumbents will counter every competitive move. If the companies can’t or don’t want
to close up shop and leave the industry, rivalry remains high and competitors stay in the
ring. Stubborn CEOs with big egos can lead to intense rivalry as well.
FACToRs THAT AFFECT How THE
FIvE FoRCEs oPERATE
The five forces together determine industry structure and potential for profit. In addition
to the strategies companies themselves implement, several external factors affect how
those forces operate. Certain innovations, for example, can flood through an industry
like a tidal wave, changing everything in their path and forcing every company to either
make changes or sink.
FIGURE 2-5
Videoconferencing heightens the
threat of substitutes to the business
travel industry.
Explain how disruptive innovations,
government policies, complementary
products and services, and other
factors affect how the competitive
forces operate.
2
Source: Shutterstock.
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chapter 2 InformatIon SyStemS and Strategy 39
sustaining technologies
Technologies that offer improvements to
streamline existing processes and give
companies marginal advantages.
disruptive innovation
A new product or service, often springing
from technological advances, that has the
potential to reshape an industry.
rivalry among existing competitors
The intensity of competition within an industry.
Intense rivalry can reduce profitability in
the industry due to price cutting or other
competitive pressures. This is one of Porter’s
five competitive forces.
Disruptive Technology and Innovations
A disruptive innovation is a new product or service, often springing from technologi-
cal advances, that has the potential to reshape an industry. For example, Kodak, Casio,
Olympus, and other companies began offering digital cameras that needed no film in the
1990s, transforming the industry within a few short years. Sales of film rolls and the cam-
eras that used them plunged, along with the business of stores that processed the film.
Although the early digital cameras had lower resolutions, technological advances quickly
made them a very respectable substitute product that almost wiped out film cameras,
along with all the services and products surrounding them.
Unlike sustaining technologies, which offer important improvements to streamline
existing processes and give companies marginal advantages, disruptive innovation is dif-
ferent (Figure 2-6). Often developed by start-ups or industry outsiders, it brings a radical
and unexpected breakthrough that first replaces lower end products, but then rapidly
overtakes even the high end of the market (Figure 2-7). Companies that cling to the older
models may eventually be out of business. Figure 2-8 shows more examples.
The Internet itself is the kingpin of disruptive innovations in the last century, and all
the innovations it supports are transforming one industry after another. It fundamentally
Time
Pe
rf
o
rm
an
ce
Disruptive
Sustaining
FIGURE 2-7
Comparing disruptive and sustaining
innovations on performance over time.
FIGURE 2-6
“Innovation is the central issue
in economic prosperity.”
—Michael Porter.
Source: nyul/Fotolia.
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40 IntroductIon to InformatIon SyStemS
changes aspects of the five forces by, for example, reducing entry barriers for newcomers,
empowering buyers with far more information about prices and competitors, and virtu-
ally eliminating switching costs for many products. It also facilitates a vast, global mar-
ketplace in which competitors can spring from any corner of the globe, setting up shops
online to compete with your neighborhood store.
Close behind the Internet are the advances in wireless communications and mobile
technologies that really do support voice and data connections from anywhere, anytime.
In retail industries, for example, buyer power rises when shoppers in a mall can scan a
product with their smartphones and see if they can get a cheaper price online. Another
industry—bus travel between cities—became instantly profitable when young people dis-
covered that they could hop on a bus for much less than traveling by car, train, or plane,
and surf the web the whole way. With its free wifi, Megabus attracts well-educated 18- to
34-year-olds who want to save money, avoid the hassle of air travel, and also stay online.
Economist Joseph Schumpeter used the term creative destruction to describe what
happens in an industry when disruptive innovations threaten the established players.
Newcomers find ways to capitalize on the new technologies, while many incumbents
resist the change and seek ways to protect their old business models.
The music industry may be the poster child of creative destruction. The record labels
once dominated this industry, controlling pricing, distribution, and marketing. But Napster
found a way for music lovers to share their electronic music files online, for free. The labels
fought Napster in court and eventually shut it down for copyright violations, but then Apple
entered the picture with its iTunes store and low pricing per song. The labels fought again
because it is far more lucrative to sell albums rather than individual songs, and they were los-
ing control of the industry. But consumers preferred to buy one song at a time. Sony’s CEO,
Howard Stringer, whose company lost millions to Apple by fighting this disruptive innovation,
lamented, “I’m a guy who doesn’t see anything good having come from the Internet. . . .”8
Clayton Christensen, author of The Innovator’s Dilemma9 and The Innovator’s Solution,10
argues that industry leaders need to be ever alert to these disruptive innovations, and
they should build small teams that look for breakthrough opportunities themselves.
The teams can’t be part of the larger organizational bureaucracy, however, because that
would stifle their creativity and draw them back toward improving the status quo.11
Government Policies and Actions
Government policies and funding priorities can have dramatic effects on how industries
operate and how they evolve. Patents reduce the threat of new entrants, for example, while
Disruptive Innovation Displaced Products and Services
Steamships Sailing ships
Machine gun Rifle
Truck Horse
Digital camera Instant cameras, such as Polaroid, and eventually
most film cameras
Desktop publishing software Dedicated professional publishing systems
Email Postal mail
Computer printer Offset printing press
Music CD Vinyl record, cassette tape, 8-track tape
Digital downloads of music and video Music and video CD/DVD
Word-processing software Typewriter
Online e-commerce Physical retail stores
GPS Printed maps
Cell phone Landline phone
Internet video Cable TV
Cloud computing Locally managed data centers, locally installed software
FIGURE 2-8
Examples of disruptive innovations.
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chapter 2 InformatIon SyStemS and Strategy 41
ecosystem
An economic community that includes the
related industries making complementary
products and services, the competitors
themselves, the suppliers, and also the
consumers.
creative destruction
What happens in an industry when disruptive
innovations threaten the established players.
low cost loans to small business can increase that threat. Organizations frequently lobby
for government action to influence how the five forces operate and improve profits. The
Internet radio service Pandora, for instance, lobbied Congress to pass the “Internet Radio
Fairness Act” that would drastically reduce the 11 cents it pays in royalties for every song
played. The “fairness” part comes from Sirius XM Radio, which pays just 8% of its revenue
on royalties, compared to Pandora’s 55%.12 Artists strongly object to the act, though, saying
they earn almost nothing from Pandora and the law would make things worse.
Lobbyists for state governments have pressed Congress for years to level the playing
field and allow them to collect sales taxes when state residents buy products from online
retailers like Amazon. One Vermont lawmaker complained, “Our retailers have such a
hard job, all they are asking for is fairness. . . . People go in to use [the local business] as a
showroom and go home and order on the internet, and do not pay sales tax.”13 Amazon
fought back, but began yielding to the pressure. Massachusetts residents, for instance,
started paying the tax in 2013.
Many lobbying groups fight for government regulation to block new entrants enabled by
the Internet. Optometrists once earned profits through contact lens sales, as patients used
their new prescription to buy their lenses at the optometrist’s store. When 1800contacts.com
and other retailers began offering lenses at discounted prices, they lobbied to make it easier
for customers to compare prices and buy elsewhere. However, the American Optometry
Association also lobbied, and the 2004 “Fairness To Contact Lens Consumers Act” con-
tained regulations to appease both groups. For instance, doctors must provide patients with
an original, signed prescription, but online sellers may not accept faxed prescriptions from
the consumer without the doctor’s confirmation.
Complementary Services and Products in the Ecosystem
Many industries are interrelated and events in one can influence the others. Desktop
publishing software, for example, made the computer and a color printer much more
useful to small businesses that save money by developing menus, signs, and brochures
in-house. Companies offering specialty paper also benefited.
Companies are embedded in a complex ecosystem—an economic community
that includes the related industries making complementary products and services, the
competitors themselves, the suppliers, and also the consumers. Events in one arena—
particularly a disruptive innovation—ripple through the whole community, affecting all
the players and the five forces for the industries involved.
In the United States, the ecosystem for gambling consists of casinos, Indian reserva-
tions, government regulators, lobbyists, consumer groups, racetracks, financial institu-
tions, hotels, live entertainment, and others. Most forms of online gambling, however,
are not legal in the United States, but change may be coming. American gamblers spend
more than $100 billion a year at betting websites hosted in places like Antigua, and U.S.
casinos would like to see the law changed so they can share in the profit. That would
spread throughout the gambling ecosystem, damaging some members, rewarding oth-
ers, and attracting new entrants with complementary services. Hotels may suffer, but the
casinos will have another source of revenue. Cell-phone developers will quickly see a new,
user-friendly application—live poker with real bets paid by credit card.
Some of the most powerful strategic moves come from visionaries who propose fun-
damental changes for all the industries in the ecosystem and persuade the others to come
along. Bill Gates did just that early in his career, when he imagined moving computing
away from mainframes and onto the desktop. To succeed, they would need a standard
operating system so that software developers, peripheral manufacturers, and every-
one else could build upon it and quickly enrich the ecosystem with a compelling set of
complementary products and services. The Microsoft operating system began its ascent,
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42 IntroductIon to InformatIon SyStemS
eventually dominating the industry with almost 90% market share. Other companies that
created applications to run on that operating system succeeded as well.
Another example of a strategy that leads a whole ecosystem into new directions
involves Salesforce.com. The company’s CEO promotes cloud computing (discussed
in detail in the next chapter), in which an organization’s information systems are not
installed on servers in its own data center. Instead, employees use the Internet to connect
to their systems, hosted by a vendor in a data center shared by many other businesses
(Figure 2-9). (The “cloud” is a metaphor for the Internet; a cloud-like shape is often used
to depict its complex infrastructure.)
Companies can purchase
subscriptions to use the Sales-
force software to manage cus-
tomer records, and CEO Mark
Benioff sees cloud computing
as the future—not just for his
software, but for many others as
well. Cloud computing is gain-
ing a lot of momentum as the next disruptive innovation that overtakes local data cen-
ters, including the desktop PC with its locally installed software.
Environmental Events and “Wildcards”
Hurricanes, snowstorms, pandemics, earthquakes, strikes, and civil unrest can all have
major effects on entire industries, sometimes without much warning. Hurricane Sandy,
for instance, caused major losses for businesses that had to shut down, such as restau-
rants, retailers, and cable providers; however, some industries benefited once rebuilding
began, such as construction.
Rising energy costs, conservation initiatives, and concerns over carbon emissions may
also trigger waves of change. For example, supply chains that stress just-in-time deliver-
ies may struggle to pay for the extra gas that kind of service requires. E-commerce com-
panies that rely on many small shipments trucked to people’s homes may have to raise
their shipping fees, losing some competitive advantage. Information systems can help
companies reduce their energy costs by optimizing routes.
For an organization to develop a viable competitive strategy, its leaders take into
account the nature of the industry and how the five competitive forces play out. They also
consider the factors affecting those forces and how they are changing. But what are their
strategic options, and where do information systems fit in? Michael Porter also developed
FIGURE 2-9
Cloud computing supported
by the Internet.
Google
Quicken
Online
Salesforce.com
Facebook
Amazon
Source: opka/Fotolia.
PRODUCTIVITY TIP
If you want to access your files from different devices and are tired of emailing
documents to yourself or copying them to USB drives, try a personal cloud
computing service, such as Google Drive, Dropbox, or SkyDrive. They offer free
versions with some storage space, and you can purchase more if you need it.
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chapter 2 InformatIon SyStemS and Strategy 43
support activities
Activities performed as part of the
value chain model that are not primary;
support activities include administration
and management, human resources,
procurement, and technology support.
primary activities
Activities directly related to the value chain
process by which products and services are
created, marketed, sold, and delivered.
value chain model
A model developed by Michael Porter that
describes the activities a company performs
to create value, as it brings in raw resources
from suppliers, transforms them in some way,
and then markets the product or service to
buyers.
a model that helps strategists think about how the organization actually creates value and
where improvements can be made to advance the firm’s competitive position.
THE vAluE CHAIn And sTRATEgIC
THInkIng
Porter’s value chain model describes the activities a company performs to create value, as
it brings in raw resources from suppliers, transforms them in some way, and then mar-
kets the product or service to buyers (Figure 2-10). In the model, the company performs
primary activities directly related to the process by which products and services are cre-
ated, marketed, sold, and delivered. Support activities encompass all the other processes
and offices the company needs, including administration and management, human
resources, procurement, and technology support.
The model may seem to suggest the activities typical in manufacturing companies
but, in fact, it applies to a wide variety of settings. The “raw resources,” for example,
might be copper ore mined from Russia’s Ural Mountains and trucked to a processing
plant. They could also be digital journal articles downloaded from online libraries and
summarized for a briefing paper needed by a government agency. “Making the product
or service” can span many different tasks, from chemical processing of the copper to the
consultants’ research and analysis.
Extending the Value Chain: From Suppliers to the Firm to Customers
Expanding the model beyond the company’s own primary and support activities leads
to a better understanding of how all the processes fit together (Figure 2-11). The chain
does not actually begin when a truckload of copper is dumped on a processor’s door-
step, or when the analyst clicks “download” to retrieve a paper from Harvard Business
3 Identify the components of the value chain and explain its
extended version.
Administration and management
Bring in
raw
resources
Make
the product
or
service
Market
the product
or service
Deliver
the product
or service
Provide
customer
support
Human resources
Technology support
Procurement
Su
p
p
o
rt
A
ct
iv
it
ie
s
Pr
im
ar
y
A
ct
iv
it
ie
s
FIGURE 2-10
Components of the value chain.
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44 IntroductIon to InformatIon SyStemS
Review online. The chain also does not end when the buyer pays for the product or ser-
vice. Events in these external parts of the chain can also offer strategic opportunities and
different risks.14
A company with shoddy suppliers might benefit from a switch or from strategic
alliances with a few of them to help make them more efficient. Toyota, for example,
encourages its tiny auto part suppliers to set up shop near its factories so Toyota can
provide extensive training and support. Or a company that spots weaknesses in the sup-
pliers’ industry might decide to supply its own needs and even compete against its former
suppliers.
Downstream, the value chain offers even more intriguing possibilities for strategic
advantages. From the buyer’s viewpoint, your company is a supplier and understanding
the customers’ own value chain is critical. What are the customers’ needs and why are
they buying the product? If the customer is another company, what is its strategy for
creating value from what you provide?
Online, the extended value chain can include contributions from buyers who add
value to the company’s products or services. For example, Amazon’s own customers
enrich the retailer’s site by contributing their frank and often blunt product reviews.
Intuit, the company that offers TurboTax software, launched a user’s forum that links
directly to the software so that people can ask tax questions for other users to answer.
TurboTax doesn’t vouch for the answers, but users can rate their quality. The answers
are often much easier to understand compared to what they would find in IRS manuals.
CNN’s iReport program solicits videos from people who might just happen to have their
cell-phone camcorder turned on to catch breaking news. Web 2.0 offers countless oppor-
tunities to incorporate contributions from many different sources into the extended
value chain.
Benchmarking Components of the Value Chain
The value chain model offers a way for organizations to compare their performance
against industry benchmarks to see how they stack up and also spot areas that should be
targeted for improvement. A benchmark is a reference point used as a baseline measure-
ment. Often it indicates a measurement that would be considered optimal, or best prac-
tices within the industry, though it is sometimes simply an industry average.
For the value chain, one benchmark might be the percent of total budget that is spent
on each of the primary and support activities. How does the organization’s spending
compare to industry benchmarks or average expenditures? Does your company spend
more than its rivals on human resources, for example? Is your marketing budget a bit
slim compared to your competitors? Analyzing these benchmarks can point to areas that
need attention—not necessarily more spending, but some thought about why spending is
higher or lower than the benchmark. Higher spending on human resources, for instance,
might be part of a strategic effort to recruit top talent.
Supplier
Supplier
Supplier
Internal value chain
Extended value chain
Buyer
Buyer
Buyer
FIGURE 2-11
The extended value chain involving
suppliers, the company, and its
customers.
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chapter 2 InformatIon SyStemS and Strategy 45
benchmark
A reference point used as a baseline
measurement.
0.0%
1.1%Energy
Retail and Wholesale
Manufacturing
Pharmaceuticals
Transportation
Media and Entertainment
Education
Banking and Finance
Software Publishing and
Internet Services
3.0%
4.3%
4.9%
1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
7.6%
6.5%
2.9%
1.8%
1.4%
FIGURE 2-13
Average IT spending by industry as a
percentage of revenue.
IT Benchmarks
Figure 2-13 shows the average percent of total revenue that industries spend on IT.15 Not
surprisingly, software publishing and Internet services spend quite a bit, as do companies
in the energy industry. Banks and finance also spend heavily, partly due to the need for
extremely high security and fraud control.
As the extended value chain lengthens, responsibility for harmful conse-
quences becomes more diffuse. Considering the length and complexity of
the value chain that leads to a smartphone in a customer’s hands, who is
ethically responsible when it overheats and injures someone? Suppose a
manager allocates smartphones to the salespeople and one person is badly
burned while driving. How much responsibility would you assign to each of
the links in this chain listed in Figure 2-12?
If you learned that the factory’s working conditions were dreadful and
the smartphone company made a deal with them anyway because their
costs were so low, would your judgments change? Suppose the retailer got
a tip that a recall was coming but kept selling the phones to get rid of the
inventory. Increasingly, people are rejecting the “plausible deniability” excuse
that companies have used in the past to avoid corporate responsibility for
mishaps in their extended supply chains. Nevertheless, the drive to reduce
costs, particularly for firms that compete for low cost leadership, can lead to
ethically questionable decisions. The blurred boundaries along the extended
value chain can make it even more difficult to allocate responsibility, and
easier to point fingers.
THE ETHICAL FACTOR Ethical Responsibility in an Extended Value Chain
Not
Responsible
Somewhat
Responsible
Very
Responsible
The retailer who sold it to the consumer
The smartphone company that designs and markets it under
the company name
The factory that assembles it
The factory worker who assembled the particular phone
The small business that supplied battery parts to the factory
The global shipping company that transported the phones
The procurement manager who researched the options and selected
the phones for the sales staff
The manager who supplied the smartphones
The user who didn’t read the instruction manual
FIGURE 2-12
How much responsibility would you assign to each of these links in the extended value chain?
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46 IntroductIon to InformatIon SyStemS
Another benchmark useful for information systems is the amount spent per employee,
and Figure 2-14 shows these averages by the same industries. The amounts range widely, but
even the retail and wholesale industry spends over $4,700 per person. The figure doesn’t just
include the obvious computer on the desk. It includes all hardware, software, salaries for
IT personnel, software licensing, data center costs, telecommunications costs, outsourced
IT projects, and others. For education, the $6,000+ figure might include computer labs,
classroom projection systems, online libraries, and antivirus software for students
and faculty.
Managers can use benchmarks like
these to see how they compare to com-
petitors, and also to examine how much
every dollar they spend is helping to
create value. Each component offers
opportunities for either cost savings or
improved products and services that offer
more value to buyers, both of which can
improve the company’s bottom line.
ComPETITIvE sTRATEgIEs In BusInEss
Becoming a leader in an industry takes uncanny skill and strategic thinking. Although
there are many variables and infinite combinations, Porter identified three basic strate-
gies companies can adopt that are most likely to lead to success.
The low cost leadership strategy, which means offering a similar product at a lower price
compared to competitors, is one that Walmart, Kia Motors, Southwest Airlines, Lenovo, and
many others pursue. To be successful, the company has to cut every gram of fat in the value
chain, using information systems to automate and streamline processes and eliminate costly
human labor. Southwest Airlines, for instance, reduced inflight service and implemented
ticketless reservation systems (Figure 2-15). Walmart’s enormous success as a low cost leader
in retailing comes especially from its IT-supported supply chain, the envy of its competitors.
Many companies adopt the product differentiation strategy—adding special features
or unique add-ons for which customers are willing to pay more. The strategy tends to
reduce threats from substitute products and it also erects barriers to new entrants. Apple
computer is a clear example that cleverly takes this path over and over again, with its
Macintosh computers, iPod, iPhone, and iTunes music store. Its iPAD dominates the
tablet market, though lower cost competitors are making some headway. Pharmaceutical
companies adopt this strategy in their search for specialized drugs that can be patented.
Differentiating the product or service for a particular segment of the market is called
a focused niche strategy. Here, the goal is to find a smaller group of customers who have
special preferences, and then tailor your products and services to them. App.net, for
example, is an ad-free social network that charges members a small fee each month. The
Twitter-like service targets people who are concerned about loss of privacy on free social
$0
Energy
Retail and Wholesale
$5,000 $10,000 $15,000 $20,000 $25,000 $30,000
$4,733
$5,676
$7,063
$9,633
$14,130
$6,020
$24,128
$17,860
Manufacturing
Pharmaceuticals
Transportation
Media and Entertainment
Education
Banking and Finance
Software Publishing and
Internet Services
$13,449
FIGURE 2-14
Average IT spending per employee in
a sample of industries.
Did You Know?
Energy costs affect almost every link in the value chain, and organizations are
testing out cheaper sources—including humans. California Fitness Gym connected
all of its exercise bikes, rowing machines, and treadmills to generators, so customers
supply up to 40% of the building’s electricity.
Describe how information systems
apply to competitive strategies
for business.
4
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chapter 2 InformatIon SyStemS and Strategy 47
focused niche strategy
A company strategy that involves
differentiating a product or service for a
particular market niche.
product differentiation strategy
A company strategy that involves adding
special features to a product or unique
add-ons for which customers are willing to
pay more.
low cost leadership strategy
A company strategy that involves offering a
similar product at a lower price compared to
competitors.
networks that make money from advertising and by sharing your information. (A case
study at the end of this text explores Facebook’s struggles with privacy issues.) App.net’s
first two core values, featured on its website, are:
▶ We are selling our products, NOT our users.
▶ You own your content.
Although Michael Porter thought companies should pick one of the strategies and
stick with it, not everyone agrees, particularly in the digital age in which those five forces
that shape competition in an industry have been shaken up so much. Companies find
successful paths with hybrid models, such as shooting for the best value for the lowest
price. This contrasts with the low cost approach because it also encourages customers to
compare the value of a product and its features against the competition. That can help
counter deadly price wars.
Companies also achieve a different kind of success by quickly building a large audi-
ence in a brand new market. YouTube took that route by attracting millions of people
who wanted to share their homemade videos with friends. The company charged nothing
for its services; rather, venture capitalists who know the value of such a faithful following
provided the capital. These “angel” investors hope a major company with deep pockets
will acquire the new company for far more. As it turned out, Google bought YouTube for
more than 40 times the sum those early investors contributed.
The Role of Information Systems in Strategy
All of these strategies leverage information systems to succeed, and those systems are
often at the very heart of the company’s competitive advantage. Low cost leaders, for
example, must automate as much as possible, from their suppliers to their customer sup-
port services.
Regardless of which strategic path a company follows, it will reduce costs by using
information systems to support all the back-office functions—payroll, benefits, account-
ing, procurement, inventory tracking, and asset management, for example. Indeed, major
savings come from rethinking how these processes are done in the first place, by eliminat-
ing steps or avoiding duplication of effort. Converting to self-service in human resources,
for instance, is a good example. Rather than asking employees to fill in paper forms that
FIGURE 2-15
Southwest Airlines stresses low cost
leadership strategy.
Source: © EuroStyle Graphics/Alamy.
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48 IntroductIon to InformatIon SyStemS
staff in the human resources office have to review and enter into the systems that manage
payroll and benefits, companies implement online services so employees enter their own
data. They can enter benefit selections and time sheets, and also keep track of their infor-
mation, such as how many vacation and sick days they have left. Mercifully, phone calls
to the human resources office drop, along with data entry errors.
Information systems support strategy and reduce cost in every industry, even those
that don’t spend much on IT. Companies in the transportation industry spend about
3% of revenue on IT (Figure 2-13), but they apply those funds very wisely. For example,
shippers are using railroads more and more because of rising fuel costs (Figure 2-16).
Freight trains, after all, can move a ton of freight 400 miles on a single gallon of fuel
and en route, the only busy employee is the conductor. But things get very hectic when
the train stops at a terminal hub, as trucks converge to drop off or pick up their cargo.
Information systems avoid chaos by coordinating the trucks’ movements—scanning each
one and directing it to the right place. Thanks to these systems, truckers are in and out in
3 minutes instead of 20, and the number of accidents is dramatically reduced.
Launching a strikingly differentiated product or service often relies on innovations
in IT as well, and not just for high-tech companies. Grocery stores, for instance, offer
shoppers smarter shopping carts with devices that scan a loyalty card and then guide the
customer through the aisles. The devices can announce special sales, scan purchases, and
total the bill so customers breeze through checkout. The information is transmitted to
the store’s inventory system, just as it would be if the shopper went through the checkout
line. But unlike the data collected at checkout, smart carts can gather information such as
how much time the shopper spent in each aisle. They can also deliver real-time ads that
match the customer’s interests. For example, if you put hotdogs in the cart, it might offer
discounts on buns and relish.
Information Systems: Run, Grow, and Transform the Business
What is that money spent on IT actually used for? How does it contribute to the com-
pany’s strategy? The computers, laptops, cell phones, and other devices support produc-
tivity throughout the organization, in every component of the value chain, whether the
employee is in sales, finance, marketing, management, or human resources. The software
applications touch every component of the value chain as well, streamlining processes,
creating customer friendly portals, or compiling reports about the effectiveness of mar-
keting campaigns.
FIGURE 2-16
The transportation industry takes
advantage of information systems to
coordinate cargo transfers.
Source: © soleg/Fotolia.
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chapter 2 InformatIon SyStemS and Strategy 49
strategic enabler
The role information systems play as tools to
grow or transform the business, or facilitate a
whole new business model.
On average, organizations spend about two-thirds of their
IT dollars to just keep things running (Figure 2-17). These costs
include IT staff salaries, the data center, the help desk, software
licenses, and maintenance of the company’s core application soft-
ware and infrastructure. They are not discretionary, in the sense
that the organization can’t operate without these capabilities.
However, there are many ways to reduce these costs. Some com-
panies are outsourcing their help desks, for example, or moving to
cloud computing to reduce data center expenses. Indeed, managers
should seek out ways to reduce expenses in this kind of IT spend-
ing, just as they would for any other component of the value chain.
Strategic uses of IT that consume the rest of the budget focus
on growing the business or transforming the business model.
These are important regardless of whether the company strives for
cost leadership, differentiation, a focused strategy, or some mix.
IT is a strategic enabler, a role that can potentially make a far
greater contribution to success compared to its role in keeping the
business running. Information systems can, for example, facilitate
a whole new business model, as they did for eBay in the form of
specialized software to support online auctions.
Another example of a potentially game changing use of IT is
the electronic medical record (Figure 2-18). The goal is to dras-
tically reduce health care costs and improve care by digitizing
patient history and treatment records, and making them available
to health care providers as needed. Although adoption has been
slower than expected and many physicians still keep patient folders
in file cabinets, most do plan to implement electronic records in
the future.
InFoRmATIon sTRATEgIEs
And nonPRoFIT oRgAnIzATIons
Dane R. Grams, the online strategy director at the nonprofit Human Rights Campaign
(HRC), recognizes the need for immediacy when a legislative proposal is up for a vote
and phone calls from voters can make a difference. “We wanted to call on our most active
supporters to act on a moment’s notice. . . . Most people have a single cell phone and
it’s always with them.” HRC arranged to send messages to their members at the right
moment, asking them to call their representatives about a pending bill and giving them
key points to use in the conversation. Once the message ended, the member was con-
nected to the right office to make the pitch.16
Transform
Grow
Run
0% 10% 20% 30% 40% 50% 60% 70%
FIGURE 2-17
How do organizations spend their IT dollars?
5 Explain how information systems apply to strategy for non-profit
organizations and governments.
FIGURE 2-18
Electronic medical records.
Source: Burlingham/Shutterstock.
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50 IntroductIon to InformatIon SyStemS
Although nonprofit organizations have no shareholders, they can benefit a great deal
from strategic use of information systems. Running, growing, and transforming the orga-
nization are all very relevant to nonprofits, just as they are to the for-profit world, and
information systems play a key role. The operational requirements to run nonprofits are
quite similar to businesses, with information systems used for payroll, accounting, and
related tasks.
Some of the most innovative strategic uses of information systems come from the
nonprofit world, among charities, schools, grassroots projects, religious organizations,
government agencies, and others. Reaching out to their constituencies is fundamental to
most nonprofit organizations, and two areas that have benefited considerably from such
innovations are fund-raising and volunteer management.
Fund-Raising
Many nonprofits rely on donations, and specialized information systems help manage
this critical activity. Though direct mail and telemarketing once dominated, much fund-
raising is now done online. In 4 years, for example, annual online donations for Chicago’s
YMCA leaped from a paltry $450 to $24,000, a jump of more than 5,000%. Even a small
nonprofit can reach out to a worldwide audience through the Internet, making a case for
its mission and motivating people to help.
Nonprofits leverage information systems to learn more about potential donors, their
preferences, and their motivations, in the same way that a company like Amazon does.
For example, a survey of over 6,500 people ages 20 to 35 found that this age group has
high expectations about a nonprofit’s use of technology to encourage donations and
attract volunteers. The majority said they preferred to learn about nonprofits through
websites, social media, or e-newsletters. They also made it clear they did not want to
receive texts or voice calls from nonprofits.17
Volunteering
Attracting volunteers and sustaining their attachment to the mission are essential tasks
for many nonprofits. The efforts are similar to those companies use to build customer
relationships and develop employee loyalty. In fact, recognizing the similarity, Salesforce
.com created a foundation to help nonprofits use their CRM software, originally
designed for businesses to manage customer relationships
for the salespeople.
Among the early adopters was Wildlife Victoria, an
Australian nonprofit that rescues injured wildlife. Wildlife
Victoria implemented Salesforce.com to help manage and
extend its network of volunteer wildlife rescuers, coordinate
rescue events, and keep track of potential donors. Aiding
wildlife at risk can be a complex operation, and the sys-
tem helps coordinate the many components—from wild-
life shelters and transporters to emergency services and
rehabilitation.
Helping volunteers find a project that needs their
skills is something information systems are very good at.
VolunteerMatch.org is a kind of matchmaking service that
offers search tools so people can find projects underway
near their homes that match their interests (Figure 2-19).
More than 90,000 nonprofits post their needs on the site,
hoping to attract volunteers to teach swimming, mentor
children, care for animals, guide museum visitors, and, of
course, help build information systems needed by nonprof-
its. The site adds a Google map with pushpins showing the
locations of the opportunities in your area.18
FIGURE 2-19
VolunteerMatch.org helps volunteers
find opportunities in their areas.
Source: Courtesy of VolunteerMatch.org.
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chapter 2 InformatIon SyStemS and Strategy 51
e-government
The application of ICT to government
activities, especially by posting information
online and offering interactive services to
citizens.
Information Strategies and Government
Like nonprofits, government agencies have similar needs for information systems to
“run” the business, handling the operational requirements that all organizations share.
They must manage their payrolls, budgets, procurements, assets, and inventories. Agen-
cies also have some very specialized requirements that depend on their responsibilities
and the varied services they provide. For example:
▶ The military needs real-time systems to manage logistics so that personnel and sup-
plies can be rapidly deployed to trouble spots.
▶ State and local police need access to extensive information systems on criminal
offenses.
▶ The Department of Natural Resources needs easy ways for people to report poachers
who damage forests or hunt illegally, and offers online tools for that.
▶ The U.S. Internal Revenue Service must have information systems to process more
than 200 million tax returns annually.
Two areas that highlight how government strategies involve information systems are
in the development of services for citizens and through research.
IncreasIng access and enhancIng servIces to the PublIc E-government involves efforts
to make unclassified information available to citizens via the Internet and offer many interac-
tive online services to save people time-consuming visits to government offices. It has been
slow getting off the ground in some areas, but many agency websites are beginning to over-
flow with resources for the public. Search engines help visitors track down what they need,
and USA.gov serves as a gateway.
The U.S. Census Bureau (www.census.gov), for example, offers many summaries and
tables online, and also provides tools to help researchers download data. Visitors can retrieve
detailed records on income, education, marital status, native language, ethnicity, and more.
Interactive online services,
from motor vehicle registra-
tion systems to absentee ballot
requests, also enhance access for
the public. The Federal Commu-
nications Commission offers an
interactive service for people to
conveniently submit complaints
when they receive junk faxes or
unsolicited telemarketing calls.
FundIng research For technologIcal InnovatIon Government funding is vital to
certain research projects that private investors might avoid because of risk, or perhaps
because the payoff is too far in the future. The project that eventually led to the Internet
itself is a key example. A U.S. government agency—Defense Advanced Research Projects
Agency (DARPA)—created a computer research program in the 1960s, and it also
funded a community of scientists working from other institutions in the United States
and the United Kingdom. The working network built with this funding eventually grew
into the Internet.
Projects involving green energy and the smart electricity grid also receive funding
from governments. Modernizing the grids will require advanced information systems to
change the way they operate, which now is mostly one way—from power suppliers to
their business and residential customers. However, as more green energy sources come
online, many customers can produce their own power. They can not only reduce their
own electricity bills, but they may even earn a profit as the utility company pays them for
adding more to the grid than they consumed during the month (Figure 2-20).
PRODUCTIVITY TIP
At the National Do Not Call Registry website (www.donotcall.gov), you
can register your phone number to block unwanted telemarketing calls.
E-government services continue to improve, so check your state and local
government websites for other time-saving services.
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52 IntroductIon to InformatIon SyStemS
New information systems will be a strategic enabler for the grid, with advanced capa-
bilities to monitor power in both directions. The systems will essentially enable the elec-
tric meter to run “backwards” when the customer is adding electricity to the grid, and
they will help consumers see their patterns of daily energy use. Government support can
speed this kind of development, as it did for the Internet.
doEs I.T. mATTER?
Nicholas Carr, former editor of Harvard Business Review, posed a thought-provoking
question: “Does IT matter?”,19 His point is that IT resources have become so common-
place that their strategic importance has diminished. They have become a commodity—a
widely available staple, much like electricity or rail transport. Initially, those two dis-
ruptive innovations gave early visionaries considerable advantage over competitors.
For example, companies that understood how trains could ship large finished products
across great distances invested capital in large-scale factories with efficient mass produc-
tion. With economies of scale and the rail system for transport, these factories soon put
the many small, local manufacturers out of business. Over time, though, competitors
adopt the innovation as well, so it no longer confers any advantage. Carr argues that IT
is reaching that point, and a larger danger now is overspending.
Blindly assuming that IT investments will always increase workforce productivity
is also questionable. In fact, economists have struggled to explain the so-called “pro-
ductivity paradox” for decades. Since the 1970s, the overall amount of IT spending in
the United States has not been closely tied to increases in labor productivity. The para-
dox remains somewhat mysterious, and the way productivity is measured may be partly
responsible. In addition, wise IT investments can lead to soaring productivity, but poorly
chosen or mismanaged IT projects have the opposite effect.20
Spending on Running, Growing, and Transforming
The benchmarks discussed earlier show that companies are looking closely at how they
spend their IT dollars, not just at total amounts. The funds used to “run” the business are
mainly for the kinds of IT resources that now fall into the commodity category. Strate-
gies to reduce those costs are critical, and because price competition for commodities is
fierce, opportunities for savings abound. This book examines many ways organizations
FIGURE 2-20
Smart meters under development can
monitor power transmissions in both
directions so consumers can contrib-
ute power from their own sources to
the grid.
Source: LeahKat/Shutterstock.
Explain why the role of information
systems in organizations shifts
depending on whether the systems
are deployed to run, grow, or
transform the business.
6
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chapter 2 InformatIon SyStemS and Strategy 53
can avoid wasteful spending in these areas and improve productivity to get the best value
for the lowest cost.
In contrast, the funds and human effort applied to growing and transforming an
organization are much more closely tied to strategy, innovation, and competitive advan-
tage. It is here where the “people” component of information systems—that human
element—is most critical to success. Although many technologies are indeed commodi-
ties, the ability to extract their value requires human imagination; opportunities to do
that are limitless. Innovative business practices, new products and services, and dramati-
cally changed processes do not spring by themselves from technologies, but from talented
people who know how to apply them.
Leveling UP! : A Strategic Analysis
How should we evaluate the industry Prakash and Dana are trying to enter and how
does IT fit into their strategy? Their industry is already dominated by powerful and
established incumbents such as The Princeton Review, Kaplan, and Cambridge. Their
products include costly face-to-face classes, private tutoring, SAT prep books, and other
materials. With the growth of e-learning, however, many less expensive alternatives are
opening up, making the industry far more competitive. Some incumbents began offering
low cost online programs, even competing with the nonprofit College Board that both
administers the test and sells online practice programs to students. Newer entrants such
as ePrep.com offer inexpensive video lectures to explain math problems, and number2
.com offers its SAT practice questions for free. Students have many choices, and rivalry
is intense.
Fortunately, Leveling UP! is a substitute product, quite distinct from face-to-face
prep classes. Its unique mixture of fast-paced gaming features with study aids should dis-
tinguish it from the incumbents. Nevertheless, some of them already recognize that cell-
phone applications may become a threat to their traditional business models, and they
are developing their own products. Kaplan, for example, offers “SAT Flashcubes” for
the iPhone and iPod—flash cards to practice SAT vocabulary words. Although competi-
tion may become fierce, the incumbents’ online applications don’t have the excitement of
Leveling UP!, so they can be easily differentiated. That should help Prakash and Dana
avoid the trap of competing only on price. They know they will have to move quickly and
find innovative ways to market their clever approach. Viral marketing through Twitter
and YouTube might work, given the customer demographic, using the focused niche
strategy to target avid gamers.
How can we describe the value chain Prakash and Dana are creating? It is not a sim-
ple one in which the founders buy resources from suppliers, add value to them, and then
sell the product to student customers. Because user-generated content will play an impor-
tant role, their value chain is more complex. They will start by writing their own practice
SAT questions, drawing ideas from old SATs. The items will reach students by text mes-
sage, with the software tracking correct answers and advancing levels. But students will
become suppliers as they contribute good practice questions and explanations, rated for
quality by other students and the cofounders. The best contributors will become high-
level wizards, with special rewards and ringtones.
For Prakash and Dana, IT is a strategic enabler to launch Leveling UP! They will
need specialized software that works flawlessly on smartphone platforms to deliver the
SAT questions, dispense rewards, and level up the “players” as they achieve mastery and
offer their own questions. The software does not exist, but their time is a major part of
the capital they intend to contribute.
Leveling UP! will make an important strategic investment in the mobile application,
and the founders will want to get it right. They should spend as little money as possible on
the commodities, using free software and their own computing equipment when they can.
However, the time and money spent understanding student needs and creating a compel-
ling and effective application to meet them is the key ingredient to their business model.
For them, IT definitely matters.
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54 IntroductIon to InformatIon SyStemS
Prakash and Dana asked you to help them brainstorm the strategic direction for their new company, Leveling UP!
Your SAT. As this chapter described, their idea is to create a
smartphone application that will help high school students
practice SAT questions and master the techniques they
need to do well on such high stakes tests. The app will draw
on the compelling features of games, though, with rewards,
fast-paced action, competition, and special ringtones to in-
dicate advancing levels of mastery, similar to what happens
in some of the most popular action and playing games.
Sound like fun? It’s a business, though, so you’ll need
to think about how a company like this with a novel idea
can survive, surrounded by very powerful competitors
that dominate the industry.
They’ll be contacting you with more information, so
log in when you’re ready.
MyMISLab Online Simulation
Leveling UP!
A Role-Playing Simulation on Business Strategy for a New Smartphone App
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Key terms and concepts
Learning Objectives
The nature of competition in the industry forms the context for every company’s strategy, and
Michael Porter’s model describes the five forces that shape an industry’s competitive structure.
They help determine how profitable companies operating in the industry will be, and they
include (1) the threat of new entrants, (2) the power of buyers, (3) the power of suppliers,
(4) the threat of substitute products, and (5) rivalry among competitors.
In addition to the strategies of the companies themselves, many external factors affect how the
five forces operate. Disruptive innovations, for example, can transform entire industries through
the process of creative destruction. Government policies can also affect industry competition
through legislation, regulation, and court decisions. Industries that operate in a larger ecosystem
are affected by the development of complementary products and services that accelerate trends.
In addition, environmental events such as pandemics or earthquakes can reshape industries and
call for changes in strategy.
Organizations can use the value chain model to understand their options as they strive to
compete in an industry. Primary activities (bringing in raw resources, making the product,
marketing, delivery, and customer support) and support activities form the major components
of the value chain. The extended value chain, which includes suppliers and customers, offers
more strategic opportunities. Benchmarks are used to compare a company’s performance to
industry standards on components of the value chain.
Competitive strategies include low cost leadership, product differentiation, and a focused niche
strategy for a particular market segment. Information systems support all these approaches
by reducing costs, streamlining processes, and adding unique value with new products or
features. Their role includes running the organization and, as a strategic enabler, growing and
transforming the organization.
Nonprofits take advantage of information systems to manage basic operations, and also as a
strategic enabler in areas such as fund-raising and volunteer management. Governments use
information systems extensively for e-government initiatives, especially to increase access and
enhance services for the public. Governments are also deeply involved in funding initiatives that
offer potential value for the country, but that may be too risky for private investors. Examples
include the research that led to the Internet and funding for alternative energy.
As technologies become commodities, and become widely used by almost all organizations, their
strategic value diminishes. The information systems used to “run” organizations, in particular,
are readily available and managers should focus on reducing their cost. However, innovative
information systems in which creative people leverage technology to grow and transform the
organization are critical for effective strategy.
1
3
2
4
5
C H A P T E R
2 chapter summary
threat of new entrants
network effects
switching costs
power of buyers
power of suppliers
threat of substitutes
rivalry among existing
competitors
disruptive innovation
sustaining technologies
creative destruction
ecosystem
value chain model
primary activities
support activities
benchmark
low cost leadership strategy
product differentiation
strategy
focused niche strategy
strategic enabler
e-government
6
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56 IntroductIon to InformatIon SyStemS
2-1. What are the five competitive forces that shape indus-
try competition? How are these forces interrelated?
2-2. How do disruptive innovations, government policies,
complementary products and services, and environmen-
tal events affect how the competitive forces operate?
2-3. What are the components of the value chain? Which
components comprise the primary activities? Which
components comprise the support activities? What is
the extended value chain?
2-4. How do managers use benchmarks to analyze the
value chain and IT spending?
2-5. How do information systems apply to competitive
strategies for business?
2-6. How are information systems used to run, grow, and
transform a business?
2-7. How do information systems apply to competitive
strategies for nonprofit organizations?
2-8. How do governments use information systems to
improve services and fund research?
chapter review Questions
2-9. Although many people think electronic book readers
are too expensive, there is a massive global demand for
the devices, and the trend is likely to continue for some
time. Search the web to learn more about how digital
technology has disrupted the book publishing industry,
and prepare a 5-minute presentation of your findings.
2-10. Is a value meal related to a value chain? The value
that attracts more than 60 million customers to
McDonald’s every day comes from capabilities
that are based in its value chain. Briefly describe
McDonald’s value chain and discuss how informa-
tion systems facilitate each component in the chain.
Can you think of a way that information technology
could improve your next trip to McDonald’s?
2-11. Information technology enables nonprofit organi-
zations to reach out to constituents 24 hours a day,
7 days a week. Visit www.redcross.org and note the
various ways this charity is using its website to com-
municate with volunteers, donors, and people who
need assistance. Compare the Red Cross site to your
university’s alumni association website. Prepare a
brief summary of your findings that includes a list of
specific services provided on each site. How does each
website support the organization’s strategic goals?
2-12. Government agencies and corporations have similar
information needs. Identify and briefly discuss spe-
cific examples of information systems typically used
by a law enforcement agency such as a state or local
police department. Which of these systems are used
to “run” the business? Which are used to fulfill the
agency’s mission?
2-13. What are the three basic strategies that companies
adopt to compete? Describe how information sys-
tems support each strategy. What is a “hybrid” strat-
egy? Describe a company, product, or service that
adopts each of these four competitive strategies.
2-14. What are network effects? Search the web or visit
websites such as Eversave.com and AmazonLocal.
com and discuss how network effects can impact the
threat of new entrants. Is there an Eversave offering
or an AmazonLocal deal in your hometown? How
would you describe the long-term value proposition
of this online shopping phenomenon? In your opin-
ion, are there any disadvantages for an organization
that offers a daily deal?
2-15. In 2011, the U.S. federal government collected
approximately $2.3 trillion in taxes, including indi-
vidual income taxes, Social Security/Social Insurance
taxes, and corporate taxes. Visit www.irs.gov and
describe how this website enhances services to the
public. What types of services are available to indi-
viduals? To businesses? To charities and nonprofit
organizations? What kind of “tax information for
students” does this site provide? Prepare a 5-minute
presentation of your findings.
2-16. Why are IT resources described as a commodity?
How do IT resources “matter” in terms of the differ-
ent roles they play in an organization? Which compo-
nent of an information system is most critical to suc-
cess in growing and transforming the business? Why?
2-17. According to the Computer History Museum (www
.computerhistory.org), the Kenbak Corporation sold
the first personal computer in 1971. Since then, sev-
eral billion PCs have been sold under various brand
names. Currently, HP, Dell, Acer, Lenovo, and Asus
are the leading brands in the highly competitive PC
market. Work in a small group with classmates to
analyze and describe the personal computer industry
using the five competitive forces model.
2-18. Work in a small group with classmates to discuss how
information technology plays a role in the competi-
tive environment of your college or university. How
do you describe the competition to attract and retain
students? How do you describe the threat of substi-
tutes in higher education? How does the threat of
substitutes affect supplier power in education?
projects and discussion Questions
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chapter 2 InformatIon SyStemS and Strategy 57
application exercises
2-19. ExcEl ApplicAtion:
it Benchmarks
Jay’s Bikes is a family-owned and operated business that stocks
a wide range of bikes designed to fit the needs of professional
riders, your child’s first bike, and everything in between. The
business has 12 full-time employees. Jay has asked you to cre-
ate a spreadsheet from the data in Figure 2-21 to calculate
average IT spending so that it can be compared to the retail
industry average. What is the average IT spending in the retail
industry? What is the average IT spending per employee in
the retail industry? How do Jay’s IT expenditures compare to
the industry averages? How much would Jay need to increase
spending in order to match the retail industry average?
2-20. AccEss ApplicAtion:
telethon call Reports
The volunteer coordinator of the Downtown Emergency
Shelter has asked you to use the information provided in
Figure 2-22 to create an Access database. (You can down-
load the Excel file called Ch02Ex02 and import the data
into your database.) The coordinator will use the database
to manage donor records and help the Shelter prepare for
an upcoming Phonathon fund-raising event. During the
Phonathon, volunteers will call previous donors to ask
for donations to this year’s fund. Your instructions are to
create two tables (donors and volunteers) and prepare a
Phonathon Call Report for each volunteer. The shelter man-
ager wants you to add three fields to the donor table: this
year’s contribution, a calculated field that shows the average
contribution per employee, and a calculated field that shows
a target contribution that is 5% higher than last year’s con-
tribution. The report should list the volunteer’s name and
number, as well as the following donor information: donor
number, donor name, company name, phone number, con-
tribution amount from the prior year, number of employees,
average contribution per employee, and target contribu-
tion for this year. Although address information will not be
included on the report, that information will be used to send
receipts to the donors at the conclusion of this year’s fund-
raising event.
FIGURE 2-22
Phonathon data.
FIGURE 2-21
Jay’s Bikes revenue and IT expenditures.
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58 IntroductIon to InformatIon SyStemS
case study #1
With more than 6,600 stores throughout the United States, Australia, Canada, and Europe, GameStop’s management team wants to be the
premier destination for gamers. The Texas-based retail chain’s major
source of revenue is the sale of games, consoles, and other equip-
ment, both new and used. The used market is important because it
brings customers into the store to trade in their old games and con-
soles for store credits. GameStop resells the used games for more
than twice what it pays for them.
The business model has, so far, survived the Internet’s creative
destruction that swept away other brick-and-mortar outlets selling
digital products, including Egghead Software and Tower Records. But
competition is intense in this industry.
One major rival is Best Buy, which offers customers a chance to
trade in their old games for gift cards that can be used at any Best Buy
store. Unlike GameStop’s store credit, the Best Buy cards can be used to
purchase TVs, computers, music, and any other Best Buy merchandise.
Another threat comes from the game developers, who fume
about used-game sales because they earn no royalties. To counter
used sales, many developers include a coupon with a new game so
that purchasers can download special content or a game upgrade.
GameStop has to charge people who buy used games a fee to get
that coupon, and the total price approaches the cost of the new game.
Developers will continue to find ways to combat used-game sales.
Online retailers like Amazon pose another threat, especially com-
bined with price comparison websites that show up-to-the minute
prices from different outlets. The free social games such as Farmville
are also luring some gamers away from the costly titles featured at
GameStop, such as Call of Duty and Madden.
In addition, widespread access to high-speed Internet has a
downside for GameStop. Companies such as Electronic Arts and Bliz-
zard can deliver major upgrades and sequels to their high-end games
digitally, instead of packaging them into boxes for GameStop to sell.
Customers can buy them online, directly from the publisher, rather
than making the trip to the store.
GameStop counters these threats by revamping its business strat-
egy and aggressively promoting its online store as a complement to
the physical stores. Customers can buy new and used products online
and also check out special trade-in deals before they visit the store.
They also strive to increase switching costs through a well done loy-
alty program called PowerUP Rewards. Members earn points for every
dollar they spend, but also for telling GameStop about the games they
play and their preferences. They can exchange for gift cards, merchan-
dise, restaurant and movie rewards, and subscriptions to gaming net-
works. The information GameStop collects about PowerUP members
reveals just which promotions might work best for each customer, so
the company can save money on marketing. The program also leads
to more valuable customers who are far more likely to trade in games,
open marketing emails, and buy products. Members spend on aver-
age $400 per year at GameStop.
Clearly, the company appreciates the dangerous strategic waters
of other brick-and-mortar media companies, many of which have
closed their doors due to competition. Sales and net revenue were de-
clining as of 2013, but time will tell if GameStop’s strategies will pay off.
Can GameStop Survive with Its Brick-and-Mortar Stores?
discussion Questions
2-21. Perform a five forces analysis of the online gaming industry.
What are the implications of the five forces analysis for
GameStop?
2-22. What role have information systems played in the five forces
you identified?
2-23. How has GameStop used information systems to compete
more effectively?
2-24. What other strategic actions will GameStop need to take to
protect its business?
Sources: Colbert, C. (2013). GameStop Corp. Hoover’s Online Company Database,
accessed April 4, 2013.
Mattera, S. (March 11, 2013). How much longer can Gamestop survive? Motleyfool.com,
http://beta.fool.com/joekurtz/2013/03/11/how-much-longer-can-gamestop-survive/26269/
?source=eogyholnk0000001, accessed March 20, 2013.
Poggi, J. (April 9, 2012). GameStop revamps business to ensure success in a digital future.
Ad Age, http://adage.com/article/cmo-interviews/gamestop-revamps-business-ensure-
success-a-digital-future/233950/, accessed March 20, 2013.
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chapter 2 InformatIon SyStemS and Strategy 59
discussion Questions
2-25. What are the strategic interests of carriers? What are the
strategic interests of websites?
2-26. How do the interests of carriers differ from the interests of
websites? What are the implications for websites from a
value chain perspective?
2-27. What is the basis for Verizon’s lawsuit against the Federal
Communications Commission? Why did they claim a viola-
tion of free speech?
2-28. What are relevant considerations on the role government could
play to resolve differences between carriers and websites?
Sources: Downes, L. (January 24, 2013). The strange resurrection of net neutrality.
C|Net, http://news.cnet.com/8301-13578_3-57565561-38/the-strange-resurrection-of-net-
neutrality/, accessed March 20, 2013.
Krause, R. (March 20, 2013). Verizon win in FCC challenge would roil industry. Investor’s
Business Daily, http://news.investors.com/technology/032013-648677-verizon-fcc-court-
challenge-ruling-expected-summer.htm, accessed March 20, 2013.
Pil Choi, J., & Byung-Cheol, K. (2010). Net neutrality and investment incentives. RAND
Journal of Economics, 41(3), 446–471.
Stanton, L., Gotsch, T., Kirby, P., & Curran, J. (2013). Ruling on FCC’s Open Internet Order
seen as possible spark to Telecommunications Act rewrite. Telecommunications Reports,
79(3), 1–11. Available from: Business Source Complete, Ipswich, MA. Accessed April 4, 2013.
Wilhelm, A. (November 16, 2012). Google, Twitter, and Facebook’s arguments in favor of
net neutrality. The Next Web, http://thenextweb.com/us/2012/11/16/google-twitter-and-
facebooks-arguments-in-favor-of-net-neutrality/, accessed March 20, 2013.
case study #2
Debates over how government should regulate the Internet’s evolution heat up whenever anyone mentions “net neutrality.” Here are the two sides of the debate:
The Case for Net Neutrality
This side argues that carriers selling Internet access—
Verizon, AT&T, and Comcast, for instance—should not
discriminate for or against different content providers
or applications. All traffic should be routed neutrally,
and the carriers should not make special deals to favor
some content by giving it more bandwidth so movies
will play more smoothly and web pages load faster. The
Open Internet Coalition strongly supports net neutrality
and includes dozens of companies that provide content
over the Internet. Amazon, eBay, Google, Lending Tree,
Facebook, Skype, Paypal, and Netflix are all members.
The coalition also includes nonprofits that advocate for
openness, such as the American Civil Liberties Union,
American Library Association, and Educause.
The Case Against Net Neutrality
On the other side of the debate are the carriers—AT&T,
Verizon, Comcast, and others. They argue that incen-
tives are needed to encourage their investment in the
network infrastructure, and that their networks have to
be managed to provide the best service at reasonable
costs. Video downloads, in particular, hog bandwidth to
the detriment of other users who just want to read the
news or send email. In fact, this issue gained consid-
erable steam when Comcast began throttling down-
load speeds for subscribers using BitTorrent, software
widely used to download movies. Comcast’s move,
while helpful to most customers, was a violation of net
neutrality.
Even though adherence to the net neutrality principle was vol-
untary, the Federal Communications Commission (FCC) reprimanded
Comcast for what it considered an outrageous violation. Comcast
sued, and the courts decided the FCC didn’t actually have jurisdiction
to reprimand anyone because the Commission has no authority over
broadband communications. The FCC went on to establish rules sup-
porting net neutrality anyway.
To no one’s surprise, the carriers objected to the FCC’s rules.
Verizon filed a lawsuit in 2012, arguing that the FCC went way
beyond its authority when it made rules about net neutrality, as the
court determined in the Comcast case. Verizon also claimed that the
rules violated the company’s freedom of speech by taking away their
control over their own property—their networks. Whether network
traffic is “speech” is an interesting question, of course.
This somewhat technical topic attracts intense lobbying efforts
targeting government agencies and politicians. The outcome will af-
fect strategy for any organization with an Internet presence, and all the
players have much at stake. Their members do not want the risk that
carriers could disadvantage their content in favor of a competitor or
make it cumbersome for customers to access their sites.
All businesses that have an online presence have a lot at stake,
too, and so do consumers. If the carriers can make deals with some
companies so that their pages load faster, big, cash-rich companies
might have another edge over small businesses. Or, if your carrier
favors traffic coming from Amazon Instant Video over Netflix, you
might drop your Netflix subscription. On the other hand, your own web
browsing would be slower if neighbors who share your cable connec-
tion are downloading movies 24 hours a day, and the cable company
can’t throttle them down.
The outcome of Verizon’s lawsuit is an important ingredient in the
Internet’s future, and in the way governments treat the net’s develop-
ment. One outcome may be that lawmakers decide it’s time to rewrite
the 1996 Telecommunications Act, which will undoubtedly spur de-
bates for years to come.
The Open Internet Coalition and the Battle for Net Neutrality
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http://thenextweb.com/us/2012/11/16/google-twitter-and-facebooks-arguments-in-favor-of-net-neutrality/

http://news.cnet.com/8301-13578_3-57565561-38/the-strange-resurrection-of-net-neutrality/

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60 IntroductIon to InformatIon SyStemS
One useful way to catch up on a company’s strategy is to check out
trends in its stock price, and the net offers many free tools. Go to
Google’s finance website (www.google.com/finance) and type the stock
ticker symbol for GameStop (GME) into the search bar to pull up current
news about the company, including a graph of its share prices, from
Google finance.
2-29. The letters on the graph tie into the news stories, and some of
them have major effects on the company’s stock. Change the
graph to show 1 year of data by clicking 1y at the top left of the
graph. Do you see any sudden changes in share price paired
with a news story? Does the news shed light on how investors
view its strategy or the execution of it?
2-30. One way to get an idea of how well the company is doing is to
compare the trend in its share prices to the Dow Jones Industrial
Average. Check the box next to Dow Jones at the top of the graph
and compare the trends. How does GameStop’s performance
compare?
Identifying Company Strategy with Online Financial Chart Toolse-project 1
In this e-project, you will obtain and analyze information about download
times to assess Internet connectivity.
2-31. Download the file called CH02_MediaDownloads. This file
shows the approximate file sizes for different kinds of media,
along with estimated download times.
2-32. Add a column called Speed Advantage and enter the formula that
shows how many times faster the download will be if one uses
fast broadband (+d2/+c2). Copy the formula to the remaining
rows, and then add a row at the bottom called “AVERAGE.” On
average, how much faster is it to download media files using
fast broadband compared to regular broadband?
2-33. Add two more columns called Download Time per MB (Fast
Broadband) and Download Time per MB (Regular Broadband).
Compute these values by dividing the appropriate download
time by the file size in MB, and add the average at the bottom.
a. What is the average download time per MB for fast broadband?
b. For regular broadband?
2-34. Download the video file called CH02_TestVideo and time how
long it takes.
a. What is the file’s size in MB? If the file size is represented in
gigabytes (GB), multiply that number by 1,000 to convert to
megabytes (MB).
b. Using the average download times you computed, what
should be the download time using fast broadband? What
would it be for regular broadband?
c. How does your download time compare to these estimates?
Do you have fast broadband, regular broadband, or some-
thing else?
Analyzing Movie Download Times with Excele-project 2
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chapter 2 InformatIon SyStemS and Strategy 61
chapter notes
1. Porter, M. E. (1998). Competitive strategy: Techniques
for analyzing industries and competitors. San Francisco:
The Free Press.
2. Porter, M. E. (2008). The five competitive forces that
shape strategy. Harvard Business Review, 86(1), 78–93.
3. Yahoo! Finance (December 28, 2012), http://biz.yahoo
.com/p/sum_qpmd.html, accessed December 28, 2012.
4. iTunes continues to dominate music retailing, but nearly
60 percent of iTunes music buyers also use Pandora.
(September 18, 2012). NPD Group. https://www.npd
.com/wps/portal/npd/us/news/press-releases/itunes-
continues-to-dominate-music-retailing-but-nearly-
60-percent-of-itunes-music-buyers-also-use-pandora/,
accessed July 1, 2013.
5. Tjan, A. K. (2013). What high quality revenue looks
like. Harvard Business Review Blog Network, http://
blogs.hbr.org/tjan/2013/02/what-high-quality-revenue-
look.html, accessed February 10, 2013.
6. McIntyre, D. A., Hess, A. E. M., & Weigley, S.
(February 10, 2013). Eight founders who ruined their
companies. USA Today, http://www.usatoday.com/
story/money/business/2013/02/09/founders-ruin-
companies/1905921/, accessed February 10, 2013.
7. van Heerde, H. J., Gijsbrechts, E., & Pauwels, K. (2008).
Winners and losers in a major price war. Journal of
Marketing Research, 45(5), 499–518.
8. Rosenberg, D. (May 16, 2009). Sony Pictures CEO
hates the Internet. Software, Interrupted, http://news
.cnet.com/8301-13846_3-10242526-62.html, accessed
May 1, 2011.
9. Christensen, C. (1997). The innovator’s dilemma: When
new technologies cause great firms to fail. Cambridge,
MA: Harvard Business School Press.
10. Christensen, C., & Raynor, M. (2003). The innovator’s
solution. Cambridge, MA: Harvard Business School Press.
11. Wessel, M., & Christensen, C. M. (2012). Surviving disrup-
tion (cover story). Harvard Business Review, 90(12), 56–64.
12. Smith, E., & Letzing, J. (December 5, 2012). The more
Pandora sells, the more it loses. Wall Street Journal,
http://online.wsj.com/article/SB10001424127887323316
804578161620785088896.html, accessed December 28,
2012.
13. Celock, J. (December 5, 2012). States lobby for Internet
sales tax bill to pass Congress. Huffington Post,
http://www.huffingtonpost.com/2012/12/05/internet-
sales-tax-state-legislators_n_2246153.html, accessed
December 30, 2012.
14. Punniyamoorthy, M., Thamaraiselvan, N., & Manikandan,
L. (2013). Assessment of supply chain risk: scale devel-
opment and validation. Benchmarking: An International
Journal, 20(1), 79–105. doi:10.1108/14635771311299506
15. Potter, K., Smith, M., McGittigan, J., Guevara, J. K.,
Hall, L., & Stegman, E. (2012). IT metrics. IT spend-
ing and staffing report, 2012. Gartner Research,
ID:G00229659.
16. Wallace, N. (February 26, 2009). Google helps char-
ity test its web design. The Chronicle of Philanthropy,
http://philanthropy.com/article/Google-Helps-Charity-
Test-Its/57281/, accessed May 1, 2011.
17. The Milennial Impact Report 2012. Johnson, Grossnickle
and Associates, http://themillennialimpact.com/wp-con-
tent/uploads/2012/06/TheMillennialImpactReport2012
, accessed December 31, 2012.
18. Volunteermatch.org (2013), accessed June 10, 2013.
19. Carr, N. G. (2004). Does IT matter? Information technol-
ogy and the corrosion of competitive advantage. Boston,
MA: Harvard Business School Press Books, p. 1.
20. Brynjolfsson, E. (1993). The productivity paradox
of information technology: Review and assessment.
Communications of the ACM, 36(12), 66–77.
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http://blogs.hbr.org/tjan/2013/02/what-high-quality-revenue-look.html

http://www.usatoday.com/story/money/business/2013/02/09/founders-ruin-companies/1905921/

http://news.cnet.com/8301-13846_3-10242526-62.html

http://online.wsj.com/article/SB10001424127887323316

http://www.huffingtonpost.com/2012/12/05/internet-sales-tax-state-legislators_n_2246153.html

http://philanthropy.com/article/Google-Helps-Charity-Test-Its/57281/

http://themillennialimpact.com/wp-con-tent/uploads/2012/06/TheMillennialImpactReport2012

http://www.npd.com/wps/portal/npd/us/news/press-releases/itunes-continues-to-dominate-music-retailing-but-nearly-60-percent-of-itunes-music-buyers-also-use-pandora/

Learning Objectives
Describe the four hardware components of a computer, giving examples of each component.
Identify and provide examples of the two major types of software, and describe how software is created.
Describe the major types of networks and the transmission media they use, and give examples of network
protocols.
Explain the importance of the enterprise architecture, describing trends in ICT architecture over time.
3
1
4
2
C H A P T E R
3
information and
communications technologies:
The Enterprise Architecture
THE TECHNOLOGY COMPONENT OF INFORMATION SYSTEMS
INCLUDES HARDWARE, software, and telecommunications.
This chapter provides an overview of these three important
pieces, showing how the parts fit together, and why they
sometimes don’t fit together as well as one might hope.
In the online decision-making simulation called “Devil’s
Canyon,” you will learn about a new mountain resort and the
dreams that the young team of entrepreneurs have for it.
You will also hear about their challenges as they try to think
through what hardware, software, and telecommunications
will be the best choices for them. Then you will take on the
responsibility for choosing those components. What hardware
will they need? Should the resort go with cloud computing, or
build its own data center? What software should they imple-
ment? Should they buy smartphones for the staff? Should
they invest in webcams along the slopes so customers can
purchase videos of their ski runs? Costs matter, of course,
and you have a budget to work with. But so does making
sure all the parts fit together. The choices should also support
the team’s business objectives and add competitive advan-
tage so the new resort is a smash hit.
Hardware, software, and telecommunications work
together to create the enterprise architecture (EA). For a new
company like Devil’s Canyon, the EA is a guide on what to
purchase and install, how long it will take, how everything
will work together, why certain decisions were made, and
what it will cost. For existing organizations, the EA also
describes the current situation, and how the EA should be
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.
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chapter 3 InformatIon and CommunICatIons teChnologIes 63
changed or upgraded to support the mission, focusing espe-
cially on business strategy and the technology required to
achieve it. A roadmap describing how to get from the present
to that future state guides decision making about technol-
ogy directions. The EA helps managers navigate through all
the choices as they add new information systems and retire
older ones.
The knowledge you gain from this chapter will help you understand what the technology options are and how they apply to organizations. People in all
parts of an organization have a role to play in designing
the enterprise architecture, and input from all stakeholders
is needed to ensure the technology matches the business
strategy.
MyMISLab Online Simulation
Devil’s Canyon
A Role-Playing Simulation on Enterprise Architecture for a Mountain Resort
enterprise architecture (EA)
A roadmap created by an organization to
describe its current situation and where it
should head to achieve its mission, focusing
on business strategy and the technology
infrastructure required to achieve it.
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64 IntroduCtIon to InformatIon systems
THE HARdwARE
The physical basis of information systems covers an immense range of hardware, from
mainframes and servers in giant data centers, to robots, microprocessors, smartphones,
printers, scanners, digital cameras, smart cards, hard drives, and much more. These
devices generally share two important features. First, they are digital, so they all process
information using the same binary language of zeroes and ones. Second, they can all be
considered computers or computer components.
The computer is any electronic device that can accept, manipulate, store, and output
data, and whose instructions can be programmed. That definition covers equipment you
might not ordinarily think of as a computer, such as the smartphone, a game console, or
a robotic rat with cameras for eyes and highly sensitive wire whiskers.
Times have changed since 1947 when the world marveled at ENIAC, the first elec-
tronic computer (Figure 3-1). Weighing 27 tons, that giant was 26 meters (80 feet) long
and contained more than 17,000 vacuum tubes. With every breakthrough and each
succeeding generation, the overarching goal is to make technology work for human
beings, making them smaller, less expensive, less power hungry, and considerably more
intelligent.
Input and Output
Although the details vary considerably, computers have four components, as you see in
Figure 3-2. Figure 3-3 includes various input devices which accept signals and convert
them to a digital format that matches the signal’s meaning. Some also display the output,
such as digital cameras and touchscreens.
Human Input Most input devices rely on human input, so they
are designed with human capabilities in mind. Hands can type on
keyboards, and each key press is converted into a different string
combination of zeros and ones. The ASCII code and its variants
determine how characters are encoded into digital strings, so
that a backspace might send 00001000 and a SHIFT + s sends
01010011, for capital S.
Productivity guru David Allen commented on Twitter.com,
“Communicating without knowing how to type is like talk-
ing with marbles in your mouth.” As an interface for human
beings, the keyboard is an underappreciated milestone in com-
puter history. Skilled typists can type more than 100 words
per minute—faster than most people speak. Managers once
disdained keyboards because they seemed linked to low-level
clerk-typist jobs, but typing soon became an essential pro-
ductivity skill for everyone. Unfortunately, the keyboard lay-
out evolved from the typewriter—originally designed to slow
Describe the four hardware
components of a computer, giving
examples of each component.
1
OutputInput Processing
(CPU)
FIGURE 3-2
Hardware components.
FIGURE 3-1
ENIAC, the first electronic computer.
Source: US Army photo/Alamy
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chapter 3 InformatIon and CommunICatIons teChnologIes 65
ASCII code
A code that defines how keyboard
characters are encoded into digital strings
of ones and zeros.
computer
Any electronic device that can accept,
manipulate, store, and output data, and
whose instructions can be programmed.
down data entry to prevent collisions of the hammers striking the paper. Because so
many people already knew the QWERTY layout, though, attempts to introduce a better
design failed. As sometimes happens, a superior technology solution lost out, in this case
because human behavior can be so difficult to change.
The ASCII keyboard also helps explain why some countries adopted computing
much earlier than others. Although a standard keyboard handily encodes languages that
use the Roman alphabet with its 26 letters, 10 numerals, and a few punctuation marks,
it is very cumbersome for languages like Chinese and Japanese, which use thousands of
characters. Characters in the Korean language, called Hangul, are grouped as syllables
and positioned in different locations. Arabic, Urdu, and Hebrew are written from right
to left. These obstacles are overcome with more intelligent software, but they certainly
made faxes more useful in those countries compared to email, and delayed widespread
computer use.
The mouse, joystick, and graphics tablet are other human input devices, and these can
transmit motion and location information. Touch-sensitive screens, for example, respond
to finger motions and convert
them to digital signals. A screen
is organized into x and y axes,
and locations can be transmit-
ted as coordinates. Large touch-
screens that several people can
swipe at the same time are gain-
ing popularity as a way to col-
laborate. Gloves equipped with
sensors can also transmit com-
plex hand movements, such as
those used in American Sign
Language.
Microphones capture human
speech and transmit it in digital
format. Although the sounds
can be represented digitally just
as sounds, speech recognition
software can also dissect the
words, matching them to known
vocabularies or alphabets.
FIGURE 3-3
Input and output devices.
Source: Nikita Rogul/Shutterstock.
PRODUCTIVITY TIP
Although the mouse is very useful, it can slow you down as you move your
hands from the keyboard. Try the keyboard shortcuts in Figure 3-4 to eliminate
some unneeded motion.
CTRL+C Command ( )+C Copy selected text
CTRL+V Command ( )+V Paste
CTRL+S Command ( )+S Save current document
CTRL+Z Command ( )+Z Undo
CTRL+F Command ( )+F Open a Find window
Windows Macintosh Function
FIGURE 3-4
Keyboard shortcuts that improve productivity.
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66 IntroduCtIon to InformatIon systems
Why hasn’t speech input overtaken fingers and hands? Although spoken commands
are valuable when the hands are needed for something else (like driving), most applica-
tions still rely heavily on keyboards and touchscreens. One reason is that speech rec-
ognition is less accurate, but many people also prefer typing to speaking, and reading
to listening. Texting, email, and instant messaging have outpaced voice mail. In some
organizations, voice mail is all but dead. One CEO claims he gets no more than a couple
per month, and those are usually marketing calls or automated messages reminding him
of overdue library books. Human preferences like these play an important role when
designing the enterprise architecture.
ScannerS and SenSorS Optical scanners capture text or images and convert them to
digital format in thousands of settings. They can scan virtually anything into an image,
but combined with software or special symbols, they can decipher much more detail.
For example, the barcodes that appear on products, price tags, and postal mail represent
specific numbers and other symbols, and scanners transmit those details—not just the
image (Figure 3-5).
The quick response code (QR Code) that appears on magazines, newspapers, and
even restaurant menus is another type of barcode. Originally invented by Toyota to
track vehicles in the factory, QR codes are now widely used in consumer advertising.
Smartphone users can install QR Code readers so they can scan the square image and
hop directly to the website or other image (Figure 3-6).
Scanners, combined with optical character recognition (OCR) software, can inter-
pret the actual letters and numbers on a page, creating a digital document that can be
edited rather than a flat picture. Banks were early adopters of this technology, which
they use to process checks. The unique font is standard throughout the industry, and
magnetic ink allows scanners to read the characters even if someone writes over them.
Google uses OCR to scan old books so that their contents become searchable. The
company’s goal is to scan all existing books—(over 129 million of them!)—but legal
wrangling over copyrights has slowed the project.1
Digital cameras are another important input device widely used for surveillance,
security, and just entertainment. They monitor traffic patterns, building entrances, hall-
ways, homes, ATM machines,
baby cribs, and even bird nests.
In addition to the fixed cameras,
mobile phones equipped with
cameras are widespread, so the
chances of passing a whole day
without appearing in a photo or
video are slim.
Radio frequency identification (RFID) tags, used in supply chains to track ship-
ments, are small chips equipped with a microprocessor, a tiny antenna to receive
and transmit data, and sometimes a
battery (Figure 3-7). RFID tags can
store information on the object’s his-
tory and whereabouts, and can be
embedded in anything, including pets,
livestock, and human beings. The
Department of Energy relies on RFID
tags to track shipments of hazardous
nuclear material.
Sensors are spreading so fast that
analysts predict their signals will com-
prise 20% of Internet traffic. Envi-
ronmental sensors, for instance, monitor temperature, humidity, and pollution. The
Chesapeake Bay’s smart buoys capture data on water quality, wind speed, and tempera-
ture, and their data is transmitted in real time to the Internet (Figure 3-8).
output devIceS The familiar flat panel display is the most common computer output
device for desktop computers. Falling prices make a large screen, or even two of them, quite
FIGURE 3-5
Sample barcode.
PRODUCTIVITY TIP
Add a QR Code reader app to your smartphone so you can see how businesses
are using them to reach out to mobile customers. Some uses will add to your
productivity and enjoyment, such as a menu with QR Codes that lead to
nutrition information or discount coupons. Others may be mainly ads, though.
Did You Know?
Swiping a touchscreen is easier than using a mouse and keyboard, but now you can
even input commands with gestures—without touching the screen. Leap Motion’s
tiny controller senses hand and figure motions in 8 cubic feet of space, so you
can input touch-free commands in 3 dimensions. Many applications will benefit:
surgeons need not remove their gloves to rotate medical images, and gamers can
crush foes with their bare hands.2
FIGURE 3-6
QR Code. If you have a smartphone, down-
load a QR reader for it and scan the image
below. Recognize what is in the picture?
Source: isonphoto / Fotolia
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chapter 3 InformatIon and CommunICatIons teChnologIes 67
radio frequency identification (RFID)
A technology placed on tags with small
chips equipped with a microprocessor, a tiny
antenna to receive and transmit data, and
sometimes a battery that stores information
on the tagged object’s history.
optical character recognition (OCR)
The capability of specialized software to
interpret the actual letters and numbers on a
page to create a digital document that can
be edited, rather than a flat picture.
optical scanners
Electronic devices that capture text or
images and convert them to digital format.
affordable. For human beings, screen real estate is a valuable commodity, making it possible
to view several applications at the same time.
On the other end of the
spectrum are the small screens
used for cell phones and hand-
held devices, and the somewhat
larger ones used in tablets and
e-books. Other common out-
put devices include computer
printers and speakers, as well
as an enormous variety of con-
trollers that operate machinery,
FIGURE 3-7
RFID tag.
Source: Albert Lozano/Shutterstock.
Source: www.buoybay.org/site/public, accessed September 15, 2010.
FIGURE 3-8
Buoy sensors collect live data that is
made available on the Internet.
PRODUCTIVITY TIP
Adding a second monitor can improve your productivity and also reduce the
need to print documents.3 Sales figures show that corporations are buying
at least two monitors for more than a third of their employees, and research
confirms that most people work more efficiently with more screen real estate.
You’ll appreciate the second monitor even more if you work with a laptop on
a desk.
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68 IntroduCtIon to InformatIon systems
from lawn sprinklers and lights to an aircraft’s landing gear. Powered USB ports open up
opportunities for creative inventors, who came up with several oddball output devices:
heated slippers, coffee warmers, and air darts fired off with the mouse.
Processing
The computer’s brain is the central processing unit (CPU), which handles information pro-
cessing, calculations, and control tasks. Early versions used vacuum tubes that frequently
blew out, but with the invention of the transistor—a small electrical circuit made from a
semiconductor material such as silicon—computers switched to using electrical signals
to represent zeros and ones. The transistors are packed onto integrated circuits, and mass
produced at low cost (Figure 3-9).
Decades ago, Intel cofounder Gordon Moore predicted that
the number of transistors fitting on a chip would about double
every 2 years, a forecast that has proven surprisingly accurate.
Now known as Moore’s Law, his prediction about density also
captures advances in processing speed, storage capabilities, cost,
and other computer features. Today’s low-cost laptop outperforms
mainframes from the 1960s—and takes up far less space.
The computing architectures in Figure 3-10 illustrate how
the technology has evolved, as each generation took advantage
of declining costs, increasing power, and advances that support
mobility and ease of use. As we discuss later in this chapter, and
as you’ll see in the Devil’s Canyon decision-making simulation,
decisions about these computing architectures should fit into the
larger picture. Choices depend on the enterprise architecture. For
example, a company that still relies on an old software system
FIGURE 3-9
Integrated circuits.
Computing Architectures Description
Mainframe Developed for large businesses in the 1960s and often called “big
iron,” mainframes are still used for massive bulk processing tasks and
fi nancial transactions requiring high reliability. They are also deployed as
servers for large networks. The mainframe market is dominated by IBM.
Supercomputer Introduced in the 1960s, these high-end computers feature the fastest
processors for calculation-intensive tasks in areas such as physics,
weather modeling, and molecular analyses.
Minicomputer Designed to be smaller in size and less expensive than mainframes,
minicomputers and the terminals connected to them worked well
for small and midsized businesses through the 1990s, after which
many were replaced by PC servers. Now they are called “midrange
computers,” and are used as servers.
Microcomputer Called PCs for short, these devices proliferated in organizations in the
1990s, replacing the dumb terminals and offering far more capability
on the desktop. Powerful PCs are widely used as servers as well.
Laptop Valued for their integrated display screens and portability, these
battery-powered PCs became popular in the late 1980s, facilitating
mobility. They could run much of the same software as their desktop
cousins, though more slowly. Many newer laptops offer touchscreen
sensitivity, similar to tablets.
Netbook Engineered to be even smaller and less expensive than laptops,
netbooks gained attention in the late 2000s as a cost-effective means
to wirelessly connect to the Internet. Their low cost also facilitates
widespread distribution, especially in developing countries.
Smartphones Offered initially in the 1990s, these devices combine cell-phone
capabilities with data communications for web browsing, email,
and text messaging.
Tablet A mobile device with a large touchscreen and virtual keyboard, a tablet
is smaller and thinner than a laptop but larger than a smartphone.
They gained popularity with the introduction of Apple’s iPad, and many
people add a regular keyboard.
FIGURE 3-10
Computing architectures.
Source: Olga Miltsova/Shutterstock.
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Moore’s Law
A principle named for computer executive
Gordon Moore, which states that advances
in computer technology, such as processing
speed or storage capabilities, doubles about
every 2 years.transistor
A small electrical circuit made from a
semiconductor material such as silicon.
central processing unit (CPU)
The brain of a computer, which handles
information processing, calculations, and
control tasks.
running on an expensive mainframe would need to keep that running temporarily, but
plan its replacement in the roadmap.
Storage
How is all this digital information stored? Fortunately, Moore’s Law seems to apply to storage
technology, so it is cheaper to satisfy the hungry appetite for more space. Storage capacities are
measured using the byte, which typically holds eight zeros and ones—the equivalent of one
key press for text. Figure 3-11 shows sample storage capacities.4 The Ethical Factor explores
some of the ethical challenges surrounding these huge data repositories, called “big data.”
prImary Storage A computer’s primary storage, typically on integrated circuits located
close to the CPU, includes random access memory (RAM). RAM serves as a temporary storage
area as the CPU executes instructions. It is a critical factor in the computer’s performance,
and you often find extra room so that additional RAM can be inserted. RAM is volatile stor-
age that is erased when power is turned off or lost; however, computers also have other chips
that permanently store information.
Secondary Storage The massive quantities of digital information are written to sec-
ondary storage devices, including computer hard drives. Although easily accessible and
searched, hard drives can be a million times slower than primary storage. Their rotating
disks and moving heads cannot compare to solid-state integrated circuits, but capacity is
higher and costs far lower.
Optical disks (CD-ROMs and DVDs) also offer low cost secondary storage as well
as backups for offline storage needed for archiving, disaster recovery, and portability.
Magnetic tapes provide cost-effective long-term storage capability.
Solid-state storage with no moving parts is also gaining popularity as prices drop and
capacity increases. This category includes flash memory used in USB keys, memory cards
for cameras, and hard drive substitutes for rugged laptops.
As prices for primary storage drop and processor speeds increase, developers are
beginning to explore in-memory computing for certain applications that benefit from very
high speed, real-time access. This term refers to the use of primary storage as the main
place information is stored, rather than in secondary storage devices. The far slower hard
drives are used mainly for backup and recovery. The increase in speed for software appli-
cations is phenomenal, particularly for analyzing enormous volumes of big data quickly.
The business drivers that affect storage decisions include access, speed, cost, and
safety. Organizations must have their most important data easily accessible to respond
to customer queries and process transactions. For safety, all the organization’s data must
also be backed up, and storage solutions depend partly on how much downtime the orga-
nization can risk. Reloading from magnetic tapes stored in secure warehouses will take
much longer compared to reinstalling from hard drives. Strategies for storage, backup,
and recovery should reflect the organization’s needs.
byte
Measurement unit for computer storage
capacity; a byte holds eight zeros and ones
and represents a single character.
random access memory (RAM)
A computer’s primary temporary storage
area accessed by the CPU to execute
instructions.
in-memory computing
Refers to the use of primary storage as the
main place information is stored, rather than
in secondary storage devices such as hard
drives, to vastly increase speed.
Name Abbreviation Capacity Description
Kilobyte KB 1,024 bytes A short, text-only email message
Megabyte MB 10242 bytes A digital song runs about 3 MB
Gigabyte GB 10243 bytes About 1 hour of TV recording (not HD)
Terabyte TB 10244 bytes About 150 hours of HD video recording
Petabyte PB 10245 bytes eBay’s database: 52 PB (2012)
FIGURE 3-11
Measures of storage capacity.
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70 IntroduCtIon to InformatIon systems
THE SofTwARE
Processing the zeroes and ones that the hardware stores is the job of software—the
instructions that direct hardware to carry out tasks. As the “brain” of the information
system, software is the most expensive component.
Types of Software
Software has two major functions in an information system (Figure 3-12). Application
software supports all the work (or play) you want to do, from word processing and
spreadsheets, to video editing, email, web browsing, and game playing. Databases, dis-
cussed in the next chapter, are another major example of application software.
Multiuser application software designed for organiza-
tions supports transaction processing, human resources
management, customer relationship management, col-
laboration, corporate training, finances, manufacturing
processes, supply chain management, customer support,
and all the other processes along the value chain. Many
programs are industry specific, such as the software real
estate agents use to track listings, or the routing software
used by trucking companies. Businesses spend large sums
to develop application software that streamlines operations
and helps them deliver excellent services.
System software, the second type of software, han-
dles the more basic operations, such as file management,
disk storage, hardware interfaces, and integration with
the application software. It ensures that the technology
tools involved in the information system all work together
smoothly, though most of the time you need pay no atten-
tion to its activities. System software includes two catego-
ries: (1) operating system software and (2) utilities.
The operating system (OS) takes care of several basic
tasks, without which the computer would not function
at all. It handles the interfaces with keyboards, monitors,
and other devices; maintains file structures; and allocates
The revelations about how the National Security Agency (NSA) collects
immense quantities of data from phone records and Internet activity focused
attention on the ethical issues surrounding surveillance. The debate about the
balance between privacy rights and national security grew much more heated
as people began to comprehend what “big data” is and how it could be used.5
For business, big data offers valuable opportunities to find patterns
and preferences that will help with marketing. A math whiz at Target, for
instance, found that pregnant women tend to buy certain products such as
unscented lotion, vitamin supplements, and large purses (that might double
as diaper bags). His calculations are based on so much data that they can
be used to estimate the likelihood that a particular customer is pregnant, and
also the approximate due date.6
Relying on that finding, the company began sending discount cou-
pons for cribs and baby clothes to shoppers most likely to be pregnant.
But one outraged father in Minneapolis complained that his teenage
daughter was receiving these promotions. “She’s still in high school!”
he barked at the manager, who had no idea why the company sent those
promotions to her. Later, the father admitted that he talked with his
daughter and found that she actually was pregnant. Target’s estimated
due date was eerily close.
Most consumers don’t know how much data companies actually col-
lect on their behavior, and how sophisticated the analysis of big data has
become. (Chapter 7 explores techniques used to tease valuable information
out of the mountains of data now available.) Studies suggest that if consum-
ers did know, they would find it creepy, and many would be downright angry
about it. Clearly, consumers are uncomfortable about the use of big data to
tailor advertising, especially when the consumers don’t really understand
how it works.7 But targeted advertising is extremely important to reduce
marketing costs in very competitive industries, so big data will only get big-
ger and more valuable.
THE ETHICAL FACTOR Ethical Implications of Big Data
Identify and provide examples of
the two major types of software,
and describe how software
is created.
2
Utilities
(Security, File Management, Device Control,
Communications, Disk Cleaners)
Word
Processing,
Spreadsheets,
Graphics, Video,
Email,
Browsers
Business
Applications,
Transaction
Processing,
Manufacturing,
CRM,
Accounting,
Human
Resources
Databases
Operating System
Hardware
A
p
p
lic
at
io
n
So
ft
w
ar
e
Sy
st
em
So
ft
w
ar
e
FIGURE 3-12
Types of software.
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chapter 3 InformatIon and CommunICatIons teChnologIes 71
system software
The type of software that controls
basic computer operations such as file
management, disk storage, hardware
interfaces, and integration with the
application software.application software
The type of software used to support a wide
range of individual and business activities,
such as transaction processing, payroll, word
processing, and video editing.
software
The computer component that contains the
instructions that directs computer hardware
to carry out tasks.
memory for its own activities and the needs of application software. It may also support
multiple processors, multiple users, and multiple applications running at the same time.
Figure 3-13 shows market shares for the most common operating systems on desktop
PCs. Microsoft Windows enjoys over 90% of this market, and may gain even more with
Windows 8, which is designed to support laptops with tablet-like touchscreens. If we just
look at data from mobile devices (tablets and smartphones), Apple’s iOS has a lead in
market share, but there are quite a few competitors (Figure 3-14). The operating system
wars are very intense in the mobile world.
Why should business people be concerned about operating systems and their market
shares? The OS provides a software platform for application developers, who often write
software for just one platform. Companies want to choose an OS that already has a wide
selection of business-oriented software available, which is one reason Windows main-
tains such a lead in the corporate desktop world. They also don’t want their IT depart-
ments struggling with compatibility issues, so they might reject requests from employees
who want an Apple laptop that could require a lot of tweaking to run corporate software.
operating system (OS)
The category of system software that
performs a variety of critical basic tasks,
such as handling device input and output,
maintaining file structures, and allocating
memory.
Windows, 91.7%
Linux, 1.2%
Mac, 7.1%
Other, 0.3%
FIGURE 3-13
Operating system market share:
desktops, January, 2013.
Source: Courtesy of NetMarketShare. www.netmarketshare.com
Apple iOS, 61%Android, 25%
Java ME, 9%
Other, 0%
Kindle, 1%
Windows Phone, 1%
Blackberry, 2%
Symbian, 2%
FIGURE 3-14
Operating system market shares:
mobile devices, January 2013.
Source: Courtesy of NetMarketShare. www.netmarketshare.com
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72 IntroduCtIon to InformatIon systems
For tablets and smartphones, though, the market was wide open for new operating
systems, and Apple took this market by storm with its iOS for iPhone and iPAD. Its early
lead meant that far more application software was initially available for this platform
compared to others, such as Android or Windows mobile. Android developers caught up
quickly, and by early 2013, that OS powered more than half of the new smartphones sold.8
Although corporations can decide which OS to use for equipment the company pur-
chases for employees, they couldn’t easily tell them which mobile device to buy if they
use their own money. This “bring your own device” trend (BYOD), in which employees
want to use personally owned equipment to access corporate applications, means that IT
departments must find ways to support a larger variety of operating systems. Companies
are also facing the security challenges of supporting personally owned equipment, where
vacation videos and confidential corporate data are mingling.
Utility software includes a large variety of programs that perform specific tasks to
help manage, tune, and protect the computer hardware and software. Utilities scan for
viruses, perform cleanup routines, log events, back up files, and perform many other
tasks. Some of these utilities can significantly improve your own productivity by speed-
ing up your computer and automating tasks (Figure 3-15).
How Is Software Created?
Software is created by teams of programmers working with business analysts, end users,
and other stakeholders who envision what the software is intended to do. Creating some-
thing like Salesforce.com or TurboTax takes intensive collaboration among people with
very different areas of expertise. Although Chapter 11 explores the systems development
process in detail, this section introduces the technical side of the process, especially to
show how software fits into the larger picture of an organization’s overall architecture.
programmIng LanguageS and deveLopment envIronmentS Software is written in one of
many programming languages, which are artificial languages that provide the instructions for
the computer about how to accept information, process it, and provide output. Figure 3-16
lists some common programming languages, along with some that are nearly dead. These
Utility Software Description
Antivirus software Protects against viruses and other malicious code
Disk defragmenter Optimizes disk performance by moving parts of the same fi le to contiguous sectors
on the hard drive
Compression
software
Reduces fi le sizes to conserve disk space
Shredder Makes deleted fi les completely unrecoverable
Recovery Assists with the recovery of deleted fi les
File management Assists with tasks such as renaming groups of fi les, changing fi le attributes,
and others
FIGURE 3-15
Examples of utility software.
FIGURE 3-16
Examples of programming languages.
Programming Language Description
COBOL One of the oldest languages, but more than 200 billion lines of code
are still in use for legacy business applications
FORTRAN Older language used in special projects involving intensive calculations
C++ Widely used object-oriented language with considerable support
from vendors
Java Object-oriented language widely used in web development projects,
and designed to run on many different platforms
.NET Microsoft’s proprietary language used in its development environment
Python Dynamic object-oriented language that runs on a variety of platforms,
including smartphones; it is growing in popularity
PHP Open source programming language that can be embedded in HTML
that helps create dynamic web pages in software such as WordPress
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chapter 3 InformatIon and CommunICatIons teChnologIes 73
legacy systems
Older information systems that remain in
use because they still function and are costly
to replace.
programming language
An artificial language used to write software
that provides the instructions for the
computer about how to accept information,
process it, and provide output.
utility software
The category of system software that includes
programs to perform specific tasks that help
manage, tune, and protect the computer
hardware and software.
older languages still survive in legacy systems—applications that are still in use because they
work reasonably well and are costly to replace.
The source code includes all the statements that the programmers write to communi-
cate with the computer and provide instructions. You can see the source code for a web
page by right-clicking the page in your browser and selecting “view source.” A simple
web page might only be a few lines long, but a complex information system might con-
tain millions of lines of code.
Advances in programming languages make it easier for developers to write reliable and
easily maintained code. For instance, object-oriented programming focuses on “objects”
rather than lists of instructions and routines to manipulate data. Programmers define the
nature of the data each object contains and also the kinds of operations or behaviors it
can do. The modular, reusable objects often simulate real-world objects along with the
various states and behaviors they display. A “counter object,” for instance, might be used
to count visitors to a web page. Its behaviors could include resetting to zero or displaying
its current value. An important benefit of object-oriented programming is modularity, so
that an object can be independently maintained, reused, or replaced if it breaks down or
causes problems. Also, programmers have no need to understand the object’s inner workings—
only the rules that determine how other objects can interact with it.
Other improvements emerge when software development environments add helpful
features that make programmers more productive, much like spell checkers help writers.
Microsoft’s .NET framework (pronounced “dot net”), for example, offers numerous short-
cuts and a large library of canned code that solves common problems, such as displaying
a calendar so the user can pick a date. The Java development environment is popular with
developers who want to create software that can easily be adapted to run on any hardware
platform, including set-top cable boxes, mobile phones, or car navigation systems.
What language should a company use to create new applications? That depends on
the nature of the application, the language used to create the company’s other applica-
tions, the skills of the staff, and also the “age” of the language. Older languages like
COBOL are poor choices for new projects because better languages are available, and
also because the baby boomers who learned COBOL decades ago are retiring.
Software deveLopment and depLoyment StrategIeS Much software is developed
commercially by IT companies and licensed to individuals and companies that use it.
Familiar products such as Microsoft Office, Adobe Premiere, or Quicken are all consid-
ered commercial off-the-shelf (COTS) software, which means they are ready to buy, install,
and use. Although some products, like Excel, are designed for the mass market, others
are more specialized for particular business processes. SAS, for example, offers software
for statistical analysis, and Cardiff produces software that scans handwriting on paper
forms. Much COTS software is also produced for particular industries with features they
need. Practice-web, for example, develops specialty software for dentists. Source code is
not usually included, so buyers can’t make changes on their own.
A fast-growing variety of commercially produced software is called software as a
service (SaaS), which is an information system that is owned, hosted, and managed
remotely by a vendor. Organizations pay subscription fees to access it via the web, based
on their own volumes. This type of cloud computing is part of an emerging trend in
enterprise architecture that relieves the need for an organization to maintain its own data
center, discussed later in this chapter.
object-oriented programming
A type of software programming that focuses
on “objects” rather than lists of instructions
and routines to manipulate data.
source code
All the statements that programmers write
in a particular programming language to
create a functioning software program.
commercial off-the-shelf (COTS)
Commercially available computer software
that is ready to buy, install, and use.
software as a service (SaaS)
A type of commercially available software
that is owned, hosted, and managed by a
vendor, and accessed by customers remotely,
usually via the Internet.
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74 IntroduCtIon to InformatIon systems
Some organizations develop their own custom software, or hire a company to do it
for them. This strategy is usually more expensive, but works well if commercial products
that fit the company’s needs are not available. Chapter 11 explores the steps in systems
development projects.
open Source Software Another approach to software development and distribution is
called open source. To be considered open source software, the licensing terms must comply
with several criteria, one of which is free redistribution. The source code must be distributed
along with the software so that other people can improve it, build upon it, or use it in new
programs. Licensing costs for open source software are zero, though organizations might
have higher costs to support the software and train their users.
Many open source products are quite successful, earning high market shares against
commercial heavyweights. The Linux operating system and the Firefox web browser are
examples, and new ones are emerging. Hadoop, for instance, is open source software
used to manage and process big data. The licenses are free, but it is more difficult to pre-
dict overall costs with open source.9
Why would people build software when they don’t get paid for their work?
Enormous developer communities, often thousands strong, emerge around prod-
ucts such as Linux, and social recognition for valuable contributions is an important
motive. The communities may be organized as nonprofits, with a leadership team that
determines policies about priorities for enhancement. The nonprofit Apache Software
Foundation, for example, supports the collaborative efforts of its members who elect
the leaders.
nETwoRkS And
TElECommunICATIonS
While waiting for her class to begin, part-time student and marketing manager Becca
Wells wants to check email on her laptop. She clicks on her wireless icon and then
refreshes the list of nearby connections (Figure 3-17). The university’s StudentNet
signal is usually strong, but today it does not show up at all. Instead, she clicks hope-
fully on a network called “garage” that she never noticed before. The connection
works, but Becca hopes it will be strong enough for the upcoming video chat with
her coworker.
Becca’s email is on a server thousands of kilometers away, but how those zeros and
ones travel through isn’t important to her—as long as the information moves fast and
arrives safely. Though networks and telecommunications often stay hidden in the back-
ground, they are transforming the workplace in every organization—especially through
the Internet and wireless computing.
A network is a group of interconnected devices (such as computers, phones, printers,
or displays). To understand how networks operate, we begin with the media and proto-
cols they use to move those zeros and ones.
Transmission Media and Protocols
Networks can take advantage of either wired or wireless transmission media, and often
include a mix of both—as Becca’s situation shows. Just as hardware devices use different
means to store zeros and ones, transmission media convert digital data to different kinds of
signals depending on the nature of the medium. Each has strengths and weaknesses, as well
Describe the major types of
networks and the transmission
media they use, and give
examples of network protocols.
3
Wireless Networks Found
garage nNorthEndgg
FIGURE 3-17
Example of wireless networking
connection display. The colored bars
indicate the strength of the signal,
and the lock symbol indicates that the
secured network requires password
authentication.
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chapter 3 InformatIon and CommunICatIons teChnologIes 75
bits per second (bps)
The measurement of transmission speed,
defined as the number of bits transmitted
each second; each bit is a single zero or one,
and a string of 8 bits makes up a byte.
network
A group of interconnected devices, such as
computers, phones, printers, or displays, that
can share resources and communicate using
standard protocols.
open source software
A type of software whose licensing terms
comply with criteria such as free distribution,
so other people can access the source code
to improve it, build upon it, or use it in new
programs.
as speed and capacity limitations. Transmission speed is measured in bits per second (bps),
and bandwidth refers to the maximum amount of information in bits per second that a par-
ticular channel can transmit. A bit is a single zero or one, and a string of eight bits makes a
byte. For text information, a byte represents a single letter, number, or other character.
wIred medIa The three major wired media are twisted pair wire, coaxial cable, and optical
fiber (Figure 3-18). Twisted pair wires are common in homes because the phone compa-
nies already installed them long before they were used to transmit digital data. Transmission
speeds have been improved and these wires remain popular for apartment and office build-
ings as well. Coaxial cables are also common in homes because the cable TV companies
installed them to carry television signals.
Optical fiber cables use light pulses rather than electrical signals, and they carry the most
channels at the fastest speeds. Fiber-optic cables the size of a garden hose span all the plan-
et’s oceans and form the major arteries for worldwide telecommunications. Although some
have occasionally suffered shark bites or other damage, they are proving extremely durable.
wIreLeSS medIa Electromagnetic waves, the radiation associated with electric and
magnetic fields, can transmit digital information wirelessly (Figure 3-19). These waves
Type Description Pros and Cons
Twisted pair wire Insulated copper wires that are also used
for telephones.
Somewhat fragile, but fl exible enough to wind through
ceilings and walls.
Coaxial cable Thick cables with a single inner
conductor core, usually copper, and a
surrounding a mesh.
Faster transmission compared to twisted pair, and
already installed in many homes served by cable TV.
Optical fi ber Transmit signals with light pulses along a
glass or plastic fi ber, rather than electrical
signals over a conductor.
Fastest transmission speed and highest bandwidth;
ideal for long distances because signals do not degrade.
Requires a different adapter if fi ber is connected to a PC.
FIGURE 3-18
Types of wired media.
twisted pair wires
The most common form of wired media, these
wires consist of thin, flexible copper wires
used in ordinary phones.
coaxial cables
Wired medium, initially used for cable TV,
consisting of a single inner conductor wire
(typically copper) surrounded by insulation,
which is then surrounded by a mesh-like
conductor.
optical fiber
Cables that transmit bits by means of light
pulses along a glass or plastic fiber instead
of electrical signals over a conductor; ideally
suited for long distances.
bandwidth
The maximum amount of information in bits
per second that a particular channel can
transmit.
Wifi, Cell phones
Radio
Long Short
Low High
Wavelength
Microwave
700 Mhz (Auction 73)
Frequency
(Hz)
Infrared Visible Ultraviolet X-Ray Gamma Ray
103 10–2
104 108 1012 1015 1016 1018 1020
10–5 10–6 10–8 10–10 10–12
FIGURE 3-19
The electromagnetic spectrum.
Source: Adapted from http://kollewin.com/blog/electromagnetic-spectrum/
Sources: Courtesy of Patricia Wallace, Micha Klootwijk/Shutterstock, Francisco Javier Gil/Shutterstock.
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76 IntroduCtIon to InformatIon systems
include the tiny, atom-sized gamma rays with very rapid frequencies, to very long waves
with wavelengths stretching to thousands of miles. Electromagnetic waves are also sim-
ply called light, but what human eyes perceive as light is actually just a small part of this
spectrum. Wavelength refers to the distance between one peak of the wave to the next,
and frequency, measured in hertz (Hz), is the number of cycles per second.
The waves we use for wireless telecommunications are longer than visible light—in
the ranges of radio waves and microwaves. Microwave transmission sends signals in the
gigahertz range to relays in the line of sight. The signals can hop about 70 kilometers
when earthbound, but they can also be transmitted to satellites, vastly increasing their
flexibility. Networks of microwave relays have been constructed to transmit wireless data,
especially in cities where the dishes can be installed on tall buildings.
The cell phone infrastructure (Figure 3-20) relies on
radio waves in the 0.8 to 1.9 gigahertz range. Different
cell-phone networks use different bands along this range.
Companies like Verizon and AT&T also use different tech-
nologies to take best advantage of the frequencies available.
Carriers negotiate agreements to share the towers and install
their own equipment at the tower’s base, though not all car-
riers have equipment at every tower. That explains why car-
riers publish separate coverage maps for their own networks.
Transmission speeds keep increasing with improved technol-
ogy, and 4G networks support access speeds that compete
with home cable connections. Pilots are also underway for
even faster 5G service in Japan.
Wifi, short for wireless fidelity, refers to a computer net-
work in which connections rely on radio waves at frequencies
of 2.4 GHz or 5 GHz. The 2.4 range is also used by cordless
phones, which is why they can interfere with one another.
The radio signals are sent a few hundred feet out from the antennae of a wireless router,
which has a wired connection to the network. Signals get fainter as the distance increases,
but if your laptop has a wireless adapter to receive the signal, your software will show the
ones in range. Most will be password protected. For Becca, though, the “garage” wireless
network was unsecured so she was able to connect without any password. Perhaps
whoever installed “garage” in some nearby dwelling simply forgot to set security,
or maybe they were offering the free wifi connection as a friendly gesture.
Bluetooth, a technology that also
uses radio waves in the same range as
wifi, is commonly used for wireless
connections over very short distances.
Devices equipped with Bluetooth
adapters, such as a printer and com-
puter, or a cell phone and earpiece, can
detect one another and communicate.
tHe wIreLeSS Spectrum aS oceanfront property The frequencies used for these technol-
ogies may seem dreadfully dull, but think of them as oceanfront real estate, where supply is
short and location is everything—at least in terms of what can be done with the bandwidth.
Governments usually regulate the spectrum’s use and its allocation because it is a limited
public good. Much of the spectrum usable for wireless transmission is already reserved for
TV, cell phones, radio, law enforcement, emergency services, defense, and various govern-
ment agencies. Some of it is left unlicensed and available for any devices to use, such as the
bandwidth used for wifi. Since no carrier has control, no fees are charged to use that band-
width, though some router owners, such as hotels, might want some payment for using their
Internet connection.
Governments also auction these licenses, and the high bidder wins the right to use
it to create new services to sell. These auctions can be very high stakes events because
demand for that oceanfront property is booming. High speed mobile traffic is exploding
and customers will face slower speeds and dropped calls if bandwidth isn’t increased.10
Did You Know?
CoffeeCompany in Holland chooses names for its free wifi networks to cleverly
market its menu items and also make people feel a little guilty if they just freeload.
When customers in the cafe open their laptops to connect, they see wifi networks
with names like “HaveYouTriedCoffeeCake?” or “BuyAnotherCupYouCheapskate.”
Carrier B Tower
Shared Tower
Carrier A
Carrier BCarrier A Tower
10 miles (16 km)
FIGURE 3-20
Cellular infrastructure.
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chapter 3 InformatIon and CommunICatIons teChnologIes 77
microwave transmission
The technology involving signals in the
gigahertz range that are transmitted to relays
in the line of sight.
hertz (Hz)
The number of cycles per second of a wave.
wavelength
The distance between one peak of an
electromagnetic wave to the next.
tHe LaSt mILe Another tense issue involving telecommunications is that “last mile.” For
most people, the final leg of wiring to your home is not superfast fiber, but twisted pair
installed by the phone company carriers or coaxial cable from the cable TV companies. The
phone companies installed digital subscriber lines (DSL) to support fast Internet traffic, and
the cable TV companies also changed their networks to carry signals in two directions. Both
options are fast, but fiber is 100 times faster. Your movie download may travel at light speed
most of the way, but it hits a bumpy road before it gets to your laptop.
The companies that offer high speed Internet compete fiercely for customers, but new
entrants are major threats. For example, Google began rolling out all fiber networks for
customers in Kansas City in 2012.
Wireless transmission is another threat to carriers offering landline service, as well as
cable companies. Many people are dropping their landline phone service in favor of cell
phones. And with 4G speeds, the cellular infrastructure can also provide reasonably fast
wireless Internet service. Companies in the telecommunications space will need smart
strategies to meet the challenges of these disruptive innovations.
Types of Networks
How do all these wires and electromagnetic signals connect devices to one another in
a network? The industry categorizes network types based on their scale and scope, and
how much geographic area they encompass. The local area network (LAN) typically con-
nects computers, printers, scanners, and other devices in a single building or home. To
describe networks that span smaller or larger geographic areas, the terms in Figure 3-21
are common.
cIrcuIt-SwItcHed and packet-SwItcHed networkS The approach used to transmit
data between computers is another characteristic that distinguishes networks. In a circuit-
switched network, nodes communicate by first establishing a channel, as though there were
a single pipe leading between them. Once the channel is up, the two devices can commu-
nicate very quickly and reliably. The phone system uses this approach for voice traffic.
Although many improvements make circuit switching more efficient, it does tend to waste
capacity. Waiting on hold, for example, occupies the channel even though no information
is transmitted.
wifi
Short for wireless fidelity; it refers to a
computer network in which connections rely
on radio waves at frequencies of 2.4 GHz or
5 GHz for transmission.
wireless router
A device connected to a computer network
that emits signals from its antenna and
enables wireless connectivity to the network.
Bluetooth
A technology that uses radio waves for
connectivity, commonly used for wireless
connections over very short distances.
digital subscriber lines (DSL)
Technology that supports high speed two-
way digital communication over twisted pair
phone lines.
local area network (LAN)
A network that connects devices such as
computers, printers, and scanners in a single
building or home.
circuit-switched network
A type of network in which the nodes
communicate by first establishing a
dedicated channel between them.
Type of Network Geographic Area
Personal area network (PAN) 20–30 feet, for devices within reach
Local area network (LAN) Home, offi ce, school, building
Campus (or Corporate) area
network (CAN)
Interconnected LANs encompassing several buildings for a
university or a corporate campus
Metropolitan area network (MAN) Interconnected LANs or CANs for a city
Wide area network (WAN) Interconnected LANS, CANs, or MANs covering a wide
geographic area
Global area network (GAN) Supports mobile communications across the globe, using a mix
of satellite or other strategies
FIGURE 3-21
Types of networks.
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78 IntroduCtIon to InformatIon systems
Most networks now use packet switching, in which strings of digital data are broken
into segments called packets before they are transmitted. The packets contain data about
their destination and position in the whole message, and they are reassembled at the
receiving end. They may travel different routes, weaving around offline servers or taking
longer paths if they hit traffic congestion. Packet switching is quite flexible and it makes
networks far more survivable against natural or manmade disasters.
Packet switching can be configured to handle voice calls, too. Voice over IP (VoIP)
refers to the technologies that make voice communications across networks using pack-
ets feasible, including over the Internet. This disruptive innovation started out as many
of them do, attracting people with small budgets and lots of patience for dropped calls
or bad audio due to the bursty way packets travel. However, making free phone calls to
anyone in the world who has a computer and Internet connection is a compelling draw.
Skype, acquired by Microsoft in 2011, has a big lead in the VoIP market, and the service
continues to improve—adding videoconferencing capabilities, voice mail, low cost calls
to landlines and mobile phones, and better security and voice quality. Businesses can
integrate their voice and data communications, making it unnecessary to install separate
systems, and some are dropping desk phones entirely. As you will see later, this feature
opens up new possibilities for cost savings and innovative business applications.
cLIent-Server and peer-to-peer networkS Beyond geographic span and connection
styles, we can describe networks in terms of how centralized they are, and how the devices on
the network share the workload and provide services to others. A client-server network has
one or more high-performance hosts running programs and storing data that clients—such
as desktop computers, laptops, or smartphones—can access. The workload is shared, and
the client runs software that performs some of the work of interpreting, displaying, and
analyzing the data (Figure 3-22). A web browser such as Mozilla’s Firefox, for example, is
client software. When you open your browser and connect to a host, your client sends the
request to the web server, which then sends back the instructions for displaying the page you
requested.
The server in a client-server network can be around the corner, deep in your organiza-
tion’s data center, or perhaps across the planet. With any particular request, more than
one server may be involved in the response, each specialized for its particular purpose.
For instance, the web server may receive your request to display your bank balance, but
the data itself is retrieved from a database on a different server. This kind of architecture
is called n-tier, with a client and one or more servers involved.
Server
Hub
Wireless
Router
Wireless
Client
Desktop
Client
Desktop
Client
Desktop
Client
FIGURE 3-22
Client-server network.
Source: Photos/illustrations: ArchMan/Shutterstock.
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chapter 3 InformatIon and CommunICatIons teChnologIes 79
client-server network
A type of network in which the workload
for running applications is shared between
the server and the client devices, such as
desktop computers, laptops, or smartphones.
Voice over IP (VoIP)
The technologies that make voice
communications across networks using
packet switching feasible, including those
used over the Internet.
packet switching
A technology used by networks in which data
is broken into segments, called packets, for
transmission. The packets contain information
about their destination and position in the
whole message, and they are reassembled
at the receiving end.
The client in a client-server network can do more or less work, depending on how the
software is designed, but the trend is to reduce its workload. In fact, much business soft-
ware now only requires a web browser. This eliminates the need to install special software
on all the devices in an organization.
The highly decentralized approach is called the peer-to-peer network, in which there
is no central server and computers can share files, printers, and an Internet connection
with one another. Home networks or small offices are often set up this way, and most
operating systems support it. The nodes on a decentralized network are peers in the sense
that each one can offer services to the others and none is the centralized server.
On a larger scale, peer-to-peer networks support file sharing and other services on
the Internet. BitTorrent is one example that is used to move large files rapidly from one
computer to another by breaking them into smaller pieces called torrents. People use the
software to locate a song, movie, game, or other digital product stored on one of the peer
computers in the network, download the pieces, and then make the pieces available for
others to download. Implications for copyright violation are acute, however, and lawsuits
common.
Skype also uses peer-to-peer networking for VoIP, borrowing a bit of each user’s
computer power and Internet connection as calls are routed around the globe, hopping
from node to node. Unlike the phone companies, which built the vast, wired infrastruc-
ture and manage servers that handle call switching, billing, and technical support, Skype
enlists the aid of its users and their equipment—though they may not realize it.
Network Protocols
To transmit data from one device to another in a network, both the sender and recipient
have to use a protocol of some kind so they understand one another. When you power on
your cell phone, for example, the device listens for a special control signal transmitted via
radio waves. If no signal is received, your phone will report “No service.” The signal from
the cell tower also includes a code that indicates the carrier, and if your phone is using
the same carrier, the codes will match. That means your phone is on its home network
and not roaming on some other carrier’s network.
Networking protocols perform their work in layers, each of which defines how the
devices will speak to one another. The lowest layer defines physical connections, such
as the shape of the plug. Higher layers define how other connection issues are resolved,
such as how the bits will be organized and transmitted, how errors will be corrected, and
how the connection will be established and then broken off when finished. The highest
level defines how software applications interface with the user. That “http://” preceding
the website is a protocol at this highest level, and it tells your browser how to interpret
the incoming data so it shows properly on your screen.
etHernet Ethernet, the protocol widely used for local area networks, has been dominating
the market since the 1980s. Technology improvements have increased transmission speed,
which is now in the gigabit per second range. The familiar cabling that leads from the back of
an office desktop computer to a jack in the wall is very likely an Ethernet cable, connecting
to your organization’s local area network, then to the data center. It resembles a phone jack,
which often appears on the same wall plate, but is a little wider.
n-tier
Type of network architecture in which several
servers, specialized for particular tasks, may
be accessed by a client computer to perform
some activity, such as retrieving a bank
balance.
peer-to-peer network
A type of network in which there is no central
server and computers can share files, printers,
and an Internet connection with one another.
Ethernet
A communication protocol widely used for
local area networks.
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80 IntroduCtIon to InformatIon systems
tcp/Ip and tHe Internet’S HourgLaSS arcHItecture The suite of protocols used for
Internet communications that connect Ethernet and other networks together includes the
Transmission Control Protocol and Internet Protocol, or TCP/IP for short. These two pro-
tocols operate in the middle layer and they define how data are packaged and transported.
The core design principle of the Internet is an hourglass
structure, so the network protocols themselves are really
very simple (Figure 3-23). As long as bits are transmitted
using the Internet’s standardized protocols, new applica-
tions for the top end and new communications technolo-
gies for the bottom can all be incorporated. For example,
long after the Internet was launched using standard phone
lines, dozens of new wiring and wireless schemes emerged
to increase speed, serve remote areas, or leverage some
existing wiring such as coaxial cable. (Some say the Internet
is so flexible that two cans and a string will do the trick.)
At the top of the hourglass, the Internet’s open archi-
tecture has paved the way for astonishing creativity and
new applications, such as the World Wide Web, streaming
video, e-commerce, VoIP, and multiuser 3D games.
Although the Internet’s original design was extremely
clever, some features later caused regret. One problematic
element is simply the number of addresses available. The
current protocol assigns an IP address to each node or
device as a string of four numbers, such as 157.150.190.10,
which is currently the United Nations’ website (www
.un.org). The scheme supports about 4 billion different
addresses, which seemed like more than enough at the time. However, with explosive
growth and innovations that demand addresses for so many new devices, the pool will
soon be exhausted. The latest revision of the IP protocol is Internet Protocol Version 6
(IPv6), and it includes much more breathing room for addresses—quadrillions for every
man, woman, and child on the planet. It’s just in time, too, given how many nonhuman
objects are part of the “Internet of Things.”
wIreLeSS protocoLS Wireless protocols determine how the electromagnetic spectrum is
used to transmit data. A family of standards called 802.11 is widely used for wifi connec-
tions, with different versions indicated by a letter appended after the 11. Figure 3-24 com-
pares the standards on several features. The 802.11ac standard, which began rolling out in
2013, is also called “gigabit wi-fi” because it supports transmission speeds above 1 Gb/s. That
protocol will support wider coverage and higher transmission speeds compared to 802.11n
or earlier versions. The faster speeds will be especially welcome as video traffic grows.
For larger geographic areas, mobile broadband technologies use licensed spectrum
in different ways. WiMax, for example, relies on microwave transmissions to blanket large
metropolitan areas from microwave towers, usually on buildings. Cellular networks offer
rival services because they can also carry IP traffic, and smartphones have their own IP
addresses. If your cell phone gets a signal from a cell tower, your smartphone or com-
puter (with an adapter) will also be able to access the net. People who want to boost
signal strength in their home or office, perhaps so they can eliminate their landlines, can
Standard Indoor Range Frequency Maximum Data Rate
802.11a ~35 meters 3.7 or 5 GHz 54 Mb/s
802.11b ~38 meters 2.4 GHz 11 Mb/s
802.11g ~38 meters 2.4 GHz 54 Mb/s
802.11n ~70 meters 2.4 or 5 GHz 600 Mb/s
802.11ac In draft; fi nal version expected
late 2013
5 GHz At least 1 Gb/s
802.11ad In draft 60 GHz Up to 7 Gb/s
FIGURE 3-24
Comparing 802.11 standards.
Internet Protocols
e.g., TCP/IP
Innovations in
Applications
Innovations in
Communications
Technologies
FIGURE 3-23
The Internet’s hourglass structure.
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chapter 3 InformatIon and CommunICatIons teChnologIes 81
WiMax
Technology that relies on microwave
transmissions to blanket large metropolitan
areas from microwave towers, usually on
buildings.
Internet Protocol Version 6 (IPv6)
The next generation protocol for the Internet,
which will support far more IP addresses
compared to the current scheme.
TCP/IP
Abbreviation for Transmission Control Protocol
and Internet Protocol; used for Internet
communications.
even extend cellular coverage by installing their own base station that connects to their
carrier’s network through their home Internet connection.
The future for wireless is bright for consumers, but the industry is very turbulent.
Competing technologies, standards, and protocols lead to fierce battles as companies
compete for bandwidth and line up to support one protocol or another. Demand for
mobile services will continue to skyrocket, however, especially due to video traffic on
mobile devices.
THE EnTERPRISE ARCHITECTuRE
The strange Winchester House in California has about 160 rooms, with countless stair-
cases leading nowhere, and a chimney that stops short of the ceiling. Doors open to
blank walls, or to steep drops to the garden. It’s a tourist attraction, but it wasn’t built to
be amusing. Owner Sarah Winchester had no master architectural plan
for the house and she just improvised its construction, day after day,
year after year. She was wealthy and could afford mistakes; businesses,
however, need better planning for their information systems.
The enterprise architecture (EA) is the big picture for the organiza-
tion, the blueprint that describes the current environment and the target
environment the organization hopes to reach to achieve its mission. It
also includes a roadmap for moving from the baseline to the target,
to help managers make better decisions that focus on long-term ben-
efits and not just short-term gains. The architecture is not just about
hardware, software, and telecommunications assets, though that is a key
component. It encompasses the people, technology, processes, and data
that make up information systems, and it should be driven by business
requirements and the organization’s mission.
Figure 3-25 illustrates the enterprise architecture as layers, in which
the business mission at the top drives decisions about data and applica-
tions architectures. These should then shape the ICT architecture, to
include hardware, software, and communications.
Trends in Enterprise Architectures
The information and communications technology component of the enterprise architec-
ture changes over time as new technologies emerge and businesses build more effective
and efficient processes to achieve their missions. Figure 3-26 plots some of the major
architectural approaches; most organizations have mixed versions.
from maInframeS to mIcrocomputerS Beginning in the 1960s, mainframes were the
foundation of the architecture. Dumb terminals, with their glowing green and black screens,
accessed the data center’s mainframe, and private leased lines were used to transmit informa-
tion between corporate sites. When microcomputers entered businesses in the 1980s, they
swiftly replaced typewriters, even though the word processing software was very clunky.
They replaced the dumb terminals, too, largely because the electronic spreadsheet was such
a useful breakthrough. The PC could work like a dumb terminal to access the mainframe’s
applications, but it could also run its own software locally.
cLIent-Server arcHItectureS Local area networks, more powerful PCs, and the develop-
ment of PC operating systems that could support multiple users opened the path for the
client-server architecture described earlier. Software applications that tap the resources of
both server and client emerged, with more user-friendly, colorful, and graphical interfaces
replacing the dull black screens so familiar to mainframe users.
4 Explain the importance of the enterprise architecture, describing
trends in ICT architecture over time.
Business
Mission

En
terprise
Architecture
nMi
Applications
Architecture
Data
Architecture
Technology
Architecture
FIGURE 3-25
Components of an enterprise architecture.
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82 IntroduCtIon to InformatIon systems
Businesses enjoyed major savings by retiring expensive mainframes with their costly
software and peripherals. They replaced aging systems with new software that ran on
PC-based servers and local area networks. Because PC hardware could be obtained from
many manufacturers (Dell and H-P, for example), prices stayed competitive. Organiza-
tions settled on Ethernet as the local area networking standard and adopted strategies
for using the Internet for communications rather than leasing private lines from the tele-
communications carriers. They also focused on a handful of server operating systems,
namely Windows Server, Unix, and Linux. These trends initially introduced many cost
savings.
vIrtuaLIzatIon The organization’s data center, once home to a mainframe computer and
all its components, quickly became jammed with rack after rack of PC servers. “Server
sprawl” was rampant, and the numbers kept rising as new applications were implemented.
Because many servers in n-tier client-server architectures specialize in one kind of task or
one software application, much capacity remains unused. The CPUs might sit idle much
of the time, though still drawing electricity and generating heat. To address this, companies
implement virtualization using software that allows multiple operating systems to run on a
single physical PC server. To the users, each one appears as a separate, self-contained server
that may handle only one software application, but they are actually virtual servers.
Virtualization can cut costs dramatically, not just by lowering electricity bills and
hardware expenses, but also through reduced maintenance. IT staff must tend every
server in the data center, and each one needs backup, communications, software installa-
tions, upgrades, virus protection, and patches. Mazda, for instance, once had 200 physi-
cal servers in its data center, but the company used virtualization to knock that number
down to just 28 servers hosting 490 virtual machines.11
A. Mainframe architecture, 1960s
B.Client-server architecture, 1980s
C. Cloud computing architecture, 2000s
Data Center
Mainframe
Dumb terminals with desk phones
Desktop PCs with desk phones
Desktop PC with
Bluetooth headset
Laptop Smartphone
Cell phone
towerWireless
Router
Hub
Internet accessible
Cloud platforms and services
PBX
PBX
Data Center
Servers
Hub
welcome
welcome
FIGURE 3-26
The evolution of information and com-
munications technology architectures.
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chapter 3 InformatIon and CommunICatIons teChnologIes 83
cloud computing
ICT architecture in which users access
software applications and information
systems remotely over the Internet, rather
than locally on an individual PC or from
servers in the organization’s data center.
private branch exchange (PBX)
Technology that manages all the office
phone lines, voice mail, internal billing, call
transfers, forwarding, conferencing, and other
voice services.
virtualization
Cost-cutting approach to servers in which
multiple operating systems run concurrently
on a single physical PC server.
Virtualization is also an important element in the drive toward environmentally
friendly information systems. With improved use of capacity, energy consumption drops.
IntegratIon of voIce and data Since the mainframe era, the infrastructure for voice
communications was separated from data. Buildings have been constructed with two sets
of cabling to each office or cubicle—one for data communications and the other for voice
(Figure 3-26A and B). The twisted copper pair wiring for voice typically leads to private
branch exchange (PBX) equipment in the data center or off site, which manages all the office
phone lines, voice mail, call transfers and forwarding, conference calling, and other voice
services. Many organizations buy such services from phone companies, although larger
ones might purchase and maintain their own PBX. Figure 3-26A shows a PBX right next to
the mainframe, and then later, as a smaller, rack-based model (Figure 3-26B).
With VoIP, however, organizations can design the enterprise architecture quite dif-
ferently. Voice communications can be integrated with data, traveling over the same net-
works and managed by software applications on the same servers. Videoconferencing
and screen sharing can easily be added as well, as the old PBX is replaced with IP-based
solutions.12 An important advantage for business is that communications can be closely
integrated with the other software that a company uses, and can tap into the company’s
databases. For example, the system could bring up a customer’s record when that cus-
tomer calls in, without having to ask the customer to key in an account number. The
integration would also help avoid duplication of contact information for customers, sup-
pliers, and employees. Voice and data integration is ripe for a great many innovations that
will improve productivity, and Chapter 8 describes this trend toward “unified communi-
cations” in more detail.
cLoud computIng The architecture called cloud computing draws on IT resources outside
of the corporation’s own data centers and local desktops (Figure 3-27). With an Internet
connection, employees can access virtual servers, storage space, video streaming, specialized
software, and other cloud-based services from any location, using many different devices.
The services are not in a cloud, of course. The physical hardware that supports them is
located in very large data centers operated by Amazon, eBay, Google, and other providers.
Google cuts hardware costs to the bone by building its own servers from inexpensive parts,
and distributing the applications over a large number of them.13 They share the load, and if
one goes down, another just takes over.
Cloud computing is somewhat confusing because it refers to many different styles
and technologies, and some are not actually new.14 One option, for example, involves
leasing IT resources such as storage capacity or virtual servers, rather than adding more
Scalable storage
Virtual servers
Shared so�ware applica�ons
Video streaming
Distributed processing
Web hos�ng
FIGURE 3-27
Cloud-based services.
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84 IntroduCtIon to InformatIon systems
servers to the company’s own data center. Leased services are also easy to scale up or
down based on need. For example, companies that analyze big data need enormous stor-
age space, and these flexible leasing arrangements are cost effective. They also need con-
siderable processing power, which can come from distributing the work to many different
computers in the cloud. Virtualization also helps reduce costs. Companies that lease these
resources may never even know who their “neighbors” are on the same physical server.
Beyond hardware capacity, vendors offer software as a service (SaaS) through cloud
computing, described in the previous chapter. Companies like Salesforce.com build soft-
ware applications in a way that allows many “tenants” to use it for their own organiza-
tions, so organizations may not even need their own data center at all.
A drawback of cloud computing is that an extremely reliable Internet connection is
a must. Organizations that can’t count on that for their operations, perhaps because of
their location or harsh weather conditions, would find themselves without access to their
mission critical systems when the net connection failed. Another drawback is that cloud
services tend to be “one size fits all” and may not work as well for companies that need
special configurations. Game maker Zynga, for instance, started out with its own Dell
servers, but then switched to the cloud when growth exploded and they couldn’t buy serv-
ers fast enough. The cloud provider was not able to tune the servers for Zynga’s needs,
though, so Zynga moved the games back to its own servers and used the cloud to relieve
pressure.
For individuals, personal cloud services like Google Drive, Dropbox, or Skydrive can
offer file storage that you can access from any device—your smartphone, tablet, laptop,
or from a computer in the library or hotel. You can also share folders with fellow stu-
dents or coworkers.
To some extent, the drive to rebrand some familiar services as “cloud computing”
is more about marketing hype than a brand new architecture. However, improvements
in virtualization, security, and mobile access are very real, and they may offer compel-
ling opportunities to reduce costs and empower the workforce.15 Eliminating even one
corporate data center, for example, can offer substantial savings. For employees and cus-
tomers, the switch can mean far more freedom of mobility. Blue Cross of Northeastern
Pennsylvania, for example, is switching to cloud computing for its 300,000 members, so
they can access medical histories and claims information on their smartphones. As the
shift to the cloud gathers momentum, the richness and variety of services will continue
to grow, provided vendors can satisfy customer concerns that their data and applications
are safe, secure, and utterly reliable. Those concerns are not trivial, considering how valu-
able these resources are.
Guiding the Architecture
Creating the roadmap to guide the enterprise from its current architecture to its target
is a challenge, especially for organizations that have a mix of platforms already in place.
Peek behind the counter at your dentist’s office, for example, and you may see a PC
emulating a dumb terminal, with an old-fashioned text-based display showing your last
three appointments. On another desk, you see someone logging into a graphical software
application to check on insurance for your dental visit. In the chair, you might watch
your dentist pull up vivid X-ray images and medical records on a flat screen. And in a few
days, you may be able to check on the insurance claim yourself with your smartphone.
Many organizations carry a mix of architectures, implemented over time, and with lim-
ited integration among them.
The task of creating and guiding the architecture is often led by an enterprise architect
(Figure 3-28). This new (and well-paid) position requires a person with deep knowledge
of the organization’s mission and strategy, and a clear understanding of how different
architectures can support the company’s goals. The architect’s role is to lead the effort,
promote the value of EA concepts, and coordinate decision making so the organiza-
tion stays on track. The online simulation called Devil’s Canyon that accompanies this
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chapter 3 InformatIon and CommunICatIons teChnologIes 85
chapter gives you a chance to work with a team of entrepreneurs, understand their goals,
and make recommendations about the architecture that will work best for them.
The trends in enterprise architecture now underway have a major impact on indus-
tries, organizations, their employees, and their customers. Cloud computing offers many
valuable business capabilities and the potential for cost savings. But drafting a blueprint
that erases the underground data center is far easier than actually dismantling it and
reconfiguring it in the cloud. Managers worry about the safety of their data and the
reliability of the services. Amazon has issued apologies when outages at its data centers
crippled its customers, including Netflix, Pinterest, Reddit, and Instagram.16
Managers also wonder whether their old legacy applications will still run, or whether
they can get the help they need if the IT department shrinks. IT staff struggle with
reduced budgets, and also a loss of control over the company’s mission-critical systems.
The enterprise architect must take into account these human elements when designing a
road map that will guide the organization into a successful future.
With this overview of information and communications technologies, and the differ-
ent kinds of enterprise architectures we can create with them, we can now move deeper
into information systems and the data architecture. The database is a central feature, and
the next chapter shows how it works.
Job Opening: Enterprise Architect
As enterprise architect, you will lead the effort to analyze our company’s business strategy, define
the ICT architecture to support it, and create the roadmap for getting there. You must be familiar
with business objectives and how technology solutions align with them. Superb communications
and negotiation skills are essential. You will interact with business leaders in every department to
understand needs, and develop a governance structure to guide decision making about technology
investments. Salary in the low to mid $100s. Bachelor’s degree in business with strong background
in information systems required. MBA preferred.
FIGURE 3-28
Job opening: Enterprise architect.
Ateam of entrepreneurs is building a deluxe mountain resort from the ground up and they need your help
to plan the enterprise architecture. Devil’s Canyon is
a breathtaking location, and the resort will offer
everything from skiing and snowboarding in the
winter, to rock climbing, white water rafting, hik-
ing, swimming, and fishing in the warmer seasons.
These young and enthusiastic entrepreneurs aren’t
really sure what they’ll need, but they want Devil’s
Canyon to be the premier, 21st century resort, well
equipped with technology to please their demanding
target market.
Your job is to get a sense of their vision and how
much they can afford, and then help them design
the enterprise architecture using the interactive
design tools. You’ll meet the team at the kickoff
session, so log in when you’re ready to start. . . .
MyMISLab Online Simulation
Devil’s Canyon
A Role-Playing Simulation on Enterprise Architecture for a Mountain Resort
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Learning Objectives
The four hardware components of every computer are input, output, the central processing unit
(CPU), and storage. Input devices convert signals such as a key press on a keyboard or finger
motion on a touchscreen into digital information and transmit it to the CPU. Output devices
include display screens and printers, and many devices serve both purposes. Scanners and
sensors play a large role as input and output, involving technologies such as barcodes, RFID,
QR Codes, digital cameras, and optical character recognition. Computing architectures vary
in terms of size, processing speed and capacities, portability, and other factors. They include
mainframes, minicomputers, supercomputers, microcomputers, laptops, netbooks, smartphones,
and tablets. Primary storage includes random access memory (RAM), and secondary storage
includes hard drives, solid state drives, optical disks, and magnetic tape. Declining costs for
primary storage technologies support in-memory computing, which is much faster compared to
secondary storage.
Two types of software are (1) application software, which supports all personal activity, business
processes, and specific tasks; and (2) system software, which includes the operating system
and utilities. Operating systems are important in business because many applications work on
only one of them, so business users choose the one that has the most useful software available.
Windows dominates the operating system market for desktops and laptops, but operating
systems for smartphones and tablets are much more varied. Software is written in various
programming languages and software development environments. Managers make choices
by taking into consideration staff skills; the availability of training, support, and tools; and
other factors. Software created by IT companies such as Microsoft or Oracle and licensed to
customers is called commercial off-the-shelf (COTS). Increasingly, web-based applications are
licensed as software as a service (SaaS). Unique applications or business processes sometimes
call for custom software development. Open source software, with licensing terms that call for
free redistribution, is developed by volunteer communities and carries no licensing costs.
Networks connect computers and other devices, and their transmission media can be wired or
wireless. Wired media include twisted pair, coaxial cable, and optical fiber. Wireless transmission
relies on the electromagnetic spectrum, using segments that are either licensed or unlicensed.
Wifi, for example, relies on radio waves at frequencies of either 2.4 GHz or 5 GHz. The
spectrum is extremely valuable for companies developing new mobile and wireless services,
and auctions are held in which companies bid on whatever bandwidth is available. Networks
can be classified by their geographic areas (such as LAN or WAN), by whether they use packet
or circuit switching, and by their degree of centralization (client-server and peer-to-peer). To
connect, devices rely on protocols, such as Ethernet and TCP/IP. The 802.11 family of protocol
standards is widely used for wifi. These protocols determine how different layers address
connection issues, from the physical layer to the application layer. The Internet’s protocols
support ongoing innovation because they address mainly the middle layers.
The enterprise architecture is the organization’s master blueprint that describes its current
environment, its future state, and the roadmap for achieving it. It is driven by business needs and
helps define and guide the ICT architecture needed to support it. ICT architectures have evolved
over time with changes in business needs and technological innovations. Emerging trends include
virtualization, the integration of voice and data, and cloud computing. Developing and guiding
the enterprise architecture requires a keen understanding of the business mission and how ICT
architectures can support it.
1
4
2
3
C H A P T E R
3 chapter summary
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Key terms and concepts
enterprise architecture (EA)
computer
ASCII code
optical scanners
optical character recognition
(OCR)
radio frequency identification
(RFID)
central processing unit (CPU)
transistor
Moore’s Law
byte
random access memory
(RAM)
in-memory computing
software
application software
system software
operating system (OS)
utility software
programming language
legacy systems
source code
object-oriented programming
commercial off-the-shelf
(COTS)
software as a service (SaaS)
open source software
network
bits per second (bps)
bandwidth
twisted pair wires
coaxial cables
optical fiber
wavelength
hertz (Hz)
microwave transmission
wifi
wireless router
Bluetooth
digital subscriber lines (DSL)
local area network (LAN)
circuit-switched network
packet switching
voice over IP (VoIP)
client-server network
n-tier
peer-to-peer network
Ethernet
TCP/IP
Internet Protocol Version 6
(IPv6)
WiMax
virtualization
private branch exchange
(PBX)
cloud computing
3-1. What is the function of each of the four components
of a computer? Give an example of each component.
3-2. What is the meaning and significance of Moore’s Law?
3-3. What are the two major types of software and how
do they differ? Give an example of each.
3-4. What are the different strategies for creating and
deploying software?
3-5. What are the major types of wired and wireless trans-
mission media? What are the strengths, weaknesses,
and potential of each?
3-6. What are two types of networks and how are they
used?
3-7. What is a network protocol? What are the roles of
Ethernet, TCP/IP, and wireless protocols?
3-8. What is an enterprise architecture and what is its role
in an organization?
3-9. How have ICT architectures changed over time as
new technologies have emerged?
3-10. What is cloud computing? How does it support busi-
ness objectives?
chapter review Questions
projects and discussion Questions
3-11. Why did people stand in ridiculously long lines for
hours in hopes of buying a $300 iPhone 4? Despite
widespread reports of reception issues, Apple strug-
gled to meet the demand for that smartphone model.
Describe the latest iPhone in terms of hardware com-
ponents (input, processing, storage, output) and its
operating system and application software.
3-12. When the “StudentNet” wireless Internet signal did
not appear on the list of nearby connections (Figure
3-17), Becca Wells used the “garage” network to
check her email. What issues should Becca have con-
sidered before connecting to that unknown network?
For example, is it ethical to connect through some-
one’s service without permission, even if they didn’t
password protect the access point? What security
issues should she be concerned about? Search the web
to learn more about “wardriving” and prepare a brief
summary of your findings.
3-13. Twenty years ago, analysts predicted the death of
mainframe computers. Today, however, many pub-
lic and private enterprises throughout the world
rely on the mainframe as the backbone of large-
scale computing. For example, the U.S. Census
Bureau uses mainframe computers to process data
about the nation’s people and economy. On the
other hand, many of today’s data centers run on
racks of PC servers or large-scale PC server farms.
How are mainframe computers different from PCs?
How are they similar? Search the web or visit web-
sites such as opensourcemainframes.org and ibm
.com to learn more about how mainframes support
an IT infrastructure. List and discuss the major uses
of mainframe systems.
3-14. Although vendors describe the cloud as a cost-
effective solution to increase IT capabilities, some crit-
ics describe it as marketing hype. The implementation
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of cloud computing to replace in-house computing
generally requires:
a. Leasing IT resources
b. Depending on a third party to store data
c. Depending on a third party to provide services
List the positive and negative results of these factors
as they affect organizations that adopt cloud com-
puting. Outline several reasons why a company might
decide to use cloud computing. Are there other issues
related to cloud computing? In your opinion, what is
the strongest argument against cloud computing?
3-15. Consider the many types of computer input devices
available today. Identify two general categories of
input devices and provide several examples of each.
List and describe several input devices that also serve
as output devices. List several input/output devices
that you own. Which are your favorites? Why? Which
are your least favorites? Why?
3-16. Why are there different programming languages?
What is the fundamental difference between Java and
.NET? Search the web to learn the origin of the name
“COBOL.” How is COBOL used today? How strong
is the case that “COBOL is dead”? Why or why not?
3-17. Jackson Real Estate is relocating to new office space and
owner Bella Jackson must decide between a wired or
wireless network for 35 on-the-go agents. What are the
pros and cons of each type of network for this business
environment? Consider the cost, security, and mobility
issues of this decision and make a recommendation.
3-18. Work in a small group with classmates to compare
three office productivity applications: Microsoft
Office, a commercial off-the-shelf software product;
Google Docs, software as a service; and Open Office,
a free, open source office suite (available at openof-
fice.org). What are the benefits, costs, and risks of
each application? Discuss why a small business or
nonprofit organization may prefer one application
instead of another.
3-19. Work in a small group with classmates to explain the
effects of Moore’s Law on information and commu-
nications technology. What is the impact of Moore’s
Law on your life? Prepare a 5-minute presentation on
your findings.
3-20. Work in a small group with classmates to consider the
differences between commercial off-the-shelf software
and custom software. What are the advantages and
disadvantages of each type of software? Why would a
company decide to develop its own software rather than
use COTS? Investigate the student information system
used by your college or university to learn whether the
software was custom developed or purchased.
application exercises
3-21. ExcEl ApplicAtion:
Analyzing Growth in computer
Storage capacities
Since the computer hard drive was invented in 1956, a con-
stantly increasing data storage capacity has been available
at an ever-decreasing cost. Use the historical data of hard
drive capacities and prices shown in Figure 3-29 to create an
Excel spreadsheet that includes formulas to calculate a com-
mon measure of disk size (GB) and the cost per GB for each
year. You can also download the Excel file that contains this
data, named Ch03Ex01. Recall 1 gigabyte = 1,024 mega-
bytes; 1 terabyte = 1,024 gigabytes. Create two line charts to
present trends in the cost of data storage, using the data for
years 1980–1999 for one chart and the data for years 2000–
2010 for the second chart. Write a brief summary of the
trends you found. What factors have contributed to these
trends? What are the implications of these trends?
Year Size Price
1980 26 MB $5,000
1983 20 MB $3,495
1984 20 MB $2,399
1987 40 MB $1,799
1989 20 MB $ 899
1995 1.7 GB $1,499
1996 3.2 GB $ 469
1997 7.0 GB $ 670
1998 8.4 GB $ 382
1999 19.2 GB $ 512
2000 27.3 GB $ 375
2001 40 GB $ 238
2002 100 GB $ 230
2003 120 GB $ 168
2004 250 GB $ 250
2006 390 GB $ 106
2008 1 TB $ 200
2010 1.5 TB $ 220
FIGURE 3-29
Hard drive capacities and costs by year.
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3-22. AccESS ApplicAtion:
Managing ict Assets with a Database
Steve Adams Design is an architectural design firm spe-
cializing in corporate design projects such as commercial
building architecture, interior design, master planning,
and sustainable design and consulting. As part of its ICT
asset management program, the IT director has asked you
to build an Access database to manage the devices used by
employees. The database will contain information about
each device, such as manufacturer, model, date acquired,
condition, purchase price, and current value.
Create an empty database named “Adams.” Download
the Excel file Ch03Ex02 and import the two worksheets to
tables in your database. Create a totals query to summarize
the current value of equipment for each category. Create
a report displaying the names and locations of employees
who use laptop computers. Create a report displaying the
names and locations of employees who use CAD systems.
case study #1
Moore’s Law is helping companies like Google develop wearable technologies that have con-siderable computing power, from smartphone
watches to heart rate monitors. “Google Glass” breaks new ground in
this technology category with a headset that resembles a pair of light-
weight glasses. The device connects to the Internet wirelessly via wifi,
but to be fully mobile, the wearer also needs to carry a smartphone
that can work as a hotspot, relying on the carrier’s mobile 4G network
to stay connected.
Google Glass is a work in progress, but developers envision it
as an “always on” device that people can use to take spontaneous
pictures and videos, send and receive phone calls and text mes-
sages, and post messages on social networks. The small display in
the upper corner of the wearer’s visual field adds another critical
capability, to conduct Google searches, for instance. Air travelers can
call up current flight data as they race to the gate. With GPS, the
wearer can view navigation maps that match the current position.
The device has most of what it needs to function as a standalone
computer, including a high powered processor running the Android
operating system.
How does the wearer communicate with Glass? Users can
speak a variety of commands, such as “OK Glass, take a picture,” or
“OK Glass, share this with my network.” There is also a tiny touchpad
on the headset’s frame.
Wearable technologies like this face enormous challenges, how-
ever, particularly as head-mounted devices that offer a visual display.
Human eyes are not designed to view details on anything so close, so
the display has to fool the person’s retina with an image that appears
to be much further away. Google Glass uses a prism and mirrors posi-
tioned over the wearer’s right eye to accomplish that.
Another concern is that a visual display could be a safety haz-
ard, especially while driving. Little is known about how this kind of
technology may affect people’s visual attention and depth percep-
tion, although some argue that glancing away from the road to view
a smartphone’s navigation display is also distracting. In any case, the
device certainly permits and encourages more multitasking, which
often reduces human performance.
The fashion conscious may reject the Spartan look of Google Glass,
which resembles the headset worn by Levar Burton in Star Trek: The
Next Generation. The device comes in different colors, and versions
are also available for people who wear prescription lenses.
Some privacy advocates have voiced concerns about Google Glass
as well. What does it mean when people are always equipped to record
whatever they see and instantly upload it to the Internet, without others
knowing they are doing it? To some extent, mobile devices already offer
that capability, but Google Glass raises the stakes even further. Some
have resisted the technology. For example, a bar in Seattle banned cus-
tomers from wearing the device, and other businesses may follow.
Lawmakers are especially concerned because Google has the
capability to embed its increasingly sophisticated facial recogni-
tion software. At some point, the Glass wearer may be able to iden-
tify strangers on the street by matching the face to tagged photos
on social networks. A group launched the website called StopThe-
Cyborgs.org to draw attention to the many privacy issues surround-
ing Google Glass, comparing the devices to “human spy drones.”
Google encourages developers to create new apps for Glass,
ones that match the device’s capabilities and don’t just copy existing
smartphone apps. One might want to read headlines on Glass, for
instance, but not whole articles. The goal, according to Google, is to
“complement” a person’ life, rather than interfere with it.
Google Glass and Wearable Technologies
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discussion Questions
3-23. Identify the major hardware, software, and communications
components of Google Glass.
3-24. What are some of the advantages to using Google Glass and
how will they add value to a customer’s life?
3-25. What are the major risks associated with Google Glass?
3-26. Why Is Google encouraging developers to create apps for
Google Glass rather than building those apps themselves?
Sources: Cohen, E. (March 13, 2013). The eyes have it: Google Glass and the myth of
multitasking. Scientific American, http://blogs.scientificamerican.com/
guest-blog/2013/03/13/the-eyes-have-it-google-glass-and-the-myth-of-multitasking/,
accessed March 23, 2013.
Guarino, M. (2013, March 25). Google Glass already has some lawmakers on high alert.
Christian Science Monitor. http://www.csmonitor.com/USA/Society/2013/0325/Google-
Glass-already-has-some-lawmakers-on-high-alert.
Newton, C. (March 8, 2013). Seattle dive bar becomes first to ban Google Glass. c|net,
http://news.cnet.com/8301-1023_3-57573387-93/seattle-dive-bar-becomes-first-to-ban-
google-glass/, accessed March 24, 2013.
Pachal, P. (March 22, 2013). Google Glass and the future of head-mounted displays. Mashable,
http://mashable.com/2013/03/21/google-glass-technology/, accessed March 24, 2013.
case study #2
Sprint Nextel, AT&T, and Verizon play leapfrog as they upgrade their networks with new technologies that offer faster speeds, more bandwidth, and better coverage for
mobile smartphones. While Sprint has about 56 million customers,
AT&T and Verizon each have over 100 million.
Sprint initially invested heavily in WiMax, pinning its strategy
to an early-to-market advantage with the nation’s first 4G offering.
However, WiMax is slower than 4G services based on a different
technology called “LTE” (long-term evolution), and Sprint is phasing
out its WiMax networks. It is also phasing out the Nextel network to
reduce costs.
To attract customers, Sprint Nextel must provide distinctive ser-
vices. For example, the company is working with radio broadcasters so
that its smartphone users can receive local FM stations. Sprint would
be the first wireless carrier to offer this live FM radio to the handset, a
feature that many customers will find attractive.
Customers also want faster service, in more geographic areas. For
Sprint, that means installing the towers and equipment that will send
and receive the wireless signals. As of 2013, its 4G LTE network lagged
behind AT&T and Verizon, both in terms of speed and geographic cov-
erage, so the company has some catching up to do.
Before installing 4G antennas, the company has to identify the
sites that will provide the best coverage for the area. For cities with tall
buildings, large bodies of water, many hills and valleys, and high foli-
age, those choices are engineering brainteasers. In New York City, for
instance, the urban “canyons” create dead spots that cause coverage
problems. Sprint Nextel needs thousands of sites to provide adequate
service.
Once sites are identified, Sprint must navigate a labyrinth of gov-
ernment agencies, local building codes, citizens’ groups, and land-
owners to obtain approvals. In San Francisco, multiple bureaucracies
may be involved, depending on the tower’s location. The company
may need approval from the California Coastal Commission for sites
near the ocean, or from the California Department of Transportation.
Municipalities may also compete with one another for towers, since
they are a source of revenue, or they might insist they be constructed
on city-owned property.
Some community and homeowner associations may also protest
tower construction. Although Californians want 4G, they may value
neighborhood aesthetics even more. The “NIMBY” mentality (Not In
My Back Yard) further delays rollouts. Sprint Nextel and other carriers
deal with this human element by hiding their equipment in church
steeples or masking their appearance in other ways. Some are built
to resemble trees (Figure 3-30). Sprint is widely known for its “green”
environmental initiatives, and the tree-shaped towers support those
corporate goals.
Some communities welcome the towers because of the revenue
they will earn. For example, a struggling school district in California
began negotiating with cell phone companies to see which one would
offer the best deal. Some citizens objected because of possible health
risks from radiation, but researchers point out that radiation from the
handsets is a much larger factor. In fact, handset radiation drops as
the number of towers increases because less power is needed to
connect.
Despite all these technical and nontechnical hurdles, Sprint is
making good progress and continues to expand coverage. Although
the 4G LTE network may not be “real” 4G, defined by the nonprofit
International Telecommunications Union (ITU) as an all IP packet-
switched network with speeds in the 1 GB/s range, smartphone users
eagerly anticipate more service in their cities. Step by step, Sprint is
jumping through all the hoops to regain lost customers and compete
with rivals.
Rolling Out Its 4G Network, Sprint Nextel Competes with Rivals
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http://blogs.scientificamerican.com/guest-blog/2013/03/13/the-eyes-have-it-google-glass-and-the-myth-of-multitasking/

http://www.csmonitor.com/USA/Society/2013/0325/Google-Glass-already-has-some-lawmakers-on-high-alert

http://news.cnet.com/8301-1023_3-57573387-93/seattle-dive-bar-becomes-first-to-ban-google-glass/

http://mashable.com/2013/03/21/google-glass-technology/

FIGURE 3-30
A cell tower disguised as a
pine tree.
Source: Christina Richards/Shutterstock.
discussion Questions
3-27. What is the relationship between physical infrastructure and
services as described in this case study?
3-28. What is the relationship between regulatory considerations
and wireless services?
3-29. In the placement of infrastructure, how do the interests of
an individual as a customer conflict with the interests of the
same individual as a homeowner?
3-30. What other considerations must Sprint consider as it puts its
infrastructure in place?
Sources: Carducci, A. (January 25, 2012). Cell-phone towers on California schools to
enhance district’s bottom line. Heartland News, http://news.heartland.org/newspaper-
article/2012/01/25/cell-phone-towers-california-schools-enhance-districts-bottom-line,
accessed March 29, 2013.
Cella, J. (2013). Sprint Nextel Corporation, Hoover’s Online Database, accessed April 4, 2013.
Furchgott, R. (March 20, 2013). Who has the fastest LTE service? New York Times, http://
gadgetwise.blogs.nytimes.com/2013/03/20/who-has-the-fastest-lte-service/, accessed
March 24, 2013.
Sprint beats rivals on green initiatives. (March 8, 2013). Environmental Leader, http://
www.environmentalleader.com/2013/03/08/sprint-beats-competitors-on-green-initiatives/,
accessed March 24, 2013.
Sprint Nextel to Bring FM Service to Smartphone Users. (2013). Telecommunications Reports,
79 (2), 18. Available from: Business Source Complete, Ipswich, MA. Accessed April 4, 2013.
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http://news.heartland.org/newspaper-article/2012/01/25/cell-phone-towers-california-schools-enhance-districts-bottom-line

http://gadgetwise.blogs.nytimes.com/2013/03/20/who-has-the-fastest-lte-service/

http://www.environmentalleader.com/2013/03/08/sprint-beats-competitors-on-green-initiatives/

For this e-project, you will analyze data on U.S. municipalities to esti-
mate approximately how many cell-phone towers the city will need and
how many people will be able to access each tower. This kind of infor-
mation helps the carriers decide which markets are most cost effective.
Download the Excel file called Ch03_Cities and answer the following
questions.
3-33. Sort the cities by land area in square miles, largest to smallest.
Which city has the largest land area? Which has the smallest?
3-34. Insert a column after Land Area in Square Miles and label it “Cell
Towers Needed.” For the first city in that column, enter the for-
mula to divide the Land Area in Square Miles by 10, assuming
that one tower will serve about 10 square miles. Copy the for-
mula down to the remaining cities. About how
many cell towers will Baltimore require?
3-35. Insert another column to the right of Cell Towers Needed, labeled
“Estimated Cost.” Enter the formula for the first city as “Cell
Towers Needed” * 150000. Format the cell to currency with no
decimals, and copy it down the whole column. About how much
will it cost to build out the cell tower infrastructure in Chicago?
3-36. Insert one more column to the right of Population, labeled “Cost
Per Customer.” Insert the formula Estimated Cost/Population
for the first city, and then copy the formula down the column.
What is the estimated cost per customer for Houston?
3-37. Sort the table on Cost Per Customer, from smallest to largest.
a. Which city would have the lowest cost per customer, and
what is the cost?
b. Which city has the highest cost per customer?
c. If you live in the United States and
your city is listed, which one is it, and
what is the estimated cost per cus-
tomer? If your city is not listed, please
select the closest city that is listed.
d. What is the main factor that ac-
counts for the dramatic differences
in cost per customer?
Using Excel to Analyze Cost Effectiveness for 4G Rolloutse-project 2
PRODUCTIVITY TIP
If you live in the United States, visit www.antennasearch.com and enter your
own address. The program will map the locations of all the nearby cell towers.
Click on the towers nearest your home to obtain some information about
them, such as the building they are on or their owner. Knowing their locations
will help you avoid unpleasant call interruptions for important conversations.
92 IntroduCtIon to InformatIon systems
Sharing Some of Your Computer Time for a Worthy Goal
The voluntary distributed computing architecture model relies on the
participation of millions of people who offer some spare computer time
in exchange for an interesting screen saver and, of course, the good
feeling that comes with contributing to a worthy goal. The University of
California at Berkeley hosts BOINC, which lists projects that need volun-
teers (http://boinc.berkeley.edu).
3-31. Visit several BOINC project sites and examine the ways in which
the project leaders are engaging volunteers and sustaining com-
mitment. What strategies are they using and how well do they
appear to be working?
3-32. Trust is a significant element for voluntary distributed com-
puting, especially because users are warned about the dan-
gers of downloading executable programs to their computers
from unknown sources. Pick two BOINC projects, compare
their privacy policies, and look for other ways in which they
attempt to convince potential participants that their computer
will not be harmed and their privacy will not be violated. How
do the two projects compare?
Voluntary Distributed Computinge-project 1
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www.antennasearch.com

http://boinc.berkeley.edu

Chapter Notes
1. Miller, C. C. (October 4, 2012). Google deal gives
publishers a choice: Digitize or not. The New York
Times, http://www.nytimes.com/2012/10/05/technology/
google-and-publishers-settle-over-digital-books.html?_
r=0, accessed January 4, 2012.
2. Satariano, A. (2013). Leap Motion raises $30 mil-
lion for ‘Minority Report’ controls. Bloomberg News,
http://go.bloomberg.com/tech-deals/2013-01-03-leap-
motion-raises-30-million-for-minority-report-controls/,
accessed January 4, 2013.
3. Richtel, M. (February 7, 2012). In data deluge, mul-
titaskers go to multiscreens. New York Times, http://
www.nytimes.com/2012/02/08/technology/for-multi-
taskers-multiple-monitors-improve-office-efficiency
.html?pagewanted=all&_r=0, accessed January 5, 2013.
4. Decimal and Binary Prefixes. (nd). http://wolfprojects
.altervista.org/articles/binary-and-decimal-prefixes/,
accessed May 8, 2011.
5. Walsh, B. (June 24, 2013). The NSA’s big data problem.
Time Magazine, http://www.time.com/time/magazine/
article/0,9171,2145481,00.html, accessed June 24, 2013.
6. Duhigg, C. (February 16, 2012). How companies learn
your secrets. New York Times Magazine, http://www
.nytimes.com/2012/02/19/magazine/shopping-habits
.html?pagewanted=1&_r=2&hp&, accessed January 6,
2013.
7. Brendish, L. (2013). Math & magic. NZ Marketing
Magazine, pp. 37–40.
8. Kovach, S. (June 3, 2013). Android is the most popular
smartphone operating system in the U.S. Business Insider,
http://www.businessinsider.com/kantar-smartphone-
market-share-2013-6, accessed June 16, 2013.
9. Driver, M. (September 13, 2012). Understand the chal-
lenges of open-source software. Gartner Research,
ID:G00238077.
10. Wyatt, E. (September 28, 2012). F.C.C. backs pro-
posal to realign airwaves. New York Times, Business
Day Technology, http://www.nytimes.com/2012/09/29/
technology/fcc-approves-auction-process-for-spectrum
.html?_r=0, accessed January 12, 2013.
11. Kontzer, T. (January 17, 2012). Leveraging virtualiza-
tion’s business value. Baseline, http://www.baselinemag
.com/c/a/Virtualization/Leveraging-Virtualizations-
Business-Value-551234/, accesssed January 13, 2013.
12. Bhalla, V., & Kowall, J. (March 21, 2013). How to deter-
mine readiness for voice, video and unified communica-
tions. Gartner Research, doi ID Number G00247761.
13. McMillan, R., & Metz, C. (November 30, 2012). How
Amazon followed Google into the world of secret
servers. Wired Magazine, www.wired.com/wiredenter-
prise/2012/11/amazon-google-secret-servers, accessed
January 14, 2013.
14. Smith, D. M. (January 2, 2013). Agenda overview
for cloud computing, 2013. Gartner Research, doi ID
Number G00245760.
15. Cearley, D.W., Scott, D., Skorupa, J., & Bittman, T.J.
(February 6, 2013). Top 10 technology trends, 2013.
Cloud computing and hybrid IT drive future IT models.
Gartner Research, doi: G00237716.
16. Tibken, S. (October 22, 2012). Amazon cloud outage
impacts Reddit, Airbnb, Flipboard. c|net CES Special
Coverage, http://news.cnet.com/8301-1023_3-57537499-93/
amazon-cloud-outage-impacts-reddit-airbnb-flip-
board/, accessed January 14, 2013.
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http://www.nytimes.com/2012/10/05/technology/google-and-publishers-settle-over-digital-books.html?_r=0

http://go.bloomberg.com/tech-deals/2013-01-03-leap-motion-raises-30-million-for-minority-report-controls/

http://www.nytimes.com/2012/02/08/technology/for-multitaskers-multiple-monitors-improve-office-efficiency.html?pagewanted=all&_r=0

http://wolfprojects.altervista.org/articles/binary-and-decimal-prefixes/

http://www.time.com/time/magazine/article/0,9171,2145481,00.html

http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?pagewanted=1&_r=2&hp&

http://www.businessinsider.com/kantar-smartphone-market-share-2013-6

http://www.nytimes.com/2012/09/29/technology/fcc-approves-auction-process-for-spectrum.html?_r=0

Leveraging Virtualization’s Business Value

www.wired.com/wiredenter-prise/2012/11/amazon-google-secret-servers

http://news.cnet.com/8301-1023_3-57537499-93/amazon-cloud-outage-impacts-reddit-airbnb-flip-board/

http://www.nytimes.com/2012/02/08/technology/for-multitaskers-multiple-monitors-improve-office-efficiency.html?pagewanted=all&_r=0

http://news.cnet.com/8301-1023_3-57537499-93/amazon-cloud-outage-impacts-reddit-airbnb-flip-board/

Learning Objectives
Explain the nature of information resources in terms of structure and quality, and show how metadata can
be used to describe these resources.
Compare file processing systems to the database, explaining the database’s advantages.
Describe how a relational database is planned, accessed, and managed, and how the normalization process
works.
Explain why multiple databases emerge, and how master data management helps address the challenge of
integration.
Describe how a data warehouse is created, and explain the challenges and value of big data.
Explain how the human element and ownership issues affect information management.
1
4
2
5
3
C H A P T E R
4 Databases and Data Warehouses
EVERY ORGANIZATION IS AWASH WITH INFORMATION
RESOURCES OF ALL KINDS, and it takes considerable effort
to bring together the people, technology, and processes
needed to manage those resources effectively. This chapter
explores the structure and quality of information, and how
people organize, store, manipulate, and retrieve it.
In the online simulation called “Volunteer Now!” you
will help a group of college students who have been try-
ing to match people who want to volunteer their time to
organizations that need their skills, such as homeless
shelters, hospitals, and animal rescue services. They have
been keeping track of all their data using three-ring bind-
ers and post-it notes, but mistakes are common. One vol-
unteer who signed up to work in a soup kitchen was given
the wrong address, and wound up wandering around lost
in a deserted warehouse. What Volunteer Now! needs is a
database that fits their mission, one that the staff and vol-
unteers can access from their laptops and smartphones at
any time of day. You will learn a lot about databases as you
help them design it.
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.
6
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chapter 4 Databases anD Data Warehouses 95
I
nformation resources are central to any organization’s
success. And these resources are growing at an astound-
ing rate. Data stored in digital format are multiplying
everywhere on a vast array of physical media, ranging from
the organization’s own computers to hosts that might be
located anywhere on the planet. Data also reside on DVDs,
CD-ROMs, and tapes, and inside people’s digital cameras,
cell phones, iPods, and flash drives on a keychain. On your
own workspace, for instance, objects that don’t store or
display information of some kind are scarce—perhaps the
coffee cup or stapler (Figure 4-1).
People understand that some information is powerful and
valuable, but far more is useless junk that should be tossed.
We need a strategy to manage information resources so that
what is important is secure, organized, and easily accessible
to managers, employees, customers, suppliers, and other
stakeholders. This enormous challenge is the subject of this
chapter.
MyMISLab Online Simulation
Volunteer Now!
A Role-Playing Simulation on Designing the Database for a Volunteer
Matching Service
m
an
go
st
oc
k/
Sh
ut
te
rs
to
ck
.
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96 IntroDuctIon to InformatIon systems
THE nATuRE of InfoRmATIon
REsouRCEs
Structured, Unstructured, and Semi-Structured Information
Every organization relies on structured information, the kind that is usually considered
to be facts and data (Figure 4-2). It is reasonably ordered, in that it can be broken down
into component parts and organized into hierarchies. Your credit card company, for
example, maintains your customer record in a structured format. It contains your last
name, first name, street address, phone number, email address, and other data. It would
also maintain your purchases, each with a transaction date, description, debit or credit
amount, and reference numbers.
Straightforward relationships among the data elements are also relatively easy to
identify. A customer’s order would be related to the customer record, and the items pur-
chased as part of the order would be related to the order itself. This kind of informa-
tion is the heart of an organization’s operational information systems, with electronically
stored customer records, orders, invoices, transactions, employee records, shipping tables,
and similar kinds of information. It is the kind that databases are designed to store and
retrieve.
In contrast, unstructured information has no inherent structure or order, and the parts
can’t be easily linked together, except perhaps by stuffing them in a manila folder or
box. It is more difficult to break down, categorize, organize, and query. Consider a com-
pany involved in a touchy lawsuit. The information related to that could include letters,
emails, Twitter feeds, post-it notes, text messages, meeting minutes, phone calls, videos,
Facebook posts, resumes, or photos.
FIGURE 4-1
The modern workspace:
An information storehouse.
Source: Kathy Burns-Millyard/Shutterstock.
Explain the nature of information
resources in terms of structure and
quality, and show how metadata
can be used to describe these
resources.
1
Type of Information Resource Example
Structured information A sales transaction with clearly defi ned fi elds for date, customer
number, item number, and amount
Unstructured information Manila folder containing assorted items about a lawsuit, such as
photos, handwritten notes, newspaper articles, or affi davits
Semi-structured information A web page with a title, subtitle, content, and a few images
FIGURE 4-2
Types of information resources.
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chapter 4 Databases anD Data Warehouses 97
semi-structured information
Information category that falls between
structured and unstructured information. It
includes facts and data that show at least
some structure, such as web pages and
documents, which bear creation dates,
titles, and authors.
unstructured information
Information that has no inherent structure
or order, and the parts can’t be easily linked
together.
structured information
Facts and data that are reasonably ordered,
or that can be broken down into component
parts and organized into hierarchies.
Drawing information out of unstructured collections also presents challenges.
A catering business might have a back room stacked with boxes containing unstructured
information on hundreds of contracts. If the owner wants to know which contracts
went over budget, and then see who handled those, every box would have to be opened.
Because unstructured collections have no means to enforce rules about what types of
information must be included, the owner may find little to go on.
A vast gray area exists between the extremes of structured and unstructured informa-
tion; this is the area within which semi-structured information falls. This type includes
information that shows at least some structure, such as web pages that have dates, titles,
and authors. Spreadsheets can also be semi-structured, especially when they are created
by different people to keep track of the same kind of information. One salesperson,
for instance, might put a contact’s work phone and mobile phone in different columns
labeled “Work Phone” and “Mobile,” but another might keep them in the same col-
umn under the heading “Phones.” Resources like these don’t have the strong structure,
enforced by advance planning, to clearly define entities and their relationships, and they
lack controls about completeness and formatting. Nevertheless, such data are easier to
query and combine than the unstructured variety.
Metadata
Metadata is data about data, and it clarifies the nature of the information. For structured
information, metadata describes the definitions of each of the fields, tables, and their
relationships. For semi-structured and unstructured information, metadata are used to
describe properties of a document or other resource, and are especially useful because
they layer some structure on information that is less easily categorized and classified.
YouTube’s database, for example, contains metadata about each of its videos that can be
searched and sorted. A library’s card catalog provides metadata about the books, such
as where they are physically shelved. Word-processed documents are easier to organize if
they include title, author, and subject in their properties.
The popular photo-sharing website Flickr relies on metadata to search its enormous
photo collection. A father’s beach scene photos, with filenames such as “image011 ,”
become more accessible, mean-
ingful, and sharable for friends
and family when metadata are
added to their properties, such
as location, subject, date taken,
and photographer (Figure 4-3).
The Quality of Information
Not all information has high quality, as anyone who surfs the net knows. Here are the
most important characteristics that affect quality:
▶ Accuracy. Mistakes in birth dates, spelling, or price reduce the quality of the infor-
mation.
▶ Precision. Rounding to the nearest mile might not reduce quality much when you
estimate the drive to the mall. However, for property surveys, “about 2 miles” is
unacceptable.
metadata
Data about data that clarifies the nature
of the information.
PRODUCTIVITY TIP
Adding metadata to the properties of your documents, photos, and videos
makes them easier to search and locate later. Right-clicking on the filename
usually brings up a menu that includes Properties. You can also remove
information from a file’s properties so others will not see it.
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98 IntroDuctIon to InformatIon systems
▶ Completeness. Omitting the zip code on the customer’s address record might not be a
problem because the zip can be determined by the address. But leaving off the house
number would delay the order.
▶ Consistency. Reports that show “total sales by region” may conflict because the peo-
ple generating the reports are using slightly different definitions. When results are
inconsistent, the quality of both reports is in question.
▶ Timeliness. Outdated information has less value than up-to-date information and
thus is lower quality unless you are looking for historical trends. The actual defini-
tion for what is up-to-date varies. In stock trading, timeliness is measured in frac-
tions of a second.
▶ Bias. Biased information lacks objectivity, and that reduces its value and quality. To
make sales seem higher, a manager might choose to include canceled orders, though
the CEO might not be pleased.
▶ Duplication. Information can be redundant, resulting in misleading and exaggerated
summaries. In customer records, people can easily appear more than once if their
address changes.
The data collected by online surveys illustrate many of the problems surrounding
information quality.1 The sample of people who actually respond is biased, and people
may quit before completing or turn in more than one survey. Virtual Surveys Ltd., a
company that specializes in web-based research, discovered that one person completed
an online survey 750 times because a raffle ticket was offered as an incentive.2 To avoid
relying on poor quality data like that, managers must define what constitutes quality for
the information they need.
Photo Metadata Description
Photo title Ocean beach scene
Date taken 12/15/2011
License type Royalty free
Photographer Felipe DiMarco
Key words Ocean, waves, outdoors, sunshine, beach, vacation,
swimming, swimmers, fi shing, surf
FIGURE 4-3
Metadata for a beach scene photo.
Source: Rigucci/Shutterstock.
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chapter 4 Databases anD Data Warehouses 99
field
An attribute of an entity. A field can contain
numeric data or text, or a combination
of the two.
record
A means to represent an entity, which might be
a person, a product, a purchase order, an event,
a building, a vendor, a book, a video, or some
other “thing” that has meaning to people. The
record is made up of attributes of that thing.
table
A group of records for the same entity, such
as employees. Each row is one record, and
the fields of each record are arranged in the
table’s columns.
mAnAgIng InfoRmATIon: fRom
fIlIng CAbInETs To THE dATAbAsE
Human ingenuity was applied to the challenges of information management long before
the digital age. Before Edwin Siebels invented the lateral filing cabinet in 1898, businesses
often organized documents by putting them in envelopes, in rows of small pigeonholes
that lined entire walls from top to bottom. The change to vertical manila folders, neatly
arranged in cabinet drawers, was quite an improvement for record keeping, and much
appreciated by file clerks (Figure 4-4). The real revolution, however, occurred in the
1960s when computers entered the picture. These relied on an organizing strategy built
around the concept of the record.
Tables, Records, and Fields
A table is a group of records for the same entity, such as employees, products, books,
videos, or some other “thing” that has meaning to people. The record is a row in the table,
and it represents an instance of the entity—a single person, for instance. The record is
made up of attributes of that thing, and each of the attributes is called a field. The fields
are the columns in the table. Fields typically contain numeric data or text, or a combina-
tion of the two. Each field should have a data definition that specifies the field’s proper-
ties, such as the type of data it will hold (e.g., alphabetic, alphanumeric, or numeric),
and the maximum number of characters it can contain. It also includes rules that might
restrict what goes into the field, or make the field required.
2 Compare file processing systems to the database, explaining the
database’s advantages.
data definition
Specifies the characteristics of a field, such as
the type of data it will hold or the maximum
number of characters it can contain.
FIGURE 4-4
Early information management
approaches.
Source: Edwin Verin/Shutterstock and deepspacedave/Shutterstock.
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100 IntroDuctIon to InformatIon systems
Consider, for example, a table that will hold employee records, created using MS
Access (Figure 4-5). The field names might include employee ID, last name, first name,
birth date, gender, email, and phone, and the data type appears next to each field name.
The properties for BirthDate appear in the bottom half of the figure. The designer
decided to make the field required, make sure users enter it as MM/DD/YYYY, and also
only allow dates that are less than today’s date.
The Rise and Fall of File Processing Systems
Initially, electronic records were created and stored as computer files, and programmers
wrote computer programs to add, delete, or edit the records. Each department maintained
its own records with its own computer files, each containing information that was required
for operations. For example, the payroll office maintained personnel records and had its own
computer programs to maintain and manage its set of files. At the end of the month when
it was time to generate payroll checks, the payroll system’s computer programs would read
each record in the file and print out checks and payroll stubs for each person, using the infor-
mation contained in the files for that department. That kind of activity is called batch pro-
cessing. The program is sequentially conducting operations on each record in a large batch.
Accounts payable and receivable, personnel, payroll, and inventory were the first ben-
eficiaries of the digital age. Compared to the manual method of generating a payroll, in
which deductions and taxes were computed by hand and each check was individually
typed, the monthly batch processing of computer-generated checks was revolutionary.
However, it didn’t take long for problems to surface as other offices began to develop
their own file processing systems. Understanding what went wrong is crucial to grasp
why the database offers so many benefits.
Data ReDunDancy anD InconsIstency Because each set of computer programs operated
on its own records, much information was redundant and inconsistent (Figure 4-6). The
payroll office record might list your name as ANNAMARIE, but the personnel office that
handles benefits shows you as ANNMARIE. Further, the extra workload involved in resolv-
ing redundant records was not trivial, and often never got done.
FIGURE 4-5
Data definition for the field “birthdate” in MS Access.
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chapter 4 Databases anD Data Warehouses 101
batch processing
The process of sequentially executing
operations on each record in a large batch.
Lack of Data IntegRatIon Integrating data from the separate systems was a struggle
(Figure 4-7). For example, the payroll system might maintain information about name,
address, and pay history, but gender and ethnicity are in personnel records. If a manager
wanted to compare pay rates by ethnicity, new programs were written to match up the
records. This clumsy integration affects customers, as well, who fume when they can’t resolve
inconsistencies in their accounts (Figure 4-8).
InconsIstent Data DefInItIons When programmers write code to handle files, differences
in format creep in. Phone numbers may include the dashes and be formatted as a text field in
one system, but be treated as numbers in another. A more subtle problem involves the way
people actually choose to use the system. Data definitions may seem similar across systems,
but they are used differently and summaries become misleading. For example, employees in
the personnel department at a retail chain categorize software purchases as “computers.”
Their coworkers in sales prefer to lump software with pencils, staplers, and clocks as “sup-
plies,” because less paperwork is needed to justify the purchase. The CEO lamented that
there was no way anyone could possibly know how much this chain was spending on tech-
nology because of the human element in information systems (Figure 4-9).
Data DepenDence These early systems became maintenance nightmares because the pro-
grams and their files were so interconnected and dependent on one another. The programs
all defined the fields and their formats, and business rules were all hard-coded or embedded
in the programs. Even a minor change to accommodate a new business strategy took a lot of
work. IT staff were constantly busy, but kept falling behind anyway.
The disadvantages to the file processing approach led to a better way of organizing
structured data, one that relies on the database.
Payroll Accounting Sales
Payro
ll
A
cco
u
n
tin
g
Sales
H
R
Human
Resources
Employee Name:
Smith, Annmarie Vorgas
Employee Name:
Smith, Annmarie V.
Employee Name:
Annamarie Vorgas-Smith
FIGURE 4-6
Data redundancy problems. Separate
file processing systems often contain
redundant and inconsistent data.
Employee Name:
T. Douglas Guarino
Salary: 25.50/hr
Employee Name:
Guarino, Theodore (Doug)
Gender: M
Human
Resources
Payroll
Payro
ll HR
FIGURE 4-7
Information in separate file processing
systems is difficult to integrate. For
example, a report listing hourly rates
by gender would need extra program-
ming effort in this business.
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102 IntroDuctIon to InformatIon systems
Databases and Database Management Software
The foundation of today’s information management relies on the database and the soft-
ware that manages it. The database is an integrated collection of information that is
logically related and stored in such a way as to minimize duplication and facilitate rapid
retrieval. Its major advantages over file processing systems include:
▶ Reduced redundancy and inconsistency
▶ Improved information integrity and accuracy
▶ Improved ability to adapt to changes
▶ Improved performance and scalability
▶ Increased security
Database management software (DBMS) is used to create and manage the database.
This software provides tools for ensuring security, replication, retrieval, and other admin-
istrative and housekeeping tasks. The DBMS serves as a kind of gateway to the database
Customer Name:
Jarrod, Roberto
A
u
to
In
su
ran
ce
Life In
su
ran
ce
B
illin
g
C
laim
s
Customer Name:
Jarrod, Robert
Customer Name:
Jarrod, Robert &
Jarrod, Stephanie
Customer Name:
Jarrod, Robert
FIGURE 4-8
Separate file processing systems lead
to a fragmented customer interface,
frustrating customers who have to
contact several offices to straighten
out inconsistencies.
Source: Photo: William Casey/Shutterstock.
Department Object Code Amount Category Description
Sales 4211 1888.25 Computers Desktop Computers
Sales 4300 249.95 Computer supplies Image editing software
Sales 4100 29.99 Offi ce supplies Flash drive
Personnel 4211 59.00 Computers Stastical software
Personnel 4300 14.95 Computer supplies Flash drive
Personnel 4211 2500.21 Computers Laptop Computers
Warehouse 4211 59500.00 Computers Web server
Warehouse 4211 2500.00 Computers Printer/copier/scanner/fax
FIGURE 4-9
When data definitions are inconsistent,
the meaning of different fields will
vary across departments and summa-
ries will be misleading. Note how the
three departments use categories in
different ways.
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chapter 4 Databases anD Data Warehouses 103
database management software (DBMS)
Software used to create and manage a
database; it also provides tools for ensuring
security, replication, retrieval, and other
administrative and housekeeping tasks.
database
An integrated collection of information that is
logically related and stored in such a way as
to minimize duplication and facilitate rapid
retrieval.
itself, and as a manager for handling creation, performance tuning, transaction process-
ing, general maintenance, access rights, deletion, and backups.
Database aRchItectuRe To be most useful, a database must handle three types of relation-
ships with a minimum of redundancy (Figure 4-10):
▶ One-to-one
▶ One-to-many
▶ Many-to-many
The one-to-one relationship is relatively easy to accommodate, and even file process-
ing systems can handle it. For instance, each person has one and only one birth date. The
one-to-many relationship between records is somewhat more challenging. A person might
have one or more dependents, for example, or one or more employees reporting to him
or her. The many-to-many relationship is also more complicated to support. This might
involve a situation in which a person might be working on any number of projects, each
of which can have any number of employees assigned to it.
Earlier database architectures offered different strategies to organize and link records
(Figure 4-11). For example, one intuitive way to organize information is to follow the
organizational chart, and the hierarchical database did just that (Figure 4-12). This
approach worked well for one-to-many relationships, but stumbled when many-to-many
links complicated the chart, such as when a person worked for two bosses. The net-
work database (Figure 4-13) had more flexibility to link entities that didn’t fall along
a neat hierarchy, and could handle many-to-many relationships. But another inventive
approach—the relational model—soon won out.
the ReLatIonaL Database E. F. Codd, a British mathematician working at IBM, invented
the relational database, which organizes information into tables of records that are related
One-to-one (1:1)
One-to-many (1:N)
Employee ID
Employee ID
Employee ID
Employee Birth Date
Dependents’ names
Project ID
Donald
Aiden
Carey
Beth
Ella
10
11
12
13
14
Jerome
12/15/1981555
555
555
556
556
557
557
558
558
Many-to-many (M:N)
FIGURE 4-10
Relationship types.
relational database
The widely used database model that
organizes information into tables of records
that are related to one another by linking a
field in one table to a field in another table
with matching data.
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104 IntroDuctIon to InformatIon systems
to one another by linking a field in one table to a field in another table with matching data
(Figure 4-14). The approach separates the data from the paths to retrieve them, thus making
the database less dependent on the hardware and its particular operating system. His inven-
tion eventually came to dominate the field, though it was not well received in the beginning,
especially by his bosses at IBM. That company had much invested in selling and supporting
its older hierarchical database and the mainframe computers it ran on, and IBM executives
were quite critical of Codd’s approach. Nevertheless, the relational database survived and
flourished, and is now a standard in most organizations.3
To see how the relational database works, consider the tables about students in Figure 4-14.
The first table shows the student ID, last name, first name, and birth date. The second
table shows student registrations with fields that display registration number, student ID,
class code, and grade. Because student ID is in both tables, they can be linked together.
FIGURE 4-11
Types of database architectures.
Hospital
PathologyPediatrics
Internal
Medicine
Dr. A Dr. B Dr. C
FIGURE 4-12
Hierarchical database.
Internal
Medicine
Dr. A
Patient A Patient B Patient C Patient D
Dr. B Dr. C Dr. D
Pediatrics Pathology
FIGURE 4-13
Network database.
Early Database Architectures
Hierarchical Resembles an organizational chart or an upside down tree (Figure 4-12).
Network Resembles a lattice or web rather than the upside down tree. Records can be linked in
multiple ways, supporting many-to-many relationships (Figure 4-13).
Modern Database Architectures
Relational Maintains records in rows within tables, and links between the tables are created by
linking a fi eld in one table to a fi eld in another table with matching data (Figure 4-14).
The relational database is the most widely used.
Object-oriented Represents information in the form of objects, and uses object-oriented programming
languages to access them; used especially for organizing complex data types such as
graphics and multimedia.
XML Organizes data using XML tags; used especially for managing web content and
web-based resources.
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chapter 4 Databases anD Data Warehouses 105
data model
A model used for planning the organization’s
database that identifies what kind of
information is needed, what entities will be
created, and how they are related to one
another.
If you have Microsoft Access on your personal computer, you have an offspring of
Codd’s ingenious approach. Other common relational DBMSs include Microsoft SQL
Server, Oracle, and MySQL. These relational databases continue to improve, adding
support for large files containing images, video, or audio. Relational systems now also
support XML data types, as well as spatial information and mapping coordinates.
dEvEloPIng And mAnAgIng
A RElATIonAl dATAbAsE
The database is the central information repository, a mission-critical asset of any enter-
prise. To see how a database is designed and created, we will help Devon Degosta and her
colleagues build the database to support DD-Designs, a small business that offers web
design services.
Planning the Data Model
The first step is to sit down with Devon and her team to develop the data model, identify-
ing what kind of information they want to track and how it is related. The process starts
by defining all the entities that will be included, their attributes, and their relationships. A
challenging process even for a small business, this model-building step is critical because
the database will be the backbone of the company. Also, time spent planning reaps ben-
efits in time saved making changes later.
entItIes anD attRIbutes What entities should be represented for this small business?
Employees, clients, projects, invoices, events, and transactions are all candidates, and many
more may come to mind as we work with Devon and her team to understand the business
and its strategies. Each of the entities in the model will become a table, named with a noun
that describes the data contained in the entity. It will have attributes, or fields, that describe
Students
10011
10012
10013
10014
10015
A
C
B
A
I
RegistrationNumber
54001
54001
54001
54555
96887
StudentID
20083BMGT300A
20083HIST450B
20083ECON200F
20083ECON200F
20083HIST410B
ClassCode Grade
Registrations
54001
65222
54555
25553
96887
Chong
Danelli
Burton
Washington
Perez
Kevin
Douglas
Stephanie
Nikia
Louis
12/01/1987
01/05/1986
11/12/1978
10/02/1981
07/25/1982
StudentID LastName FirstName BirthDate
FIGURE 4-14
Relational database.
3 Describe how a relational database is planned, accessed, and managed,
and how the normalization process
works.
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106 IntroDuctIon to InformatIon systems
the entity. “Employees,” for example, is a relatively straightforward entity with attributes
such as employee ID number, last name, first name, birth date, email address, and phone
number. The “Client” entity might include attributes such as company name, client ID num-
ber, contact person, company phone number, and company address. A single instance of
each entity will be a record. Terms such as “rows” and “columns” are also used to describe
the components of a table, but records and fields are widely understood.
pRImaRy keys anD unIqueness
Each record in a table must have
one primary key, which is a field,
or a group of fields, that makes
the record unique in that table.
Devon suggests using each per-
son’s last name as the primary
key since that is unique. But as the
organization grows, there might
be two people with the same last name. Devon nods, thinking she might invite her brother to
join the company. Some organizations have used Social Security numbers (SSN) to uniquely
identify employees, but that has serious drawbacks as well. Non-U.S. citizens might not have
one, and that number is confidential and should not be released.
Database developers avoid meaningful information for primary keys, such as an SSN
or name. If the key is mistyped or changes, fixing it throughout the database is a com-
plicated affair. Many systems instead simply use autonumbering to assign primary keys,
in which the DBMS assigns incremental numbers to records as they are created. This
approach ensures that each record has a unique primary key and that no one accidentally
gives the same ID number to two different people (Figure 4-15). Because the autonumber
has no other meaning, there would be no reason to ever change it.
noRmaLIzIng the Data moDeL Next, we work with Devon to further refine the entities and
their relationships. This multistep process is called normalization, and it minimizes duplica-
tion of information in the tables—a condition that can cause many kinds of problems that
diminish the database’s integrity. It also helps avoid inconsistencies that can occur when users
try to insert, edit, or delete data.
In the Employees table, for example, one goal of normalization is to make each attri-
bute functionally dependent on the employee ID number, which uniquely identifies each
employee. Functional dependence means that for each value of employee ID, there is exactly
Employees
Primary Key
200
300
400
500
600
251-3621
251-1102
209-6656
512-5555
207-8787
Marketing
Human Resources
Finance
Sales
Facilities
DepartmentID DepartmentName DepartmentPhone
Departments
1011
1012
1013
1014
1015
Jackson
Zuniga
Delany
Degosta
Park
Thomas
Raul
Nora
Dana
John
200
300
300
400
200
12/01/1981
01/05/1983
11/12/1968
10/02/1975
07/25/1985
EmployeeID LastName FirstName BirthDate DepartmentID
Foreign Key
Primary Key
FIGURE 4-15
Primary and foreign keys in the
Employees and Departments tables.
PRODUCTIVITY TIP
When you give names to tables and fields, use a consistent naming convention
to make it easier for you to remember the names and for others to understand
their meaning. One common convention is “CamelCase,” which combines
capital and lowercase letters to clarify compound words, such as LastName or
SalesRegion. The camel’s humps are the capital letters in the string. Another
convention separates words with an underscore.
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chapter 4 Databases anD Data Warehouses 107
normalization
A process that refines entities and their
relationships to help minimize duplication
of information in tables.
autonumbering
Process that assigns incremental numbers
to records as they are created to ensure that
each record has a unique primary key.
primary key
A field, or a group of fields, that makes each
record unique in a table.
one value for each of the attributes included in the record, and that the employee ID deter-
mines that value. For DD-Designs, Devon agrees that there will be just one employee email
address, one birth date, one last name, one first name, and one department. In another
business, such as theater, that might not work. Actors work under several stage names.
Devon also wants to add the departmental phone number, and we first consider add-
ing it as a field to the Employees table. On second thought, however, DepartmentPhone
is not functionally dependent on employee ID, but on the department. If we put it in the
Employees table, it might not be too cumbersome with few employees. With hundreds,
however, we would create considerable redundancy. Instead, we will normalize by crossing
DepartmentPhone out of the Employees table, and adding a field to Employees called
DepartmentID. Then we create a new table called Departments, with DepartmentID as
the primary key. DepartmentPhone is functionally dependent on DepartmentID, along
with attributes such as department name, department office number, and department
office building (Figure 4-16).
functionally dependent
For each value of the table’s primary key,
there should be just one value for each of
the attributes in the record, and the primary
key should determine that value; the attribute
should be functionally dependent on the
value of the primary key.
Employees
200
300
400
500
600
251-3621
251-1102
209-6656
512-5555
207-8787
Marketing
Human Resources
Finance
Sales
Facilities
DepartmentID DepartmentName DepartmentPhone
1011
1012
1013
1014
1015
Jackson
Zuniga
Delany
Degosta
Park
Thomas
Raul
Nora
Devon
John
200
300
300
400
200
12/01/1981
01/05/1983
11/12/1968
10/02/1975
07/25/1985
A
B
Departments
Employees
EmployeeID LastName FirstName BirthDate DepartmentID
1011
1012
1013
1014
1015
Jackson
Zuniga
Delany
Degosta
Park
Thomas
Raul
Nora
Devon
John
12/01/1981
01/05/1983
11/12/1968
10/02/1975
07/25/1985
EmployeeID LastName FirstName BirthDate DepartmentPhone
251-3621
251-3621
251-1102
251-1102
209-6656
FIGURE 4-16
Normalizing the Employees table by
removing Department Phone (A) and
placing this field in the newly created
Departments table (B).
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108 IntroDuctIon to InformatIon systems
ReLatIonshIps anD foReIgn keys The relational model’s elegance really shines when the
entities are connected to one another in meaningful ways, relying on foreign keys. Notice that
the field “DepartmentID” is an attribute in the Employees table, and a primary key in the
Departments table (Figure 4-17). When a primary key appears as an attribute in a different
table, as DepartmentID does, it is called a foreign key. It can be used to link the records in the
two tables together. In DD-Designs so far, we have two tables, Employees and Departments,
linked by DepartmentID, which is the primary key in Departments and the foreign key in
Employees. This relationship allows us to enter information about employees and informa-
tion about departments, and then link the two together with a minimum of redundancy. It
would be easy, for example, to find the list of employees who worked in a particular building,
perhaps to make announcements about a broken water pipe.
hanDLIng compLex ReLatIonshIps Normalization uncovers many-to-many relationships
as well. The relational model can’t handle these directly, but uses a kind of “bridging” table
to make the links. For instance, Devon considers project management to be extremely crucial
for the company’s success, and she wants to track many details about the specific web design
project each employee is currently involved in. We might choose to create a Projects table to
manage those attributes, and then add ProjectID as a foreign key in the Employees table,
similar to what we did for Departments. But we first ask whether Devon’s team members
might be involved in more than one project at a time, which would make it a one-to-many
relationship. She nods enthusiastically, thinking that it is already happening. She plans to
bring on a graphic artist who will probably spend time on all the projects. That comment also
makes it clear that it is not just a one-to-many relationship of one employee to many projects.
It is many-to-many. Each employee can be assigned to more than one project, and each proj-
ect can have more than one employee assigned. And of course, the sales staff may have no
projects, and some projects may not have any assigned employees (yet).
A messy approach would be to create two or more records for the employee, each
of which lists a different project. However, this would create redundancy because the
other attributes are all functionally dependent upon EmployeeID and would simply be
repeated. When an entity is repeated in the table, updates and deletions are tricky. For
example, should Raul’s address change, the new address would need to be edited in all
the duplicated records for his projects to remain consistent.
Another unfortunate solution, which is sadly rather common in sloppily designed
databases, is to include several fields for projects in the record, such as Project1, Project2,
Employees
200
300
400
500
600
251-3621
251-1102
209-6656
512-5555
207-8787
Marketing
Human Resources
Finance
Sales
Facilities
DepartmentID DepartmentName DepartmentPhone
Departments
EmployeeID LastName FirstName BirthDate DepartmentID
1011
1012
1013
1014
1015
Jackson
Zuniga
Delany
Degosta
Park
Thomas
Raul
Nora
Devon
John
200
300
300
400
200
12/01/1981
01/05/1983
11/12/1968
10/02/1975
07/25/1985
DepartmentID is a
foreign key in
Employees, and
the primary key in
Departments
FIGURE 4-17
DepartmentID is the primary key for
Departments, but appears as a foreign
key in the Employees table so the two
tables can be linked together.
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chapter 4 Databases anD Data Warehouses 109
foreign keys
Primary keys that appear as an attribute in a
different table are a foreign key in that table.
They can be used to link the records in two
tables together.
Project3, and so on. This introduces other problems, especially in data retrieval. If we
are trying to find all the people assigned to the Moon Landing Project, where would
we look? It might appear as Project1 for some, but in the Project2 or Project3 field for
someone else. We would need rather complex queries to go through each of the fields,
and we’d waste a lot of storage space with many empty fields.
A more efficient approach is to create a bridging table between Employees and
Projects (Figure 4-18). Projects will use ProjectID as its primary key and will include attri-
butes that Devon wants to track—ProjectName, ProjectStartDate, and ClientID. Then,
to support the many-to-many relationship between employees and projects, we create a
third table, EmployeesProjects, to contain the two attributes that link together employees
with their projects: EmployeeID and ProjectID. This new table is very flexible. Thomas
Jackson (EmployeeID 1011) is working on three projects, but Devon works on none. Also,
a single project such as Recipes (ProjectID 11) can involve more than one employee. Gas-
oline (ProjectID 14) has no employees assigned. Adding the EmployeeProjectStartDate
to EmployeesProject lets Devon track when each employee actually joined a particular
project. DD-Designs will be prepared for rapid growth.
Accessing the Database and Retrieving Information
Most people access the database through an application interface with user-friendly web-
based forms they can use to securely enter, edit, delete, and retrieve data. The web-based
forms make it easy to let customers and suppliers access the database along with staff,
with appropriate security controls. The customer account records and product catalog
on eBay, for instance, are drawn from the relational database, and buyers and sellers have
access to certain tables and fields to update their accounts, add purchases, or upload
their own product photos.
The application software can be created in many different development environments
and programming languages, and DBMS software vendors include their own tools for
creating applications. In MS Access, for example, form-generating and report-writing
tools help you enter and retrieve the data. Oracle and others provide application develop-
ment tools as well.
1011
1011
1012
1013
1011
EmployeeID
Employees
10
11
12
13
14
251
108
212
78
85
11/01/2012
01/12/2012
02/16/2012
07/05/2012
07/25/2012
MoonLanding
Recipes
Library
Dentist
Gasoline
ProjectID ProjectName ProjectStartDateClientID
10
11
12
11
13
11/01/2012
02/01/2012
02/16/2012
01/12/2012
07/30/2012
ProjectID EmployeeProjectStartDate
Projects
1011
1012
1013
1014
1015
Jackson
Zuniga
Delany
Degosta
Park
Thomas
Raul
Nora
Devon
John
200
300
300
400
200
12/01/1981
01/05/1983
11/12/1968
10/02/1975
07/25/1985
EmployeeID LastName FirstName BirthDate DepartmentID
EmployeesProjects
FIGURE 4-18
Managing many-to-many
relationships.
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As the front end or gateway, the application software performs a number of duties in
addition to allowing users to enter, edit, or retrieve information. It may have modules for
access control, determining which users can access which parts of the database, and what
rights they have with respect to viewing or manipulating data. This interface may also
help ensure the integrity of the database by enforcing rules about completeness, validity,
or format. For example, it might require users to enter a valid zip code for the address
and state.
Although the application software can be developed in any number of programming
languages, the main way that they interact with a relational database is through a query
language, and SQL is the most popular.
sqL: stRuctuReD queRy Language Pronounced either as letters, or as “sequel,” Structured
Query Language (SQL) is a standard query language, widely used to manipulate information
in relational databases. Without much training, end users can create simple queries, such as
this one:
SELECT LastName, FirstName, EmployeeID
FROM Employees
WHERE LastName = “Park”
More complex queries can insert and edit data, or delete records. To link tables
together, SQL relies on their primary and foreign keys. For example, to retrieve Devon’s
phone number, which is a field in the Departments table, you would join the Employees
and Departments tables on DepartmentID—the primary key in Departments and foreign
key in Employees.
otheR access anD RetRIevaL tooLs Although the web is a common platform for appli-
cation software, other platforms are widely used as well. For example, interactive voice
response (IVR) takes advantage of signals transmitted via the phone to access the
database, retrieve account information, and enter data. Callers can make selections
from nested menus by entering numbers. Many systems also recognize a limited
number of spoken words. Though they
can be frustrating for customers, these
systems are often the only way to han-
dle massive call volumes.
Avis installed an IVR system that
“learns”; this helps reduce customer
frustration. The system greets the
caller by name (based on phone num-
ber), and rather than rattling off a long
When a database includes ethnicity, should the designers create a one-
to-one relationship with each person? Or should it be one-to-many? For
decades, most databases constructed this as a one-to-one relationship with
the individual, much like birth date or gender. In the Medicare system, for
example, this variable can take one of six different values:
▶ White
▶ Black
▶ Asian
▶ North American Native
▶ Hispanic
▶ Other
Only one category can represent each individual in the Medicare files,
but ethnicity is clearly not so easily categorized for many people with mixed
heritage. Studies of Medicare coding, for example, show that people of
Hispanic, Asian, and American Indian ancestry are often miscoded. When
Medicare data are used to study ethnic differences in health outcomes, the
results can be misleading and biased. The confusion can also affect conclu-
sions about ethnic discrimination in the workplace, scholarship awards, or
any other programs that consider ethnic subgroups.
Converting ethnicity to a one-to-many relationship may be feasible in
some settings, but how might that affect decisions about program eligibility
or conclusions about health care needs? Understanding the human conse-
quences of database design choices takes considerable skill.4
THE ETHICAL FACTOR Ethical Issues in Database Design:
The Case of Ethnic Identification
Did You Know?
Are you missing a tax refund because you forgot to leave a forwarding address?
The IRS maintains a database you can search (www.ntu.org) in case the envelope
wasn’t delivered. Another database to check is www.unclaimed.org, maintained
by the nonprofit National Association of Unclaimed Property Administrators. This
service works with the states to help find the rightful owners of unclaimed payroll
checks, stock certificates, cash, and other valuables.
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chapter 4 Databases anD Data Warehouses 111
interactive voice response (IVR)
A technology that facilitates access to
the database from signals transmitted
by telephone to retrieve information and
enter data.
Structured Query Language (SQL)
A standard query language, widely used
to manipulate information in relational
databases.
menu, it selects the most relevant options. For example, a customer whose car is expected
back tomorrow might be asked, “Would you like to extend your rental time for the Ford
SUV?” Avis’s CIO insists that IVR is not just a cost-cutting measure. Done well, it can
improve the customer’s experience.5
Mobile phones also offer
interfaces to databases, through
IVR, text messages, special
apps, or the smartphone’s web
browser. The ability to access
a database anywhere, anytime,
is a compelling advantage for
everything from handling cus-
tomer orders to voting for your
American Idol favorite.
natuRaL Language InteRfaces To many, the holy grail of query languages is the capabil-
ity to understand and correctly reply to natural language queries, either spoken or typed.
Although vendors have attempted to make end-user queries easier to do, the ability to cor-
rectly interpret a person’s question is still limited, though many promising applications are
underway.6 Apple’s Siri, for instance, can interpret a range of spoken questions and search its
databases. “What is the best pizza parlor near here?” is something Siri could answer, partly
because it knows your location through GPS, and it can query Yelp’s database of restaurant
reviews (www.yelp.com). But it can’t easily answer highly unstructured questions, or questions
that rely on databases Siri cannot access.
For business queries, the natural
language query systems work well when
the questions use a limited vocabulary.
For example, “Which employees make
more than $100,000 per year?” could
be translated into SQL with reasonable
accuracy. However, problems arise when
the vocabulary is vague, the attribute
names can be confused, or the ques-
tion itself is not clear. Even the question
about the high-earning employees could
be interpreted more than one way. For example, did the user intend to include benefits
and stock options? Should “employees” include part-time people? Natural language query
systems are improving very rapidly, however, as Siri and IBM’s Watson demonstrate.
Managing and Maintaining the Database
The job of database administrator (DBA) is one of the fastest growing careers in the
United States (Figure 4-19). The analysts, architects, and developers who work with the
DBA to link business needs and IT solutions also have very attractive job prospects.
Figure 4-20 shows some examples.
PRODUCTIVITY TIP
Poll Everywhere (www.polleverywhere.com) helps users create their own polls
online, and the audience can vote using a text message, Twitter, or a web
browser. The responses are inserted into a database and the website displays
graphed results in real-time. If the audience is made up of 40 members or
fewer, the poll is free. You can use this service to make your class presentations
more interactive.
Did You Know?
IBM’s “Watson,” named after the company’s founder, is the supercomputer that
trounced the top two human players in the TV game show Jeopardy. Its ability
to understand complex human language queries is astounding. To help Watson
interpret more informal speech, researchers fed it slang repositories such as the
Urban Dictionary, but they forgot to teach good manners. When Watson starting
swearing, they had to wipe those memories clean.7
Applicants Wanted: Database Administrator
The DBA is responsible for the effi cient operation of the company’s databases: monitoring and
optimizing performance, troubleshooting bottlenecks, setting up new databases, enhancing security,
planning capacity requirements, designing backup and disaster recovery plans, and working with
department heads and the IT team to resolve problems and build innovative applications. Starting
salary: $65K and up.
FIGURE 4-19
Job opening: Database administrator
(DBA).
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112 IntroDuctIon to InformatIon systems
The DBA must be very familiar with the DBMS software the organization uses. This
software will offer many different administrative tools to help keep the databases running
smoothly.
peRfoRmance tunIng anD scaLabILIty The database needs tuning for optimal perfor-
mance, and the tuning process takes into account the way the end users access the data. For
example, fields that they use to search for records should be indexed for maximum perfor-
mance. Although a customer has an ID number, chances are he or she can’t recall it, so the
database should index other fields that will help the representative find the record quickly,
such as home phone number or email address.
Although the DBA might be tempted to index everything, that would slow the sys-
tem down when records are added, so a balance is needed. Designers always strive for
balance. DBAs make trade-offs to add speed to certain activities while slowing down
others, yet always stay attentive to the needs of the employees, customers, and other
stakeholders. Optimizing performance for speedy retrieval of information, for example,
may require slowing down other tasks, such as data entry or editing. Although managers
who query the database frequently would want to optimize for retrieval speed, those who
are entering data would have a different preference.
Scalability refers to a system’s ability to handle rapidly increasing demand; this is another
performance issue. YouTube faced this in its first few months when an initial trickle of visi-
tors became a tsunami. Bigger servers would have helped, but the YouTube team did some-
thing that would scale even further. They split the database into “shards,” or slices that
could be stored separately and accessed on different computers to improve performance.
Shards also broke with tradition by storing denormalized data, in which information that
users typically retrieve as a whole is stored in the same place, rather than separate, normal-
ized tables. When growth is that fast, the DBA must solve one bottleneck after another.
IntegRIty, secuRIty, anD RecoveRy The DBA manages the rules that help ensure the integ-
rity of the data. For example, a business rule may require that some fields may never be
empty, or the input must adhere to a particular format. The software can enforce many dif-
ferent rules, such as the referential integrity constraint, which ensures that every foreign key
entry actually exists as a primary key entry in its main table. For example, when Devon adds
a new employee to the employee table and attempts to enter a department ID that doesn’t
exist in the Departments table yet, the DBMS integrity constraint prevents her from adding
the record. She must create a record for the new department before assigning people to it.
The constraint would also stop Devon from deleting a department if employees are assigned
to it, even if they left the company.
A DBMS will also provide tools to handle access control and security, such as pass-
word protection, user authentication, and access control. Although application software
often shares the responsibilities for ensuring integrity and security, or even handles most
of those jobs, the database management software may perform some of them.
Occupation
Projected 10-Year
Job Growth Median Salary Suggested Education & Training Requirements
Database administrators 31% $87,200 BS in MIS, computer science, or information sciences; training in
DBMS software
Software architect 25% $119,000 BS or MS in MIS, computer science, or related fi eld
Software developer 25% $84,200 BS in MIS, computer science, or related fi eld
Information technology
consultant
22% $96,400 BS or MS in MIS, computer science, or related fi eld; expertise in an
IT specialty, such as hardware, software, web design, etc.
IT business analyst 22% $76,200 BS in business with MIS focus; experience working with IT to create
business software
FIGURE 4-20
Careers in database administration and related areas.
Sources: CNNMoney/PayScale.com’s list of great careers: Best jobs in America (October 29, 2012), http://money.cnn.com/pf/best-jobs/,
accessed January 19, 2013.
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chapter 4 Databases anD Data Warehouses 113
database schema
A graphic that documents the data model
and shows the tables, attributes, keys, and
logical relationships for a database.
referential integrity
A rule enforced by the database
management system that ensures that every
foreign key entry actually exists as a primary
key entry in its main table.
scalability
A system’s ability to handle rapidly increasing
demand.
When the database locks up or fails, the DBMS offers tools to get it back up and run-
ning quickly or to reload all the data from backup media. Some systems use mirroring,
so that users are directed to a copy of the database when the main one fails.
DocumentatIon Even a small start-up like DD-Designs will need a database with dozens
of tables and many complex relationships. The data model can be documented using a data-
base schema, which graphically shows the tables, attributes, keys, and logical relationships
(Figure 4-21). The data dictionary should contain the details of each field, including descrip-
tions written in language users can easily understand in the context of the business. These
details are sometimes omitted when developers rush to implement a project, but the effort pays
off later. End users will start to develop their own queries and will become frustrated when the
exact meaning of fields is not clear. What does a field named “CustomerTerminationFlag”
mean? The DBA may recall the thinking that went into it, but end users will be puzzled.
mulTIPlE dATAbAsEs And THE
CHAllEngE of InTEgRATIon
The database was intended to end the frustrations of those early departmental information
silos, and it succeeded. However, as organizations grow, some of the same disadvantages
creep back into the mix because the number of databases multiplies. This happens when
companies with different ways of doing things and different information systems merge, and
records can’t easily be combined. When Delta acquired Northwest Airlines, for example,
Delta’s CIO said she needed to merge 1,199 computer systems down to about 600. Passen-
gers were annoyed by the frequent snags, and during the transition Delta ranked worst for
customer complaints about lost bags, late arrivals, poor flight service, and other frustrations.8
Sometimes multiple databases spring up in an organization simply because a fast-
moving business needs support for an innovative idea immediately. The managers may
choose to buy a separate system for it rather than take the time to build the support into
the enterprise database and integrate it fully. Cloud-based services are adding to this
trend because they can be implemented so quickly.
data dictionary
Documentation that contains the details
of each field in every table, including user-
friendly descriptions of the field’s meaning.
Employees Projects
ProjectID
ProjectName
ClientID
ProjectStartDate
EmployeeIDPK PK
FK
FK
LastName
FirstName
BirthDate
DepartmentID
EmployeesProjects
EmployeeID
ProjectID
EmployeeProjectStartDate
PK
PK
FIGURE 4-21
Sample database schema.
4 Explain why multiple databases emerge, and how master data
management helps address the
challenge of integration.
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114 IntroDuctIon to InformatIon systems
Shadow Systems
Although the integrated enterprise database is a critical resource, changes to support new
features can be painfully slow. People want to get their jobs done as efficiently as pos-
sible, and sometimes the quick solution is to create a shadow system. These are smaller
databases developed by individuals or departments that focus on their creator’s specific
information requirements. They are not managed by central IT staff, who may not even
know they exist. Shadow systems are easy to create with tools like Access and Excel,
but the information they hold may not be consistent with what is in the corporate data-
base. Another hazard is that the department may be left hanging when the creator leaves
because no one else knows quite what the shadow system does.
These problems lead to serious headaches for managers who need enterprise-wide
summaries to make decisions. They receive many “versions of the truth” from different
sources since the information housed in each is not consistent. Companies should try to
reduce shadow systems and integrate systems as much as possible, so important reports
needed for planning or compliance don’t mix apples and oranges.
Integration Strategies and Master Data Management
To deal with integration, some organizations build interfaces, or bridges, between differ-
ent databases; these are used to link common fields. Using this approach, a field that is
updated in one database, such as an email address, is then copied over to the same fields
in other databases that maintain that information. In the “downstream” databases, the
email address would be in read-only format, so that end users could not update it there.
A broader strategy to address underlying inconsistencies in the way people use data is
master data management. This effort attempts to achieve uniform definitions for entities and
their attributes across all business units, and it is especially important for mergers. The units
must agree on how everyone will define terms such as employee, sale, or student. For exam-
ple, should “employees” include temporary contractors or student workers?
The most successful efforts at master data management focus mainly on a key area,
such as customers, or on a limited number of entities that are most important. Teams
from across the company meet to identify the differences and find ways to resolve them.
Data stewards may then be assigned as watchdogs and bridge builders to remind every-
one about how data should be defined.
Master data management has less to do with technology than with people, processes,
and governance. Nationwide Insurance launched a master data management initiative
to resolve its fragmented environment with 14 different general ledger platforms. The
results were slow in coming, but eventually were dramatic. It once took the company
30 days to close the books, with much hair pulling to reconcile reports. Within a year,
Nationwide cut that time in half.
Another integration strategy, one that is even more effective when master data man-
agement efforts reconcile data inconsistencies and improve data quality from multiple
sources, is the data warehouse.
dATA WAREHousEs And bIg dATA
The data warehouse is a central data repository containing information drawn from mul-
tiple sources that can be used for analysis, intelligence gathering, and strategic planning.
Figure 4-22 shows examples of the many sources that might contribute to the warehouse.
A critical internal source of data for the warehouse is operational data from the com-
pany’s own systems. That would include customer records, transactions, inventory, assets
and liabilities, human resources information, and much more, going back many years.
For example, a medical center in New Jersey built a data warehouse based on its sur-
gery patients’ electronic health records from 2004 on, including demographic data, lab
test results, medications, and survey data from the patients themselves. The goal was to
explore longer term trends that would not be obvious without looking at large numbers
of patients over a period of years.9
Describe how a data warehouse is
created, and explain the challenges
and value of big data.
5
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chapter 4 Databases anD Data Warehouses 115
data steward
A combination of watchdog and bridge
builder, a person who ensures that people
adhere to the definitions for the master data
in their organizational units.
master data management
An approach that addresses the underlying
inconsistencies in the way employees use
data by attempting to achieve consistent
and uniform definitions for entities and their
attributes across all business units.
shadow system
Smaller databases developed by individuals
outside of the IT department that focus
on their creator’s specific information
requirements.
External sources of information can add to the value of the warehouse. For instance,
a company that sells high end jewelry might want to download a table from the U.S. Cen-
sus Bureau that lists every U.S. zip code along with the median household income for its
residents, and add that to the warehouse. The customer address table will have zip codes
in it for U.S. residents, so that attribute would become a foreign key that can be linked
to the primary key in the downloaded table. Figure 4-23 shows how the link between the
two tables could be made. By adding this external source of information, managers can
learn a great deal about the preferences and behavior of jewelry customers who live in zip
codes with different income levels:
▶ Do customers from high income neighborhoods tend to shop in the evening?
▶ Do they respond more to radio promotions or TV ads?
▶ Over the past five years, has the customer income profile been trending up or down?
The ability to draw on high-quality information from an organization’s information
systems and external sources to spot trends, identify historical patterns, generate reports
for compliance purposes, conduct research, and plan strategy is a huge advantage.
Although the databases that support the day-to-day business contain much information
that goes into a warehouse, the data are typically not in a format that works well for
broad analyses. And as we saw earlier, organizations often have more than one database.
A second reason the operational database is not a good candidate for high-level man-
agement reporting is that the DBA has to optimize its performance for operations. Fast
customer response and data entry come first, not complex queries that answer the bigger,
strategic questions. Those queries might span years of data. They will be CPU hogs that
slow everyone else down, so it makes sense to run them on a separate data warehouse,
not the operational database.
Website traffic
data
Inventory
Manufacturing
Data
Archived Historical
Data
Metadata drawn from
documents, multimedia,
and other sources
I
Customer
Data
Examples of
Internal
Data Sources
Examples of
External
Data Sources
Data access
Data mining
Queries
Special reports
Research
CCusttomer
Operational
Data
Competitor
Information
Compettiitor
GPS/Mapping
Coordinates
GGPPPSSS///MMMaappppiiinngg
Census Data
Extract,
Transform, and
Load (ETL)
Data
Warehouse
FIGURE 4-22
The data warehouse.
data warehouse
A central data repository containing
information drawn from multiple sources
that can be used for analysis, intelligence
gathering, and strategic planning.
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116 IntroDuctIon to InformatIon systems
Building the Data Warehouse
How do we create a data warehouse? A common strategy for drawing information from
multiple sources is extract, transform, and load (ETL) (Figure 4-22). The first step is to extract
data from its home database, and then transform and cleanse it so that it adheres to com-
mon data definitions. As we discussed, this is not a minor challenge, and computer pro-
grams rarely can handle it alone. Data drawn from multiple sources across organizations,
or even within the same organization, might be defined or formatted differently. If the
organization has already made progress with master data management, this transforma-
tion process is smoother. Indeed, attempts to build a data warehouse often expose a lot of
“dirty data”—inconsistent name spellings, for instance. That leads to more interest in mas-
ter data management, which is what happened at Rensselaer Polytechnic Institute (RPI).
RPI’s president, Shirley Ann Jackson, knew the institute needed better data for strate-
gic planning, and her executive team was frustrated by conflicting reports. The institute’s
data warehouse effort uncovered many problems that needed cross-functional teams to
resolve before data could be loaded into the warehouse. Once they agreed on definitions,
data stewards were appointed to watch over how the fields were used.10
The transformation process applies to external resources that will enrich the value of
the data warehouse for intelligence gathering and marketing. For instance, the U.S. Cen-
sus Bureau records need to be prepared before they can be loaded into the warehouse, to
make sure the zip code fields are the same data type when they are linked. Some refor-
matting might be necessary whenever the company adds external data to its warehouse.
After transformation, the data is loaded into the data warehouse, typically another data-
base. At frequent intervals, the load process repeats to keep it up to date. The DBA optimizes
the warehouse for complex reporting and queries, without having to worry about slowing
down customers and staff. Many data warehouses take advantage of standard relational
database architectures, and most DBMS products can be optimized for use as a warehouse.
Some include tools to help with the extractions, transformations, and loading, as well.
Organizations also use alternative data warehouse architectures, such as those described
in Figure 4-24, especially when dealing with truly immense data sets, known as big data.
The Challenge of Big Data
Building a data warehouse from operational databases and adding some external sources
are manageable for most organizations, and extremely useful. But what about all the
other sources of data, especially from the Internet? Think for a moment about the com-
pany’s website. Even a medium sized company might have thousands of hits per day, and
each visitor might click dozens of times. Consider also how much semi-structured and
unstructured information flows through Twitter, YouTube, Facebook, and Instagram,
some of which could give the company a competitive advantage if analyzed quickly.
89704
89705
89706
63889
56129
36891
ZipCode MedianHouseholdIncome
USZipCodes (Source: US Census Bureau)
CustomerAddresses
546 321 Smith
Avenue
Carson City NV 89705
CustomerID StreetAddress City State ZipCode Foreign Key
Primary Key
FIGURE 4-23
External sources of data can be added
to the warehouse to increase its value.
Here, a table from the U.S. Census
Bureau containing the median house-
hold incomes for each zip code can be
linked to the customers by means of
the zip code field.
Source: U.S. Census Bureau.
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chapter 4 Databases anD Data Warehouses 117
extract, transform, and load (ETL)
A common strategy for drawing information
from multiple sources by extracting data
from its home database, transforming and
cleansing it to adhere to common data
definitions, and then loading it into the data
warehouse.
A barrage of tweets like the one in Figure 4-25 would certainly get the attention of man-
agers at clothing stores like H&M, if their systems could spot the trend fast enough.
The amount of data available is also exploding because so much is gathered automati-
cally—by sensors, cameras, RFID readers, and mobile devices. In consumer electronics, for
instance, devices designed to monitor your personal health readings can transmit informa-
tion to a smartphone app so you can see real-time displays. This “Internet of Things,” in
which so many devices are collecting and transmitting data to one another, means that data
is accumulating at a breathtaking rate—far faster than even Moore’s Law would predict.11
What Is bIg Data? Big data refers to collections of data that are so enormous in size, so
varied in content, and so fast to accumulate that they are difficult to store and analyze using
traditional approaches. The three “Vs” are the defining features for big data (Figure 4-26):
▶ Volume. Data collections can take up petabytes of storage, and are continually growing.
▶ Velocity. Many data sources change and grow at very fast speeds. The nightly ETL
process often used for data warehouses is not adequate for many real-time demands.
▶ Variety. Relational databases are very efficient for structured information stored in
tables, but businesses can benefit from analyzing semi-structured and unstructured
data as well.
bIg Data technoLogIes Relational databases may be part of any effort to analyze big data,
but a number of new technologies are under development to better handle the three “Vs.” For
example, database platforms that don’t rely on relational structures are emerging, called NoSQL
databases, for “Not Only SQL.” These don’t require fixed schemas with clear data definitions
for each attribute. They also don’t generally enforce strict rules the way a relational database
does. Also, some companies offer in-memory databases, where the database itself is stored in
main memory rather than on a separate hard drive. This emerging technology vastly increases
access speeds and is gaining popularity for applications that need very fast response times.
Data Warehouse Architectures
Relational database Companies often use the same relational DBMS for their data warehouse
as they use for their operational database, but loaded onto a separate
server and tuned for fast retrieval and reporting.
Data cubes This architecture creates multidimensional cubes that accommodate
complex, grouped data arranged in hierarchies. Retrieval is very fast
because data are already grouped in logical dimensions, such as sales
by product, city, region, and country.
Virtual federated warehouse This approach relies on a cooperating collection of existing databases;
software extracts and transforms the data in real time rather than taking
snapshots at periodic intervals.
Data warehouse appliance The appliance is a prepackaged data warehouse solution offered by vendors
that includes the hardware and software, maintenance, and support.
NoSQL Database management systems suited for storing and analyzing big data.
NoSQL stands for “not only SQL.”
In-memory database Relies on main memory to store the database, rather than secondary
storage devices, which vastly increases access speeds.
FIGURE 4-24
Data warehouse architectures.
More
StarlaInBostin
HM is out of hats and gloves.. Idiots you’d think they’d get
more in considering the weather
58
Retweets
Collapse Reply Retweet Favorite •••
FIGURE 4-25
Twitter posts can be part of the big
data a company can analyze.
big data
Collections of data that are so enormous
in size, so varied in content, and so fast to
accumulate that they are difficult to store
and analyze using traditional approaches.
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118 IntroDuctIon to InformatIon systems
Another useful technology for big data is Hadoop, which is open source software that
supports distributed processing of big data sets across many computers. The software
manages file storage and local processing, and can be scaled up to thousands of comput-
ers in the cloud. Internet radio service Pandora uses Hadoop to analyze some 20 billion
thumbs up and down ratings that 150 million users click when each song plays. The com-
pany can accurately predict customer preferences and create tailored playlists.12 A case
study in Chapter 6 describes Pandora’s technology in more detail.
Gaming site King.com also uses Hadoop to help explore the company’s big data,
which includes the activities of more than 60 million registered users who play billions
of games every month. The games are free, but the company earns revenue by selling
in-game products to players, such as extra lives. While their MySQL relational database
worked well for a time, the increased volume was just too much to handle. With Hadoop
and related big data technologies, the company can look into trends and patterns that
uncover behavior patterns that would be easy to miss in smaller samples, but that can
help improve the games. Are players getting stuck too much at certain levels? Do they
abandon games with certain features? The director of data warehousing says, “We need
to know everything we can. Without that . . . we would be blind.”13
The U.S. National Security Agency draws on big data technologies to track terrorist
activity using Internet and phone records. The debate about the agency’s work heated up
in 2013, as the public came to understand how very powerful big data can be.14 The Ethical
Factor in Chapter 3 explores the ethical implications surrounding big data, especially for
privacy rights.
Strategic Planning, Business Intelligence, and Data Mining
Data warehouses and big data efforts should make important contributions to strategic
planning. Along with the tools and approaches described in Chapter 7, access to all of this
data opens up a wealth of opportunities for managers seeking insights about their markets,
customers, industry, and more. They become the main source of business intelligence that
managers tap to understand their customers and markets, as well as to make strategic plans.
For example, data mining is a type of intelligence gathering that uses statistical tech-
niques to explore large data sets, hunting for hidden patterns and relationships that are
undetectable in routine reports. In the stock market, the sheer volume and speed of trans-
actions could mask unusual patterns in individual stocks, but data mining can be used to
Variety
V
o
lu
m
e
Ve
lo
cit
y
Twitter
Mobile Web
GPS
Social networks
Photo sharing
Video
Web logs
Search engines
User generated content
Megabytes
Gigabytes
Terabytes
Petabytes
RFID
Sensors
External data (structured)
Website traffic data
Operational data
FIGURE 4-26
The features of big data.
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chapter 4 Databases anD Data Warehouses 119
data mining
A type of intelligence gathering that uses
statistical techniques to explore records in a
data warehouse, hunting for hidden patterns
and relationships that are undetectable in
routine reports.
uncover efforts to manipulate the prices.15 The findings are especially valuable when they
can accurately predict future events.
The job of “data scientist” is popping up at companies everywhere, and people who can
fill that job are in very high demand. Companies need people who have the skills to identify
the most promising data sources, build data collections, and then make meaningful discov-
eries. They need to know the difference between data mining, which leads to important find-
ings, and “data drudging,” which sniffs out relationships that might just occur by accident
and that have little value. They also must be able to make a compelling case when they do
find trends that could add competitive advantage. A successful data scientist is a combina-
tion of hacker, analyst, communicator, trusted advisor, and, most of all, a curious person.16
THE CHAllEngEs of InfoRmATIon
mAnAgEmEnT: THE HumAn ElEmEnT
As with all technology-related activities, managing information resources is not just
about managing technology, databases, and big data. It is also about people and pro-
cesses. Understanding how people view, guard, and share the information resources they
need is a critical ingredient for any successful strategy.
Ownership Issues
In the workplace, information resources are found almost everywhere, from file cabinets
and desk drawers to the electronic files on portable media and computer hard drives.
Although a company may set the policy that all information resources are company-owned,
in practice, people often view these resources more protectively, even when compliance and
security don’t demand tight access controls. Norms about how records are used emerge
over time, and though many are unwritten, they can certainly affect employees’ behavior.
Salespeople may want to protect access to their own sales leads, or whole departments
might want to control who has access to records that they maintain. They may prefer
that employees outside the department have the right to view one of “their” records, but
not change it.
Customers themselves raise ownership issues, too. For instance, a customer with no
last name (Madonna, for example) might request that the DBA change the last name
field to “optional” rather than “required.” Ownership issues have to be negotiated among
many stakeholders.
Another challenge is simply how long it can take to make changes to an integrated
enterprise database when so many people might be affected and will want input. This
process takes time, not just for IT staff to analyze the impact, but for all the stakeholders
to discuss it as well. Changes to the old file processing systems were time-consuming for
the IT staff because of the way the code was written. Changes to the integrated database
take less time from IT, but more from the end users.
Databases Without Boundaries
Another example of how the human element interacts with information management
involves databases without boundaries, in which people outside the enterprise enter and
manage most of the records. These contributors feel strong ownership over their records.
Instagram, for example, heard howls of protest when the company changed its terms of
service so that it could sell the photos people upload without their permission, and with-
out any compensation. The Facebook-owned photo sharing site quickly backtracked
and changed the policy back, especially after competitors began touting how they would
never sell private photos.17
6 Explain how the human element and ownership issues affect information
management.
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120 IntroDuctIon to InformatIon systems
Craigslist.com illustrates other ways in which the human element affects information
management. Founder Craig Newmark initially sought to help people in San Francisco
find apartments and jobs. The site soon became the world’s largest database of classified
ads, and this major revenue source for print newspapers dried up. Newmark’s concerns
are less about the database technology than about the health of the community and the
relentless threats from spammers and fraudsters who can destroy trust in the site.
Databases without boundaries are also part of emergency disaster relief. Online data-
bases can help victims find missing family members, organize volunteers, or link people who
can provide shelter to those who need it. For example, Google launched a “person finder”
database after bombs exploded at the Boston Marathon, to help people find one another.18
A valuable lesson from the efforts to build databases without boundaries is simply the
need to plan for high volume and rapid growth. The growing capabilities of relational
databases, along with big data technologies and cloud computing, are essential to sup-
port these worldwide repositories.
Balancing Stakeholders’ Information Needs
How should managers balance the information needs of so many stakeholders? Top-level
management needs strategic information and insights from big data, along with accurate,
enterprise-wide reports. Operating units must have reports on transactions that match
their operations, and they need information systems that are easily changed to support
fast-moving business requirements. Customers want simpler user interfaces that work
quickly and reliably, and don’t want to be told that “we just merged and our computer sys-
tems don’t work together yet.” Government agencies want companies to submit compli-
ance reports using government’s definitions, because they have their own summaries to do.
Meeting all these needs is a balancing act that requires leadership, compromise,
negotiation, and well-designed databases. As a shared information resource, the database
fulfills its role exceptionally well to provide a solid backbone for the whole organization
and all its stakeholders.
Star and Khaled started their volunteer matching service a year ago, making lists of local organizations
that needed assistance and then posting calls for help
on bulletin boards around campus and in local stores.
Animal shelters, art museums, soup kitchens, a wildlife
rescue station, a children’s hospital, and many other
worthy organizations benefit from the enthusiastic people
who sign up, and students often earn community service
points for participating.
The Volunteer Now! loose-leaf notebook is overflow-
ing and mistakes keep happening. Last week a volunteer
called from his cell phone to complain that the address
he was given for the soup kitchen was a deserted ware-
house, and Star had to pick him up rather than let him
wander around on foot. They need a reliable informa-
tion system with a back-end database to organize the
records.
As a frequent volunteer who has some knowledge of
databases, you’ve been asked to offer your input. Log in
to meet this well-meaning and energetic team, so you can
help them get organized. . . .
MyMISLab Online Simulation
Volunteer Now!
A Role-Playing Simulation on Designing the Database
for a Volunteer Matching Service
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C H A P T E R
4 chapter summary
121
Learning Objectives
An organization’s information is a critical resource, and strategies to manage it are essential.
Information resources can be described as structured, unstructured, or semi-structured,
depending on their characteristics. Structured information is most easily captured by database
management systems, since it can be broken down into component parts and organized in
logical ways. Metadata, or data about data, describes the nature of information and provides
details about its structure and properties. The quality of information is affected by several
characteristics, such as accuracy, precision, completeness, consistency, and timeliness.
Managing information with the help of computers relies on the use of tables, records, and fields,
and each field should have a data definition. Early attempts to manage digital information
resources used file processing systems, in which each department maintained its own records.
Although they were very valuable, file processing systems had several disadvantages, including
data duplication, lack of integration among departmental systems, inconsistent data definitions
across departments, and data dependence. The database approach, which uses a database
management system, addresses these disadvantages and creates a shared resource with minimal
redundancy. Several different database architectures have been developed, and the relational
database is now the most widely used. Information is organized into tables in which each row
represents a record. Relationships between tables are created by linking a field in one table to a
field in another table with matching data.
The development of a relational database begins with the planning phase, to identify the entities,
their attributes, and their relationships. The process involves normalization, in which tables are
created in such a way as to eliminate redundancy as much as possible and ensure that tables can
be related to one another in a way that reflects their actual relationships. Primary keys ensure that
each record in a table is unique, and foreign keys help establish relationships among tables. Most
databases are accessed through application software, which serves as a user-friendly gateway to the
underlying tables. The database management system (DBMS) provides tools for monitoring and
maintaining the database in areas such as documentation, performance tuning, disaster recovery,
and security. Information is retrieved from the database using query languages, such as SQL.
As organizations grow and expand, or when two companies merge, they often wind up with
many databases rather than a single integrated one. Employees also launch their own shadow
systems to manage just the information they need, without the help or oversight of central IT
staff. Integration strategies, such as master data management, are needed to coordinate how
data are entered and provide enterprise-wide summaries for strategic planning. A data steward
helps maintain data consistency across the organization.
The data warehouse draws information from multiple sources to create one information
storehouse that can be used for reporting, analysis, and research. Sources can be both internal
and external. Extract, transform, and load are the three steps used to create the warehouse,
which is refreshed with updated information daily or more often. Big data refers to immense
data collections that feature the three “Vs” (high volume, velocity, and variety). Relational
databases and data warehouses may be used to analyze these collections and conduct data
mining, along with newer technologies such as NoSQL databases and software that supports
distributed processing across thousands of computers.
Enterprise information management is not just about technology. It involves a variety of
challenges that touch on the human element. Data ownership issues arise, for example, because
data have to be shared by all the stakeholders in the organization. Ownership issues also play
a major role for databases without boundaries, such as Craigslist, in which most records
are entered by people outside the enterprise. Leadership, cooperation, negotiation, and a
well-designed database are all needed to balance all the stakeholders’ requirements.
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Key terms and concepts
structured information
unstructured information
semi-structured information
metadata
table
record
field
data definition
batch processing
database
database management
software (DBMS)
relational database
data model
primary key
autonumbering
normalization
functionally dependent
foreign keys
Structured Query Language
(SQL)
interactive voice response
(IVR)
scalability
referential integrity
database schema
data dictionary
shadow system
master data management
data steward
data warehouse
extract, transform, and load
(ETL)
big data
data mining
4-1. What are three categories that describe the nature
of information resources? Give an example of each.
How do you characterize the relationships within
each category of information?
4-2. What is metadata? What does metadata describe for
structured information? For unstructured informa-
tion? Give an example of each type of metadata.
4-3. What are the characteristics of information that
affect quality? What are examples of each?
4-4. What were the early design approaches to managing
information resources?
4-5. What are the major disadvantages of file processing
systems? What are four specific problems associated
with file processing systems?
4-6. Following the file processing model of data manage-
ment, what three architectures emerged for integrated
databases? What are the advantages of each? Are
there disadvantages?
4-7. What are the steps in planning a relational data
model? Are there benefits to the planning stage?
4-8. What are primary keys and foreign keys? How are
they used to create links between tables in a relational
database?
4-9. What is the typical strategy to access a database?
How do users access an Access database? Are there
other strategies to access database systems?
4-10. What is the role of the database administrator in
managing the database? What is the career outlook
for this job?
4-11. What is SQL? How is it used to query a database?
4-12. What is IVR? How is it used to query a database?
4-13. What is a shadow system? Why are shadow systems
sometimes used in organizations? How are they man-
aged? What are the advantages of shadow systems?
What are the disadvantages?
4-14. What is master data management? What is a data
steward? What is the role of master data management
in an organization’s integration strategy?
4-15. What is a data warehouse? What are the three steps in
building a data warehouse?
4-16. What are examples of internal sources of data for
a data warehouse? What are examples of external
sources of data for a data warehouse?
4-17. What are four examples of data warehouse archi-
tectures? Which approach is suitable to meet today’s
growing demand for real-time information?
4-18. What is big data? What are the defining features of
big data?
4-19. What is data mining? What is the difference between
data mining and data dredging? What is the goal of
data mining?
4-20. What are examples of databases without boundaries?
4-21. How do ownership issues affect information manage-
ment? How do information management needs differ
among stakeholder groups?
chapter review Questions
4-22. Why is metadata becoming increasingly important in
this age of digital information? What types of meta-
data would you expect to see attached to these infor-
mation resources?
a. Book
b. Digital photograph
c. MP3 file
d. Zappos.com web page for men’s athletic shoes
4-23. The concept of relationships is fundamental to rela-
tional database design. Briefly describe three relation-
ships that explain how records in a database might be
logically related to one another. What are examples of
projects and discussion Questions
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each type of relationship? At your university, what is
the relationship between students and courses? What
is the relationship between advisors and students?
4-24. Target marketing uses databases and data ware-
houses to identify potential customers that a busi-
ness wants to reach based on factors that describe a
specific group of people. For example, target markets
may be identified by geographic area, by age group,
by gender, or by all three factors at one time. One
of the leading providers of business and consumer
information is infoUSA.com. Visit their website at
www.infousa.com to learn how they compile data
from multiple sources. (Online at //www.infousa.com/
faq/.) How does their process compare to extract,
transform, and load (ETL)? Prepare a brief summary
of your findings that describes the infoUSA five-step
process of building a quality database.
4-25. Visit YouTube.com and search for “R. Edward
Freeman Stakeholder Theory” to learn more about
stakeholder groups. Are you a stakeholder at any of
the following organizations? List several stakeholders
at each of these organizations and describe the kind
of information each stakeholder needs.
a. A university
b. A regional bank
c. Toyota Motor Corporation
4-26. The idea of data warehousing dates back to the 1980s.
Today, data warehousing is a global market worth
billions of dollars. What is the relationship between
operational databases and data warehouses? Why are
data warehouses created, and how do organizations
use them? What types of decisions do data ware-
houses support? Have you ever searched a data ware-
house? Visit FedStats. gov and search “MapStats”
to see what facts are available for your home state.
Prepare a list of five interesting facts about your
home state to share with your classmates.
4-27. Lisa Noriega has a problem with unstructured data. As
her catering business grows, Lisa wants to analyze con-
tracts to learn if over-budget projects result from using
inexperienced project managers. Lisa wants to set up a
database and she wants you to identify the records she
will need. Work in a small group with classmates to iden-
tify the three entities that have meaning for her catering
business. What are the attributes of these entities? What
are probable data definitions of the attributes? What is
the relationship between records and tables? What is the
relationship between fields and attributes? Prepare a
5-minute presentation of your findings.
4-28. The Drexel Theatre is a small, family-owned cinema
that screens independent and classic films. The lobby
is decorated with vintage movie memorabilia includ-
ing an original poster of Arnold Schwarzenegger,
the Terminator, and his famous quote, “I’ll be back.”
The theatre has a collection of 5,000 movies on DVD.
It hires part-time workers for ticket and concession
sales, as well as janitorial and projection services. It
shows one of its movies every evening at 7:00 p.m.
The owner of the Drexel plans to implement a rela-
tional database to handle operations. He has asked
you to develop the data model for managing the film
inventory. He wants to track movies, genres (catego-
ries), actors, and languages. He wants a description
of each entity’s attributes, and he wants an expla-
nation of how to use primary keys and foreign keys
to link the entities together. Work in a small group
with classmates to plan the data model. Prepare a
5-minute presentation that includes an explanation
of primary keys and foreign keys.
application exercises
4-29. ExcEl ApplicAtion:
Managing catering Supplies
Lisa Noriega developed the spreadsheet shown in Figure 4-27
so that she can better manage her inventory of dispos-
able catering supplies. Download the spreadsheet named
Ch04Ex01 so you can help her with the inventory analysis.
Lisa listed her inventory items in “Case” quantities, but
she now wants to analyze items according to “Pack” quanti-
ties and create a price list to show to her customers. For exam-
ple, a case of Heavy Duty Deluxe Disposable Plastic Knives
has 12 packs of 24 knives each. She wants to calculate a
“Sales Price per Pack” based on her cost plus a 25% markup.
Lisa asks that you complete the following operations
and answer the following questions.
▶ Create columns that list Case Pack, Packs on Hand,
and Cost per Case Pack for each item. Use a formula to
calculate the Cost per Case Pack.
▶ Create a column that lists Sales Price per Pack. Use a
formula to calculate a 25% markup. Set up an assump-
tion cell to input the percentage markup rather than
include the markup value in the formula.
▶ Format the spreadsheet to make it easy to read and
visually appealing.
1. What is Lisa’s total investment in disposable catering
supplies?
2. What is the total sales value of her inventory?
3. How much profit will she make if she sells all of her
inventory at a 25% markup?
4. How much profit will she make if she uses a 35%
markup instead?
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FIGURE 4-27
Catering supplies spreadsheet.
4-30. AccESS ApplicAtion:
DD-Designs
Devon Degosta set up an Access database to manage her web
design business. She has asked you to create a report that summa-
rizes and identifies projects that are assigned to more than one
employee. Recreate the Access database with the table names,
attributes, and relationships as illustrated in Figure 4-28.
Download and use the information in the spreadsheet
Ch04Ex02 to populate the tables. Create a report that lists each
project by name and the names of the employees assigned to
it. Devon wants the report to include the client name and the
project budget. What other reports would Devon find useful?
124 IntroDuctIon to InformatIon systems
FIGURE 4-28
DD_Designs database schema.
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case study #1
Almost every city street in London is under constant video surveillance, partly as a reaction to terrorist attacks. These closed-circuit cameras initially created
tapes that could be viewed later, but the technology now is far more
capable. The cameras are equipped with automatic license plate recog-
nition capabilities, which use optical character recognition to decipher
the license plate numbers and letters in near real-time (Figure 4-29).
The camera’s data is sent to the national ANPR Data Centre in
north London, which also houses the Police National Computer. Cam-
eras are widespread throughout the city, and many are mounted on
police vehicles. Each camera can perform 100 million license plate
reads per day. Each vehicle’s plate number is combined with the cam-
era’s GPS location and a timestamp, so the Oracle database at the
Data Center contains detailed information about the whereabouts of
almost every vehicle.
Since the database is linked to the Police National Computer,
police on the beat can query it to see whether a nearby vehicle is
flagged for some reason. Cross-checking the license plate information
against the crime database can turn up vehicles involved in crimes or
registered to wanted criminals. In one case, a police constable was
killed during a robbery, and police were able to track the getaway
car because its license plate was read by the cameras. For cameras
mounted on vehicles, the officer does not even need to send a query.
An audio alert goes off when the camera’s image matches a flagged
license plate number, prompting the police to investigate.
Beyond criminal activity, the police database contains extensive
information linked to the license plate data. For instance, a car might
show that it is registered to someone who owes parking fines, or
who is uninsured. The data might also show that the license plate is
attached to the wrong vehicle, pointing to stolen plates.
The data are maintained for 5 years, creating a rich repository for
data mining. One study found that certain cars triggered no flags, but
seemed to be making impossibly quick journeys from one end of town
to the other. Police discovered that car thieves were trying to outwit
ANPR by “car cloning,” in which the perpetrators duplicate a real li-
cense plate and attach it to a stolen car of the same make and model.
Law enforcement agencies see the license plate database, the
cameras that feed it, and its integration with police data as a revolu-
tionary advance, even though there are still gaps in coverage and the
technology itself is not perfect. For example, rain, fog, and snow can
interfere, and the plate itself might be blurred by mud. The plates them-
selves vary quite a bit, with different colors, fonts, and background im-
ages. Despite the drawbacks, police departments in the United States
and other countries are rapidly adopting the system, buying camera-
equipped cars, and developing smartphone access to databases.
Privacy advocates, however, are concerned about the mounting
power of integrated databases and surveillance technologies to scru-
tinize human behavior. One judge remarked, “A person who knows all
of another’s travels can deduce whether he is a weekly churchgoer, a
heavy drinker, a regular at the gym, an unfaithful husband, an outpatient
receiving medical treatment, or an associate of a particular individual or
political group.” The United Kingdom is tightening regulations to provide
better protections for citizens in an attempt to balance privacy concerns
against the enormous value these databases offer to law enforcement.
U.K. Police Track Suspicious Vehicles in Real Time with Cameras
and the License Plate Database
chapter 4 Databases anD Data Warehouses 125
FIGURE 4-29
Capturing license plate numbers for law enforcement.
Source: Ann Cantelow/Shutterstock.
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discussion Questions
4-31. Describe the manner in which data elements are linked
across databases.
4-32. What technical and physical challenges does this informa-
tion system face?
4-33. What human capital capabilities for law enforcement are
necessary to make the database more effective?
4-34. What are the relevant considerations to balance the
police’s ability to investigate versus the citizens’ need for
privacy?
Sources: Crump, C. (March 19, 2013). ACLU in court today arguing that GPS tracking
requires a warrant. ACLU.org, http://www.aclu.org/blog/technology-and-liberty/aclu-court-
today-arguing-gps-tracking-requires-warrant, accessed March 24, 2013.
Du, S., Ibrahim, M., Shehata, M., & Badawy, W. (2013). Automatic license plate recognition
(APLR): A state of the art review. IEEE Transactions on Circuits & Systems for Video Technology
(Feb. 2013), 23(2), 311–325. Retrieved from Business Source Premier, April 4, 2013.
Mathieson, S. A., & Evans, R. (August 27, 2012). Roadside cameras suffer from large gaps in
coverage, police admin. The Guardian, http://www.guardian.co.uk/uk/2012/aug/27/police-
number-plate-cameras-network-patchy, accessed March 24, 2013.
National Vehicle Tracking Database, http://wiki.openrightsgroup.org/wiki/National_Vehicle_
Tracking_Database, accessed March 24, 2013.
Police in Jackson, MS, use Genetec license plate recognition technology. (March 14,
2013). Government Security News, http://www.gsnmagazine.com/node/28730?c=law_
enforcement_first_responders, accessed March 24, 2013.
case study #2
With more than $17 billion in annual sales, Colgate-Palmolive’s global operations span doz-ens of countries. The consumer products giant
makes iconic brands such as Colgate toothpaste, Irish Spring soap,
Palmolive dish detergent, and Softsoap shower gel and sells them
around the world. Besides taking a “bite out of grime” with its soaps
and personal hygiene products, the company also makes Science
Diet pet foods.
Founded by William Colgate in 1806, the Manhattan-based com-
pany specialized in soap, candles, and starch. The “Palmolive” brand,
featuring fragrant soaps made from palm and olive oils rather than
foul-smelling animal fats, was added in mid-century through a merger.
The company began expanding abroad by purchasing local soap and
toothpaste companies in the 1930s, first in Europe, and then later in
emerging economies in Asia and Latin America. In Latin America, for
example, Colgate-Palmolive captured 79% of the market for oral care
products after it acquired companies in Brazil and Argentina. More
than 80% of its net sales now come from other countries, many in
Latin America.
Managing this sprawling global empire requires a dedication to
consistency, not just in the products themselves, but in the data that
tracks every aspect of the company’s operations and performance.
Colgate’s integrated back-end database and enterprise software,
supplied by SAP, supports a consistent approach to master data
management. CIO Tom Greene says, “With SAP, the product mas-
ters and the customer groupings are all driven by the same mas-
ter data.” With everyone using the same integrated system, Greene
avoids the problem of redundant and inconsistent data entered into
separate systems. Disputes about which is the correct “version of
the truth” disappear.
Greene relies on this consistent back-end database for the Colgate
Business Planning (CBP) initiative, which guides Colgate’s investment
decisions around the world. Marketing managers for consumer prod-
ucts confront a bewildering array of choices to promote products, from
advertising campaigns and TV spots to discount coupons, rebates, and
in-store displays. Most companies judge the success of such invest-
ments by measuring “uplift”—the difference between actual sales
with the promotion and a projection of what sales might have been
without the promotion. But CBP, combined with the integrated master
database, allows Colgate management to dig far deeper, measuring
actual profit, loss, and return on investment.
The detailed metrics can be broken down for individual products,
regions, and retailers, providing a very clear window into how much
any investment contributed to the company’s profit. Corporate head-
quarters taps these finely tuned results to plan new investments. It is
not a cookie cutter approach, however. Guided by their knowledge of
local markets, subsidiary managers can tweak the plans to better fit
local conditions. Since the results are all tallied consistently, drawing
on the database, managers know what works and what doesn’t.
Margins are critical in consumer products, so this deeper insight
pays off. Thanks to CBP, Colgate reinvested $100 million in promotions
found to be more profitable, and its long-term goal is $300 million—a
sum that could be reinvested in promotions, or added to the com-
pany’s bottom line. As Greene puts it, “You have to understand the
technology, but the most important thing . . . is to understand the busi-
ness so you can marry the two together.”
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http://www.aclu.org/blog/technology-and-liberty/aclu-court-today-arguing-gps-tracking-requires-warrant

http://www.guardian.co.uk/uk/2012/aug/27/police-number-plate-cameras-network-patchy

http://wiki.openrightsgroup.org/wiki/National_Vehicle_Tracking_Database

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discussion Questions
4-35. What type of data does Colgate-Palmolive use, and what types
of decisions does Colgate-Palmolive make based on the data?
4-36. Why is it important to Colgate-Palmolive for the data to be
integrated across systems?
4-37. What business benefits does Colgate-Palmolive achieve
through use of this data?
4-38. What types of business knowledge would be necessary for a
Colgate-Palmolive manager to analyze the data?
Sources: Colgate-Palmolive Company. (March 24, 2013). Hoover’s Company Records.
Retrieved March 24, 2013 from Hoover’s Online.
Colgate World of Care Website, www.colgatepalmolive.com, accessed August 26, 2013.
Henschen, D. (September 13, 2010). Data drives Colgate investment decisions.
Information Week, 1278, 38–39.
Maxfield, J. (February 27, 2013). What makes Colgate-Palmolive one of America’s best
companies. Motley Fool, http://www.fool.com/investing/general/2013/02/27/
what-makes-colgate-palmolive-one-of-americas-best.aspx, accessed March 24, 2013.
e-project 1
An Access database from a hypothetical small island nation contains simu-
lated license plate information and violation records, and it will illustrate how
police are identifying cars involved in crimes or traffic offenses. Download
the Access file called Ch04_Police to answer the following questions.
4-39. What are the three tables in the database? For simplicity, the
LicensePlates table in this e-project uses LicensePlateNumber
for its primary key. Why might that work for a small island
nation, but not for the United States?
4-40. Why is PlateImagesID the primary key for the PlateImages table,
rather than LicensePlateNumber?
4-41. A police officer spots a car illegally parked on a dark street, with
license plate LCN5339. Query the database and list any crimes
or other violations that are linked to this license plate.
4-42. A citizen reports a robbery to the police, but she can only remember
the first three letters of the car’s license plate (JKR). She thinks it was
a black or dark blue Toyota. Which car is the best candidate, and who
is the owner?
4-43. Letters such as G and C are often confused by eyewitnesses. Some
witnesses to a hit-and-run accident reported that the license plate
started with LGR, but they said they weren’t sure. Construct a query
to retrieve records that might match either LGR or LCR, and list the
candidates.
4-44. The homicide division learned that a vehicle with a license plate
number DYV4437 was observed near a murder scene, and they
would like to speak to the owner, who might be able to shed light
on the case. If the cameras have picked up the license plate
at some time, it should be in the PlateImages table. Construct
a query to retrieve the latitude and longitude of the car’s most
recent location.
Identifying Suspects with a License Plate Database:
Constructing Queries with Access
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128 IntroDuctIon to InformatIon systems
e-project 2
In this e-project, you will construct a database of customer purchases
for a small concession stand near “Four Corners,” the point in the United
States at which the Utah, Colorado, Arizona, and New Mexico state lines
meet. Much of the data will be imported from Excel files.
4-45. Open Access and create a new database called FruitStand.
4-46 Create a table called Products with the following fields:
ProductID (The first field defaults to the name ID, as the table’s pri-
mary key. Change the name to ProductID. Leave it as autonumber
and as the primary key.)
ProductName (Text data type, field size 25 characters)
Price (Currency data type)
4-47 Enter the records in the following table. Note that you do not
enter the ProductID; it is an autonumbering field that generates
the next value. Save your work.
ProductID ProductName Price
1 apple $0.45
2 pear $0.70
3 watermelon $2.75
4 grapefruit $1.50
5 avocado $1.25
4-48 Download the Excel file Ch04_FruitStand, and import the
two worksheets, labeled Customers and Purchases. Identify
the CustomerID as the primary key for Customers, and
PurchaseNumber fields as the primary key for Purchases, rather
than letting Access create its own primary keys.
a. What fields are contained in the Customers table? Generate
a list of all your customers, sorted by CustomerID.
b. What fields are contained in the Purchases table? What are
the foreign key(s) in the Purchases table, and which table(s)
do they reference?
4-49 Use Access to Create Query (Query Design), join Customers
to Purchases (on CustomerID) and Purchases to Products (on
ProductID), and answer the following questions:
a. Create a query that returns all the purchases from customers
from Nevada (NV). Which fruit do people from that state seem
to prefer?
b. How many pears have been sold? (Click on Totals in the De-
sign Ribbon to bring up options to report grouped totals. Your
query should Group By ProductName. Include the Quantity
field, and in the Total row, select Sum for Quantity.)
c. How many watermelons have been sold?
d. List all the states your customers come from, and the number of
customers from each one. (Use COUNT under the Custom-
erID field from Customers.) From which state do most of your
customers come?
4-50 List the countries your customers come from, sorting the data by
CountryName. What problem do you encounter? What would you
do to the database to improve your ability to analyze the data by
country?
Building a Database for Customer Records
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chapter notes
1. Sauermann, H., & Roach, M. (2013). Increasing web
survey response rates in innovation research: An exper-
imental study of static and dynamic contact design
features. Research Policy, 42(1), 273–286. doi:10.1016/
j.respol.2012.05.003
2. Ilieva, J., Baron, S., & Healey, N. M. (2002). Online sur-
veys in marketing research: Pros and cons. International
Journal of Market Research, 44(3), 361–376.
3. National Research Council. (1999). Funding a revolution:
Government support for computing research. Washington,
DC: National Academy Press. www.nap.edu/readingroom/
books/far/notice.html, accessed May 7, 2008.
4. Waldo, D. R. (2005). Accuracy and bias of race/ethnicity
codes in the Medicare enrollment database. Health
Care Financing Review, 26(2), 61–72. www.cms.gov/
HealthCareFinancingReview/downloads/04-05
winterpg61 , accessed February 19, 2011.
5. Nash, K. S. (2012). Driven to learn. CIO, 26(4), 10–11.
6. Andrews, W., & Koehler-Kruener, H. (October 18,
2012). Siri and Watson will drive desire for deeper and
smarter search. Gartner Research, doi: G00237619.
7. Madrigal, A. C. (2013). IBM’s Watson memorized
the entire ‘Urban Dictionary,’ then his overlords had
to delete it. The Atlantic, http://www.theatlantic.com/
technology/archive/2013/01/ibms-watson-memorized-
the-entire-urban-dictionary-then-his-overlords-had-to-
delete-it/267047/, accessed January 19, 2013.
8. Mouawad, J. (May 18, 2011). Delta-Northwest
merger’s long and complex path. New York Times,
http://www.nytimes.com/2011/05/19/business/19air
.html?pagewanted=all&_r=0, accessed January 20, 2013.
9. Diet and nutrition disorders; research from St. Francis
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10. Data stewards and data experts: Roles and responsi-
bilities. (nd). Rensselaer Data Warehouse, http://www
.rpi.edu/datawarehouse/docs/Data-Stewards-Roles-
Responsibilities , accessed June 19, 2013.
11. Bajarin, B. (January 21, 2013). The Internet of things:
Hardware with a side of software. Time, http://
techland.time.com/2013/01/21/the-internet-of-
things-hardware-with-a-side-of-software/, accessed
June 19, 2013.
12. Mone, G. (2013). Beyond Hadoop. Communications of
the ACM, 56(1), 22–24. doi:10.1145/2398356.2398364
13. McKenna, B. (January 9, 2013). King.com gaming site
unlocks big data with Hadoop. ComputerWeekly.com,
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Kingcom-gaming-site-unlocks-big-data-with-Hadoop,
accessed January 21, 2013.
14. Walsh, B. (June 24, 2013). The NSA’s big data problem,
Time, 181(24), 24.
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based model for stock market surveillance. Journal
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.org/10.1108/13590791311287355
16. Davenport, T. H., & Patil, D. J. (2012). Data scientist:
The sexiest job of the 21st century. Harvard Business
Review, 90(10), 70–76.
17. McCullagh, D., & Tam, D. (December 18, 2012).
Instagram apologizes to users: We won’t sell your
photos. c|net News, http://news.cnet.com/8301-1023_
3-57559890-93/instagram-apologizes-to-users-we-wont-
sell-your-photos/, accessed January 24, 2013.
18. Ngak, C. (April 15, 2013). Google launches Boston
Marathon person finder. CBSNews, http://www
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June 19, 2013.
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www.nap.edu/readingroom/books/far/notice.html

www.cms.gov/HealthCareFinancingReview/downloads/04-05winterpg61

http://www.theatlantic.com/technology/archive/2013/01/ibms-watson-memorized-the-entire-urban-dictionary-then-his-overlords-had-to-delete-it/267047/

http://www.nytimes.com/2011/05/19/business/19air.html?pagewanted=all&_r=0

http://search.proquest.com/docview/1266208957?accountid=11752

http://www.rpi.edu/datawarehouse/docs/Data-Stewards-Roles-Responsibilities

The Internet of Things: Hardware with a Side of Software

http://www.computerweekly.com/news/2240175747/Kingcom-gaming-site-unlocks-big-data-with-Hadoop

http://dx.doi.org/10.1108/13590791311287355

http://news.cnet.com/8301-1023_3-57559890-93/instagram-apologizes-to-users-we-wont-sell-your-photos/

http://www.cbsnews.com/8301-205_162-57579704/google-launches-boston-marathon-person-finder/

www.cms.gov/HealthCareFinancingReview/downloads/04-05winterpg61

http://www.theatlantic.com/technology/archive/2013/01/ibms-watson-memorized-the-entire-urban-dictionary-then-his-overlords-had-to-delete-it/267047/

http://search.proquest.com/docview/1266208957?accountid=11752

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Learning Objectives
Explain the role that financial and asset management information systems play in an organization, and
the importance of financial reporting.
Define human capital management, identify its major components, and describe several metrics used
to quantify aspects of human capital.
Define supply chain management, and describe the metrics, technologies, and information systems that
support supply chain processes.
Define customer relationship management and its role in an organization, and describe the metrics and
information systems that support it.
Explain the importance of ERP systems and describe how they are created, integrated, and implemented.
1
4
2
5
3
C H A P T E R
5 information systems for the Enterprise
MANAGING ANY ORGANIZATION, LARGE OR SMALL, MEANS
KEEPING RECORDS. Those records track transactions,
income, employees, customers, suppliers, taxes, assets, and
much more, providing a solid backbone for the company’s
activities. The records also form the data repository needed to
generate the endless reports that stakeholders require, both
inside and outside the organization. Fortunately, information
systems to support most common business processes are
widely available, even for start-ups. This chapter examines
these systems, showing the business processes they support
and the value they provide.
In the online simulation called “Custom Cakes,” you will gain first-hand experience with how those systems can be used to manage a business process as you serve as
the new assistant manager at a mall cake store. The store
sells cakes with little kits customers can use to add cus-
tom decorations and messages, and the cakes are very
popular with people who forgot to order in advance for a
birthday, graduation, or other occasion. Your job is to decide
how many cakes to order from the bakery at closing time,
to be delivered to the mall in three days. You also need to
tell the IT department what data you want displayed on your
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.

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chapter 5 InformatIon SyStemS for the EntErprisE 131
smartphone ordering screen to help you predict what cus-
tomer demand will be. Mistakes are costly, as unsold cakes
are stored or tossed out. However, if you do run out, you will
lose sales and frustrate your customers. The data will come
from the company’s own information systems, and you can
combine that with tips you receive about upcoming events
that might boost demand.
Companies like the mall cake store need robust and flex-
ible information systems to run their businesses. Every orga-
nization that handles money and hires people must rely on
systems to manage accounting, finances, assets, procure-
ment, supply chains, and human resources. Organizations
that serve customers of any kind need information systems
to manage operations and build enduring relationships.
This chapter explores the four major categories of infor-
mation systems that underlie fundamental business pro-
cesses common to most organizations, each shown with
sample functions in Figure 5-1. These are (1) finance and
asset management, (2) human capital management, (3) sup-
ply chain management, and (4) customer relationship man-
agement. Companies that handle these processes well gain
an edge over competitors by reducing costs, adding value,
and satisfying employees and customers. Organizations
that stumble over these basic functions—dragged down by
cumbersome, incompatible, and inconsistent systems—may
not stay in business at all, let alone reach the top of their
industries. They may struggle just to pay employees, balance
the books, and comply with government regulations.
MyMISLab Online Simulation
Custom Cakes
A Role-Playing Simulation on Enterprise Information Systems
and the Supply Chain
O
tn
aY
du
r/
Sh
ut
te
rs
to
ck

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FInAnCE MAnAgEMEnT
Any organization that handles money—and few do not—needs a robust financial man-
agement system. These systems lie at the heart of the organization, and companies are
held fully accountable for the accuracy of their records. Fuzzy math and accounting
tricks that make companies look more profitable than they really are can destroy trust,
even if they are legal. Though the endless tables of numbers may seem dry and boring
to some, their accuracy, reliability, and trustworthiness could mean success or failure.
Components of Financial Information Systems
Accounts payable, accounts receivable, procurement, cash management, budget plan-
ning, asset management, and the general ledger are examples of the modules typically
included in a full-featured financial management system (Figure 5-2). Beyond those,
the system may support many related activities and processes, such as collections, debt
management, travel and expense management, installment payments, and contracts
management.
Although these back-office systems are absolutely nec-
essary, smart managers know they can be difficult to imple-
ment and maintain. Their functions weave a path through
every organizational unit from the finance office to the sales
desk, touching, transforming, and sometimes eliminating
business processes. First we will look at individual systems
that support major business processes, and then at the big
picture—how these systems are integrated into full-featured
suites of applications.
Business Process Sample Functionality for Information System
Finance and Asset Management Accounts payable, accounts receivable, general ledger, inventory,
procurement
Human Capital Management Human resources management, payroll, benefi ts, time sheets,
talent development, training programs
Supply Chain Management Supply chain planning software, warehouse management,
transportation management
Customer Relationship Management Contact management, marketing campaign management, email
marketing, sales force management, customer service
Figure 5-1
Major information systems
for managing operations.
Explain the role that financial and
asset management information
systems play in an organization,
and the importance of financial
reporting.
1
General
Ledger
Accounts
Payable
Procurement
Accounts
Receivable
Cash
Management
Budget
Planning
Chart of
Accounts
Financial
Reporting
Routine
Reports
Exception
Reports
Compliance
Reports
Asset
Management
Interfaces to
other modules,
such as human
resources and
supply chain
Financial
Analytics
Figure 5-2
Sample components for a finance
management system.

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Nonprofits and government need additional modules for their financial systems.
For example, they may need modules to track membership lists, grants from foundations,
and gifts from donors.
IntegratIng the Components Integration among the modules is especially important to
avoid inconsistencies. For example, the details from accounts receivable and accounts pay-
able transactions should automatically update the general ledger to streamline reconciliation
and reporting. Bridges and interfaces to other systems, especially human resources and pay-
roll, also vastly improve accuracy. Time periods and data definitions should match so that,
for instance, a monthly report with year-to-date expenditures shows the same payroll totals
in both systems.
FInanCIal WorkFloWs The integration of these components supports the development
of paperless workflows in an organization. Procurement and accounts payable were the
first targets for this kind of process improvement. Staff can now use online shopping carts
to generate purchase orders from established vendors, routing their requests to supervisors
and then to the vendors themselves. The software builds in online, interactive forms so
staff can make corrections along the way, using customized workflow tables that determine
the routes.
Let’s buy some Bluetooth headsets for sales reps at Gulf Travel to see how this works
(Figure 5-3):
Shaun, the office manager in the sales department, browses the web for the
best models and then logs in to the financial system. He requests price com-
parisons for the model he’s chosen and finds the lowest prices from TechSmart,
Inc., which has a special supplier arrangement with Shaun’s company. Shaun
enters the order for 10 headsets into the shopping cart, selecting TechSmart as
the vendor. Totals and taxes are all computed, and Shaun splits the purchase
financial management system
Enterprise information system that supports
financial accounts and processes, including
accounts payable, accounts receivable,
procurement, cash management, budget
planning, assets, general ledger, and related
activities.
Shaun finds best
models and prices,
and enters order
Rania, Shaun’s
supervisor, approves
order
TechSmart staff
receive order,
transmit to
warehouse
TechSmart
warehouse staff
ship order to Gulf
Travel, updates
inventory
Sven logs the receipt
of ten headsets, and
delivers to Shaun
TechSmart’s system
generates invoice
electronically
Takia in Accounts
Payable approves
payment to
TechSmart. General
ledger and asset
records are updated
TechSmart
Gulf Travel
Start->
Figure 5-3
A paperless workflow in procurement
to buy 10 Bluetooth headsets.

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against two budget numbers—40% for the Northern sales group with four sales
reps, and 60% for the Southern sales group for their six reps.
Rania, Shaun’s supervisor, logs in and sees a message in her inbox—“Shopping
cart approval needed.” She is authorized to approve purchases for both budgets,
and when she does, the electronic order goes straight to the sales department
at TechSmart, since the supplier’s contact information is all filled out in Gulf
Travel’s system.
TechSmart staff receives the order and electronically delivers it to the ware-
house for fulfillment. Gulf Travel’s system is linked to TechSmart’s inventory
information, so Shaun already knew that TechSmart had the headsets in stock.
TechSmart’s warehouse ships the box to Gulf Travel.
Sven, the goods receipt clerk at Gulf Travel, signs for the 10 headsets and logs in
to the system to indicate they have been received. He drops the headsets off to
Shaun, who hands them out to the sales reps.
TechSmart’s system automatically generates the invoice and sends it electroni-
cally to Gulf Travel accounts payable, where Takia can see immediately that the
goods were properly requested, approved, shipped, and received. She approves
the electronic transfer of funds to TechSmart’s bank account.
The system automatically updates the general ledger and asset records to indi-
cate the company now owns 10 Bluetooth headsets. Other staff may add detail
to those records, such as serial numbers or warranty data.
Humans are part of the loop, making decisions, approving actions, and confirming
steps in the process. But except for the package’s wrapping, paper is not. All the players
have real-time access to the same underlying information, so inconsistencies are unlikely.
Compare this scenario with one in which orders, approvals, invoices, and payments are
all handled manually, moving paper from one person’s plastic in-tray to the next, with
massive filing cabinets, handwritten signatures, inked stamps, and endless voicemail to
clarify stock levels, prices, and shipping dates.
Financial Reporting, Compliance and Transparency
Reports are the lifeblood of people in finance and accounting, and information systems
routinely generate detailed and summary reports on all the organization’s transactions
and assets.
ExcEption REpoRting Financial systems generate exception reports that automatically tag
unusual events—ones that human beings must review. Such reports are used to spot mis-
takes, and also fraud. Companies lose as much as 5% of revenue to fraud every year, which
adds up to over $3 trillion in losses on a global scale. Over 16% of that involves employee

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human capital management (HCM)
Encompasses all the activities and
information systems related to effectively
managing an organization’s human capital.
The HCM information system includes
applications and modules with the employee
as the central element.
eXtensible Business Reporting Language
(XBRL)
Part of the XML family of standardized
languages specialized for accounting
and business reports; tags identify data
elements to make them transparent and also
computer-readable.
expense vouchers that include overstated mileage, doctored taxi receipts, and personal
purchases..1 Exception reports can help identify events that fall outside accepted ranges.
ComplIanCe reportIng Financial systems also carry the major burden of compliance
reporting, and in doing so they must conform to local, national, and international regula-
tions that grow increasingly strict. Surveys show that companies are spending more each
year on compliance, and they are also reorganizing so that the chief compliance officer
reports directly to the board or CEO.2
xBrl In the United States, the Securities and Exchange Commission (SEC) mandates many
aspects of compliance, and electronic reporting is required, relying on eXtensible Business
Reporting Language (XBRL). XBRL is part of the XML family of standardized languages and
is specialized for accounting and business reports. The goal is to develop a common language
for financial reporting, one that tags every individual item of data to make it understand-
able, transparent, and also computer-readable for further analysis. “Net profit,” for instance,
is defined clearly and given a tag, so when it appears on an electronic compliance report,
both humans and computer programs know its meaning. This is a huge advance over paper
reports, and even electronically delivered PDFs.
ImprovIng transparenCy Converting to machine-readable financial data can help elimi-
nate manual processes, and also greatly improve transparency. Investors and regulators can
compare “net profit” from one company to the next, with more assurance that all the figures
have been calculated in the same way.3 BrightScope, for example, is an independent financial
information company that obtains machine-readable data on over 45,000 different retire-
ment plans, and then rates each one. HR managers and employees can see for themselves
how their retirement plan stacks up against competitors.4
The International Accounting Standards Board (IASB) exists to develop and pro-
mote a single worldwide set of understandable and enforceable financial reporting stan-
dards. Information systems incorporate these as much as possible, though differences
among countries still remain. Local political and economic factors can affect a coun-
try’s decisions about the proper way to report financial figures. In China, for example,
different accounting standards have been used to judge the value of companies that come
about as a result of mergers between state controlled and privately held enterprises.5
Nevertheless, the growing body of widely accepted accounting standards throughout the
world, combined with the use of robust financial information systems and languages such as
XBRL for business reporting, are promising steps. Worldwide trade and investment rely on
trust, and the importance of reliable and consistent financial reports can hardly be overstated.
HuMAn CAPITAl MAnAgEMEnT
Human capital management (HCM) encompasses all the activities and information sys-
tems that support effective management of an organization’s human capital. The HCM
information system includes a growing suite of applications with the employee record
as the central element. Together, these applications support recruitment, hiring, payroll,
benefits, taxes, career development, training programs, employment histories, employee
self-service, and more (Figure 5-4).
Components of Human Capital Management Systems
human resourCes management The human resources management (HRM) system is typi-
cally the heart of the HCM system, tracking each employee’s demographic information,
2 Define human capital management, identify its major components, and
describe several metrics used to
quantify aspects of human capital.
human resources management (HRM)
system
Typically the heart of the HCM system,
the HRM system tracks each employee’s
demographic information, salary, tax
data, benefits, titles, employment history,
dependents, and dates of hire and
termination.

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salary, tax data, benefits, titles, employment history, dependents, and dates of hire and ter-
mination. Some systems also keep track of performance evaluations, professional develop-
ment, and training. HRM systems are quite mature, and almost all organizations integrate
this information system with the financial system, especially to track payroll expenditures,
taxes, and benefits.
WorkForCe management The broader term human capital management reflects the fact that
traditional human resources management systems have grown into larger software systems that
support other employee-related functions. The workforce management module, for example,
draws on the data in the core human resource records and adds features to keep track of time
and attendance, sick leave, vacation leave, and project assignments. This module is especially
useful for labor scheduling and workforce planning. For example, the module can be used to
assign the proper number of employees to specific work shifts. The goal is to match staffing
with requirements, optimizing the schedules so that employees are assigned when they are most
needed but are not standing around with nothing to do during slack periods. This system can
also draw on information stored in sales records that shows when peak demand occurs.
talent management Talent management applications focus on the employee life cycle,
beginning with recruitment and extending into performance evaluations, career devel-
opment, compensation planning, e-learning, and succession planning after retirement or
departure. Visualization and charting tools are adding richness to the way managers view the
organization’s talent (Figure 5-5). For instance, a constantly updated organizational chart
can help with succession planning by highlighting departments in which someone’s decision
to resign could cause problems because there is no one to fill in. Managers can see the tal-
ent throughout their organizations in a more intuitive way, pulling data from several of the
organization’s information systems.6
HCM Module Description
Core human resources management
application
Demographic information, human resources management,
payroll, benefi ts, professional development, education
Workforce management applications Time and attendance, sick and vacation leave, task and
activity tracking, labor scheduling capabilities
Talent management applications E-recruitment and position applications, employee
performance management and tracking, career development,
compensation management, e-learning and professional
development tracking; visualization and organizational charts
Service delivery applications Employee and managerial self-service, typically web-based,
for entering data and retrieving reports
Social software Wikis, blogs, social networks
Figure 5-4
Components of human capital
management systems.
Figure 5-5
Talent management applications
include visualization and charting
tools to display key metrics for human
resource professionals.

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talent management
As part of the HCM system, the talent
management module focuses on the
employee life cycle, including recruitment,
performance evaluations, career
development, compensation planning,
e-learning, and succession planning after
retirement or departure.
workforce management module
As part of the HCM system, the workforce
management module helps track time and
attendance, sick leave, vacation leave, and
project assignments.
soCIal netWorkIng and hCm HCM systems often add social networking software, and
organizations are finding innovative ways to use it. Dow Chemical, for instance, wanted
to tap the extensive knowledge and skills of its retirees, employees on maternity leave, and
others who were loyal to the company but not currently working. It launched a social “alumni”
network for this population—well over 40,000 people—and invited them to reconnect with
colleagues, search for job opportunities, share news, and mentor less-experienced workers.
Part of the company’s motivation was the looming skills shortage. Dow encourages scientists
to interact with young people who might want to pursue scientific careers.7
Dow also invited employees who had been laid off during a business downturn. Some
managers feared these members might just vent on the alumni network, but most did
not. In fact, some laid-off workers were hired back when business recovered, based on
their positive attitudes and networking capabilities.8
HCM Metrics
Buried in the HCM information system is a wealth of data that can reveal how well the
organization is managing and nurturing its human capital.
▶ Do we have the talent we need to succeed in the future?
▶ Can we weather the departure of that star over in marketing?
▶ Are training expenses growing so much because turnover is too high?
▶ How productive are our full-time employees compared to the part-time people?
Figure 5-6 shows some examples of common HCM metrics. These are less about
individual performance than about the overall health of an organization’s human capital
management. Human resource managers can use these metrics to assess the impact of
their strategies on the company’s success, often in terms of real dollars. They can also
compare their own figures to industry benchmarks.
Human capital management systems have transformed how companies approach
human resource issues by introducing a wealth of data that leads to better decisions and
strategies. The next section explores systems that support how organizations work with
their suppliers.
MAnAgIng THE SuPPly CHAIn
Companies that buy, sell, and ship goods around the world watch inventory levels,
weather reports, political news, and customer trends in their quest for excellence in
supply chain management (SCM). This term refers to strategies that optimize the flow
of products and services from their source to the customer. Depending on your type
Human Capital Metric Description
Turnover The percentage of workers who left and were replaced during a time
period
Turnover costs The total of termination costs, hiring costs, training costs, and other costs
related to replacing a worker
Cost per hire Average advertising costs + agency fees + recruiter’s salary and
benefi ts + relocation expenses for new employees
Human capital return on
investment
The return on investment produced by the organization’s expenditures
on salaries, benefi ts, bonuses, and other costs for human talent
Employee satisfaction Measures of job satisfaction, usually assessed through employee surveys
or exit interviews
Figure 5-6
Metrics drawn from the human
capital management system can
reveal important information about
how well the organization is
managing human capital.
supply chain management (SCM)
Strategies that optimize the flow of products
and services from their source to the
customer.
3 Define supply chain management, and describe the metrics,
technologies, and information
systems that support supply chain
processes.

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of business, the chain can be long indeed, stretching from your supplier’s suppliers
all the way to your customer’s customer. The ultimate goal is to align supply with
demand so that the right product is delivered to the right place, at just the right time,
and at the right price.
Supply Chain Fundamentals
How do companies optimize the flow of products and services as they move along the
value chain, especially to meet customer demand? Drawing on the steps in the value
chain described in Chapter 2, Figure 5-7 shows the steps that underlie successful man-
agement of a next-generation supply chain. These are (1) plan, (2) source, (3) make,
(4) deliver, and (5) return.
the plannIng step SCM starts with planning, with the goal of building a nimble supply
chain that aligns with actual business goals. If the corporate strategy calls for low-cost lead-
ership, for example, the company will strive to reduce costs for transportation and inventory
storage. IKEA, for example, holds costs down by shipping flat boxes containing furniture
parts rather than bulky, fully assembled bookcases or tables. The boxes fit nicely into far
fewer containers traveling by ship or rail. IKEA also grants customers the honor of assem-
bling the products themselves, another huge cost saver.
ChoosIng sourCes In step 2, managers make decisions about sources and which suppliers
to use. Again, the business strategy should guide many choices, such as whether to commit to
long-term contracts or encourage frequent and fierce competition among potential suppli-
ers. For safety, managers may also want to make arrangements with more than one supplier
for the same resource in case one fails. Today’s global supply chains must be chaos-tolerant;
hurricanes, earthquakes, political turmoil, or pandemics can cause major interruptions.
Managers should also check on a supplier’s labor practices. After coming under fire
because of bad conditions at one of its suppliers in China, Apple started sending audi-
tors to look into some of the factories that make iPhone parts. In one of them, they
found over 70 children working illegally, with forged documents showing false birthdates.
Apple reported the violations to Chinese authorities, and also helped return the children
to their families.9 Corporate responsibility also extends to the environment, and IKEA
audits its suppliers to ensure wood is harvested from sustainable forests.10 (The Ethical
Factor in Chapter 2 discusses ethical responsibility in extended supply chains.)
make, delIver, return The “make” step transforms the resources into something with
more value. Supply chain managers track inventory at each stage, fine-tuning the flow so that
some parts don’t run short while others are overstocked. Managers’ keen interest in inven-
tory levels continues through the delivery step, as products are transported to distribution
Scenario: The CEO of a large media company with more than 10,000
employees decides to buy out a small business that created a spectacu-
larly successful online role-playing game. The smaller company has about
50 software engineers, and the CEO wants to retain about 20 top perform-
ers. The rest will be laid off. The CEO can’t obtain performance ratings
for the 50 engineers at the online game company, so instead the CEO
asks the human resources director to analyze the performance metrics
of software engineers at the media company. The CEO’s goal is to identify
common characteristics of star software engineers to help guide the deci-
sion about who should be retained. With the new talent management sys-
tem, the director can quickly analyze average ratings by job position, years
of experience, age, gender, ethnicity, educational background, university
attended, marital status, and many more variables.
Suppose the graphs show that, within the media company, average per-
formance ratings are slightly higher for male software engineers under
35 years old compared to women of all ages, as well as men over age 35.
Relying on this information to decide who in the game company should
get job offers to stay on would not only be unethical, but it could also lead to
poor decisions. For instance, the results could stem from past and present
discrimination at the media company against people who don’t fit a stereo-
type about software engineers. Human resource professionals need sharp
critical thinking skills and thoughtful decision making to use these powerful
systems ethically and wisely.
THE ETHICAL FACTOR Ethics and Talent Management
Plan
Source
Make
Deliver
Return
Figure 5-7
Steps in supply chain management.

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demand forecast accuracy (DFA)
The difference between forecasted and
actual demand.
visibility
Describes how easily managers can track
timely and accurate supply chain metrics.
centers and retailers. Finally, SCM includes returns. A very low cost leader might post the
“All sales final!” sign, hoping to reduce the cost of that final process to near zero. An online
shoe retailer would design a very user-friendly return process, so customers will feel more
comfortable about purchasing shoes they haven’t tried on.
Measuring Performance in Supply Chains
While company strategy guides decision making throughout the five supply chain steps,
accurate and well-chosen metrics tell how well those decisions are working out. How do
IKEA’s managers know their inventory levels are optimal, and that their supply chains
are humming along as well as they should?
Supply chain ViSibility Visibility describes how easily managers can track timely and
accurate supply chain metrics. Some metrics, such as total sales by product, are easy
to get, but a maddening lack of transparency plagues many others. The data might be
housed in a supplier’s or customer’s database with no real-time access, and only slow-
moving paper reports transmit critical information. Valuable metrics may also be invis-
ible simply because no one is collecting them. Many are fleeting time durations that are
costly and cumbersome to collect.
Netflix, the DVD rental company, strives for better visibility on metrics for a critical leg
in its supply chain: the U.S. Postal Service. Subscribers choose videos online and Netflix
sends them by mail. When a customer returns a DVD, Netflix processes the return and
promptly mails out the next one in the customer’s queue. However, the delivery step
is highly dependent on USPS timeliness. Customers who wait days to get their new
film are annoyed, but Netflix managers may not even know it. Figure 5-8 shows a
sample automated email from Netflix,
sent in the hope that customers them-
selves will help make that metric more
visible. As you will see, a major goal
of SCM information systems is to use
technology-supported collaboration to
improve visibility for both suppliers and
customers.
Supply chain MEtRicS How do man-
agers decide which metrics to track? Thousands of candidates exist, but no company can
excel at all of them; SCM is about optimization, which means trade-offs.
The metric that matters most is demand forecast accuracy (DFA)—the difference
between forecasted and actual demand. Supply chain managers work with the sales and
marketing teams to forecast demand for products, drawing on historical sales patterns,
marketing campaign plans, advertising budgets, seasonal promotions, focus groups,
demographic shifts, gut instincts, and crystal balls if they have them. As you will learn
from the online simulation “Custom Cakes,” underestimating demand leads to lost sales
and frustrated customers. Overestimates lead to higher inventory and storage costs. Busi-
nesses might also have to offer steep discounts to get rid of excess merchandise.
Thank you for your recent DVD return. Please tell us when you mailed
back this movie by clicking on the appropriate link below.
I mailed the movie Thursday, Apr 12
I mailed the movie Wednesday, Apr 11
I mailed the movie Tuesday, Apr 10
I mailed the movie Monday, Apr 9
Figure 5-8
Netflix surveys customers with emails
like this one to improve visibility in the
supply chain.
Did You Know?
Netflix gained an early lead to become the world’s largest online video service with
“Instant Play.” Services like these keep improving, and they cut postal services out
of the supply chain for home movie viewing by reducing the demand for physical
DVDs. Netflix alone accounts for about one-third of the web streaming traffic
during prime time among consumers age 18 to 24.11

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One reason DFA is so critical is the bullwhip effect, which describes the distortion in
the supply chain caused by changes in customer demand as the orders ripple upstream
(Figure 5-9). Small fluctuations in retail sales trigger large swings in inventory levels, as
the retailer sends orders to the distributor to replenish the stock, and the distributor fol-
lows up with orders that soon reach the manufacturer. As orders are filled and products
shipped, inventory builds up in some places, but shortages occur in others. At times,
warehouse shelves are stocked full, but the retailer’s display is empty.
reduCIng supply ChaIn Costs Lower costs are also important, so costs must be visible.
Total costs are difficult to grasp, though, because they span transportation, inventory storage,
warehouse management, distribution centers, customer service for refunds and exchanges,
and direct operational costs. Knowing where along the supply chain costs are too high is the
first step to finding ways to reduce them. If inventory storage costs are high, a bullwhip effect
may be operating and managers will look into better demand forecasting to synchronize the
chain’s links.
Groundbreaking interventions can sometimes dramatically reduce supply chain
costs, especially by omitting whole segments. For example, most computer manufactur-
ers build several models, and ship them first to distributors and then out to retailers
such as Best Buy, Staples, or Costco. But Dell bypassed those middlemen altogether.
At Dell.com, the customer selects the computer online, customizes it, and then tracks
the order until it arrives at the front door, shipped directly from the manufacturer. The
monitor, shipped in a separate box, may come from a different manufacturer, but Dell
synchronizes the delivery so all the hardware arrives at the same time (Figure 5-10). The
trade-off, which sacrifices instant gratification of taking the new PC home the same day
in favor of lower cost and customization, was a gamble. But it worked, at least for awhile.
Dell dominated the PC market with its low cost strategy until rivals mastered their own
supply chains.
supply ChaIn dIsruptIons With companies relying more on suppliers around the world,
supply chains are becoming much more complex and varied, and more susceptible to disrup-
tion.12 Hurricanes, snowstorms, epidemics, violence, strikes, and many other events can sur-
prise supply chain managers and disrupt the flow of goods. Skyrocketing fuel prices and any
restrictions on carbon emissions may also affect supply chains, and managers may need to
Wholesaler orders
more stock from
manufacturer
Distributor orders more
stock from wholesaler
Bullwhip Effect
Retailer orders more
stock from distributor
Customer demand rises a little, but then stays relatively constant
Figure 5-9
The bullwhip effect in a
supply chain.

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adjust quickly. For example, the “fast, free shipping” strategy that companies use to persuade
buyers to shop online may need rethinking because of the high energy costs.
Information Systems and Technology for Supply Chain Management
Supply chain management software evolved as a patchwork quilt of specialized tools
and applications, often developed to address one aspect of the supply chain puzzle in a
single industry. A software collection for a manufacturing company, for example, might
include:
▶ Supply chain planning software, to predict demand, synchronize with supply, and
optimize the whole network
▶ Warehouse management software (WMS), to manage and optimize inventories,
space allocation, shipments, cross-docking, and other warehouse activities
▶ Transportation management software (TMS), to optimize shipping, logistics, and
fleet routing and scheduling
▶ Manufacturing execution system, to manage activities and flow through the manu-
facturing process
▶ Global trade management software, to ensure compliance for cross-border transac-
tions for importers and exporters
Making all these specialized software applications work together is very challeng-
ing, but managers need a clear, end-to-end picture of supply chain performance, not
fragmented views of each component. Increasingly, vendors are building software that
combines several SCM applications that share data. Also, the major vendors that offer
comprehensive financial and human resource management suites are integrating SCM
functionality into their suites.
CollaBoratIon In the supply ChaIn The secret to excellence in SCM is collaboration,
internally among units and externally with partners, suppliers, and customers. The bullwhip
effect, for example, can be tamped down if suppliers have real-time access to up-to-date retail
sales data, instead of an occasional faxed purchase order from the retailer.
How can organizations share information about real-time inventories and sales?
CEOs are understandably reluctant to just hand over a login name and password to sup-
pliers or customers so they can access the company’s databases. Instead, firms develop
automated bridges to connect their information systems and share data relevant to the
supply chain.
DELL WEBSITE
Consumer
customizes and
orders Dell PC
online.
DELL ORDER
FACILITY
Order processed,
transmitted to PC
manufacturers and
monitor supplier.
DELL PC ASSEMBLY
FACILITY
PC assembled
PC shipped
Monitor
plant
Monitor
shipped
Figure 5-10
Dell’s supply chain synchronizes
delivery of the monitor with the PC,
so they both arrive at the same time.
bullwhip effect
Describes the distortions in a supply chain
caused by changes in customer demand,
resulting in large swings in inventory levels as
the orders ripple upstream from the retailer to
the distributor and manufacturer.

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Since the 1970s, companies have been using electronic data interchange (EDI) to
improve visibility about orders, inventories, and data that partners in a chain need to
share. This approach to bridge building, which predates the Internet, often relies on pri-
vate networks and proprietary software and is time-consuming to set up. It improves
supply chain performance, but it also tends to lock the partners into their relationship.
Having spent so much time and energy building that data bridge, they are less likely to
switch partners.13
A more flexible way to improve visibility between partners is to use standardized
machine-readable formats, especially relying on XML. These collaborative systems are
easier to create technically, but they also take time to develop because they require trust
between the partners.14 The biggest players, such as Walmart and Dell, can insist that
their suppliers share information electronically to reduce costs and improve the overall
supply chain.
sensIng teChnologIes Supply chains benefit considerably from sensing technologies
that are part of the “Internet of Things” because they improve visibility during transit
and in storage. Commercial shippers, for instance, deploy handheld wireless scanners to
read the barcodes on packages and upload the tracking number, date, time, and place to
servers. On delivery, the scanners capture the signature and upload that as well, to close
the loop (Figure 5-11).
RFID chips are especially useful in supply chains. Attached to packages or crates,
they can transmit data as they pass by readers at seaports, railway stations, or ware-
houses. For example, blood products move through a complex supply chain that starts
with the donor and usually ends with a transfusion to a hospital patient. But the pro-
cess can be fraught with errors arising from manual, handwritten forms. In the United
States, thousands of units of blood are discarded each year due to record-keeping errors.
However, companies are working to add RFID tracking to reduce such errors and ensure
patients receive the right blood type.
Figure 5-11
Wireless scanner captures barcode
information and uploads to supply
chain management system.
Source: © Tetra Images/Alamy

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global positioning systems (GPS)
Electronic devices that receive signals from
orbiting satellites that transmit time and
location data; GPS devices help drivers
navigate and keep managers in touch with
their transportation fleets.
electronic data interchange (EDI)
An electronic bridge between partner
companies in a supply chain that is used to
transmit real-time information about orders,
inventories, invoices, and other data.
Figure 5-12
GPS devices receive signals from
nearby orbiting satellites and trian-
gulate location based on the distance
each signal travels.
Source: cobalt88/Shutterstock
For high-risk supply chains, organizations use a combination of sensors and track-
ing software. Companies such as Dow Chemical, for example, must closely monitor the
location and status of hazardous materials moving by train. They use satellite commu-
nications and sensors in the tank cars, watching for any temperature changes or security
breaches. The satellite signals also update the nearest emergency facilities in case of an
accident.15
Global positioning systems (GPS) are a critical feature of navigation and transportation
systems. These devices receive signals from 32 satellites that orbit the earth and transmit
time and location data. The GPS receiver computes its own 3-dimensional location based
on distances from the three or four closest satellites (Figure 5-12). Location is accurate
within a few meters. GPS devices help drivers navigate to their destinations and keep
managers apprised of their fleets. Live GPS tracking software shows the speed and loca-
tion of every vehicle overlaid against live traffic maps (Figure 5-13).
The supply chain includes the customer, and even the customer’s customer. An orga-
nization’s relationships with its customers are so critical that special information systems
have been developed to help manage them, as we see in the next section.

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CuSToMER RElATIonSHIP
MAnAgEMEnT
How are companies using information systems to manage their relationships with cus-
tomers? Some customers like to use Twitter to get attention from companies, rather than
calling an 800 number and getting lost in a phone menu. Andrew Nelson has tweeted
complaints to IKEA and Hertz, and compliments to Delta Air Lines. When he used
Twitter to complain to Sears about a repairman not showing up, the company was quick
to apologize and reschedule the visit. Other companies, however, might not even have
noticed Nelson’s complaint.16
Customer relationship management (CRM) covers the strategies, processes, and infor-
mation systems an organization uses to build and maintain relationships with its current
and prospective customers. Those who have direct interactions with the customer, such
as sales reps or customer support staff, are on the front lines. But processes in market-
ing, sales, accounting, product development, and manufacturing can all benefit from a
customer-centric focus.
CRM Goals and Metrics
To build stronger customer relationships, managers need clarity about their actual goals.
Some common objectives are:
▶ Improving customer retention
▶ Improving profitability
▶ Growing revenue
▶ Listening to the customers
ImprovIng Customer retentIon Attracting new customers is often more difficult and
expensive than retaining existing ones, and the new customer may be less profitable than
the old. Strategies for improving retention stress customer satisfaction, loyalty rewards, and
perks for returning customers. Farmers Insurance Group, for example, uses analytical soft-
ware from SAS to analyze customers’ lifetime loyalty rates and profitability. Its analysis led
to a 14% increase in the company’s rate of return.17
Loyalty and retention can be encouraged in many ways. The U.K.-based holiday
travel site called On The Beach uses CRM to track customer behavior when they visit
NVehicle
A 5786 4:05 AM
Owings Mills
7:15 AM
Owings Mills
9:00 AM
Frederick
9:21 AM
Owings Mills
9:45 AM
Baltimore
55 MPH
62 MPH
41 MPH
68 MPH
32 MPH
5633
6777
6554
4001
B
C
D
E
Driver Start Time Speed
Atlantic
Ocean
VIRGINIA
WASHINGTON D.C
PENNSYLVANIA
WEST
VIRGINIAOakland
Cumberland
Hancock
Hagerstown
Frederick
Rockville
Baltimore
Westminister
Ocean City
SalisburyCambridge
Solomons
Pt. Lockout Pocomoke City
Waldorf
ANNAPOLIS
DELAWARE
D
A
C
E
B
Figure 5-13
GPS software tracks the locations of vehicles in a fleet in real time.
Define customer relationship
management and its role in an
organization, and describe the
metrics and information systems
that support it.
4

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sentiment analysis
A capability of specialized software to
scan text input surveys, blogs, or other user-
generated content and classify the opinions
as pro, con, or neutral toward the company
or product.
customer relationship management
(CRM)
Encompasses the strategies, processes, and
information systems an organization uses
to build and maintain relationships with its
current and prospective customers.
the site, noting the travel deals each visitor lingers over. Using the data, the company
carefully tailors every email to help customers find a perfect beach holiday that matches
their tastes. Average retention rate for most travel sites is 18% to 20%, but On The Beach
boasts retention approaching 27%.18
Analysts project that companies can reduce the loss of profitable customers by at
least 10% if they develop a good retention management strategy, which is a very fast
return on investment. One metric that organizations gather is simply the number of
repeat customers. However, beneath that figure lie other metrics showing why customers
are returning (or staying away). Close monitoring of the customer satisfaction index is
critical, which is why companies bombard customers with requests to complete a survey
after any purchase or website visit.
ImprovIng proFItaBIlIty Finding ways to reduce the costs of serving each customer—
without also diminishing customer satisfaction—is another important CRM goal. For
instance, innovations that encourage customers to stop phoning the company and use other
channels instead are worth the investment. A customer who calls FedEx to ask what hap-
pened to her package costs the company $2.40 in human resource time, but the same query
submitted to the company’s website costs FedEx just pennies to answer.19 Online self-service
applications, such as FedEx’s package tracker, improve profitability and also please custom-
ers who enjoy tracking their package’s journey.
Empowering customers with easy access to inventory levels can increase profits and
boost customer satisfaction even more. Target, for instance, helps customers avoid point-
less car trips by a search tool on its website. Customers can select a special camera, for
instance; enter a zip code; and find out which nearby stores have the camera in stock.
groWIng revenue CRM strat-
egies to grow revenue often
include finding new customers
and markets, as well as earn-
ing more revenue from existing
customers through cross-selling
and upselling. The marketing
and sales departments cham-
pion these efforts, finding new
leads, identifying marketing segments, managing campaigns, and building the customer
base. They also grow revenue by learning everything they can about each customer and
using the data to introduce new products and make additional sales.
Capturing new leads, particularly people who show some interest in your service, is
crucial to building your customer base. One innovative strategy to capture motivated
buyers at just the right time is the “click to chat” button on a website, which opens up a live
chat window staffed by a company agent. Although it is widely used by customers who are
having trouble completing a transaction, a more proactive use is to intervene when the vis-
itor is just browsing. A pop-up (Figure 5-14) can appear, offering the customer a chance to
chat with a live agent who asks, “Can I help you?” Some research indicates that proactive
live chat can increase sales as much as 20%. Some companies are adding audio and video
options to the text-based chat, so that customers can see and hear a live human being.20
Live chat in the customer support context offers considerable savings as well. The
Internet service provider EarthLink claims savings of $3 to $5 per customer contact,
partly because agents can multitask with several customers in different chat windows,
rather than just one on the phone.
lIstenIng to Customers When customers answer one of your surveys, CRM software
can easily capture and analyze what they say. Some systems can also do sentiment analysis,
with software that scans the text comment boxes, blogs, social media, or other user-generated
PRODUCTIVITY TIP
Many libraries offer online catalogs with “availability” tools to let students
and faculty know whether the book they want is on the shelf or already
checked out. Some allow you to reserve or recall the book, and will send you
an automated email when it becomes available.

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content and employs algorithms to classify the opinions as pro, con, or neutral (Figure 5-15).21
The sorting isn’t perfect, of course, but this kind of social media listening can provide early
warnings about customer relationship issues.22
For example, an online ticketing company called StubHub used sentiment analysis
software to spot a surge in complaints from baseball fans on social media. The stadium
mistakenly announced to some ticket holders that a Yankees–Red Sox game was rained
out, so the ticket holders requested refunds. The game was only delayed, however, and
StubHub initially denied fans’ requests. The company quickly reversed that policy
when sentiment analysis caught the growing tide of negative posts about StubHub on
sports blogs.23
CRM Strategies and Technologies
Since CRM touches so many different metrics and areas of the company, the informa-
tion systems it uses can be quite fragmented, much like those that manage supply chains.
These systems cluster into several categories, shown in Figure 5-16, based especially on
the business unit that drives the need for them, the kinds of related services they offer,
and the metrics they track.
Welcome to Live Chat with Alister
Avi of Alister Electronics says:
Hello, my name is Avi. I noticed you may
need assistance finding what you are
looking for. May I help? You can type your
question into the box below.
Visitor says:
Yes, thanks! I wanted to know which of your
Bluetooth players work in Russia.
Televisions
DVD players
Camcorders
Radios
Cell phone accessories
Music players
PDAs
About us
Contact Alister
Avi of Alister Electronics says:
Yes, I can help you with that. I’ll check right
now.
I’m leaving next week so…
Type your message in the box and press
return to send
Alister
Electronics
Figure 5-14
Click-to-chat functionality to provide
just-in-time customer service.
90
80
60
70
50
30
40
B
lo
g
S
en
ti
m
en
t
20
10
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31
Positive
Negative
Figure 5-15
Sentiment analysis dashboards can
show daily trends in positive or nega-
tive blog posts, recent Twitter activity,
and other relevant information drawn
from social media.

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web beacon (or web bug)
A tiny, invisible image, typically a single pixel
with a unique identifier, used on websites to
track visitors.
marketIng Marketers treasure CRM applications, drawing on them to manage market-
ing campaigns, loyalty programs, and customized email programs. Companies use Web 2.0
technologies for marketing as well—publishing blogs, launching social networking sites, and
hosting events in virtual worlds.
Email marketing is a major focus for CRM applications. JangoMail, for example,
offers email marketing software that connects to the company’s database to personalize
each message, and tailor it to the customer’s interests. Someone who recently purchased a
tennis racket might receive an offer for discounted tennis balls. E-marketing information
systems provide extensive tracking capabilities as well, with detailed reports about cus-
tomer behavior, showing how many opened the message, forwarded it, or clicked on a link.
Technically, the software accomplishes this tracking by embedding in the HTML
email a web beacon or web bug, which is a tiny, invisible image, typically a single pixel
with a unique identifier. The image is actually located on the e-marketing server, and
when the customer opens the message, a request is sent from the recipient’s computer
to retrieve the invisible image
and download it. The request
includes the date, time, and IP
address of the computer mak-
ing the request, and the unique
identifier links the request to
the customer’s email address as
well. Beacons are widely used
on websites to track visitors.
One promising technology that had a thorny start for CRM is the virtual world, such
as Second Life. Early attempts to harness these social 3D immersive worlds for CRM
failed, partly because the inhabitants didn’t welcome marketers. Virtual gunfights even
broke out.24 However, companies like ProtonMedia are making progress by offering sep-
arate, business-focused virtual spaces for sales meetings, training, product development,
and other kinds of collaboration (Figure 5-17).
sales ForCe automatIon Sales force automation systems boost sales rep performance by
helping them track and manage their accounts, contacts, leads, and to-do lists. Some systems
also help salespeople develop proposals and quotes for their clients and assist managers in
evaluating the success of their sales teams. For mobile sales reps, access to CRM applications
via the web and smartphone is essential.
CNN, for example, deployed Salesforce.com to help its sales teams deal with more
than 2,000 clients who advertise on the television network. The system is configured with
human motivation in mind, especially to encourage sales reps to reach new goals. For
example, it provides real-time web-accessible metrics showing number of new accounts
CRM
Marketing
Customer
Service and
Support
Sales Force
Automation
Figure 5-16
Customer relationship management
systems support activities in several
areas of the company, and integrated
suites bring these applications
together.
PRODUCTIVITY TIP
Although web beacons in email provide very useful metrics for marketers, they
raise privacy issues. You can prevent much of that tracking by setting your
email to open as plain text rather than HTML, and also disallowing incoming
email to load images without your consent.

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for each rep, and it automatically sends emails to the whole organization to recognize
and congratulate the top performers.
Customer serviCe and support CRM can help organizations make major improvements
in customer service and support, and reduce costs as well. The click-to-chat feature described
earlier is widely used to interact with customers having login problems or other issues. Online
knowledge bases and support sites let customers help themselves to instruction manuals or
software drivers. Many companies also try to nurture user communities so that customers
can answer each other’s questions about the products. IBM, for example, hosts dozens of
such communities for developers who use their software tools. The participants discuss issues
online and also meet face-to-face in major cities.
Twitter is growing as a way to provide customer support, largely because it can reach
customers in near real-time. Washington, DC’s Metro subway, for instance, tweets about
service disruptions. Though tweeting can be very useful and cost-effective, occasional
blips occur. Twitter truncates any message down to 140 characters, but Metro workers
sometimes forget to stay under the limit:
“No Line: There is no Blue line train service between Rosslyn & King Street.
Shuttle bus service is established. Customers are encouraged to”
Amused followers started tweeting possible endings, such as “go to the closest bar . . .”
or “. . . ford the Potomac River at their own risk.”25
Companies also do well to respond quickly to customer service complaints posted to
Twitter. On Valentine’s Day, complaints poured in about many delayed flower deliveries.
Online florist 1800flowers.com responded right away to the tweets, partly because they were
public and could be retweeted. But the company took far longer to deal with phone calls.26
Call center software can queue calls, let callers know the approximate waiting time,
offer menu options for call routing, and retrieve customer data based on the caller’s infor-
mation so agents can quickly find answers. The software can track performance
metrics for the agents as well, such as time spent per call or number of escalated
calls. Some even assess the caller’s stress level through voice analysis, so manag-
ers can intervene early. The capabilities
of call center systems are expanding
to full-featured contact center sys-
tems in which agents can interact with
customers by phone, through online
chat, through email, and inside social
networks and community forums.
Figure 5-17
Virtual meeting space for business
collaboration, from ProtonMedia.
Did You Know?
The Library of Congress stores every tweet to keep a record of how we
communicate with 140 character snippets. Will you rethink your tweets? “I could
really go for some pancakes” probably isn’t a tidbit that merits a place in the history
books, but with hundreds of millions of tweets sent each day, the collection will
contain a little of everything.
Source: Courtesy of ProtonMedia. www.protonmedia.com.

www.protonmedia.com

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moBIle Crm applICatIons Mobile access to CRM applications for employees is essen-
tial, but what about customers? Incorporating cell phones into marketing campaigns is
certainly feasible, but fraught with hazards. Most people object to unsolicited cell-phone
calls and text messages. Sending an invitation to visit a pizza parlor, known from the
cell phone’s location to be close by, might provoke irritation—unless it also comes with
a hefty discount coupon. Offering customers the choice to opt-in helps avoid negative
reactions.
The cell phone offers endless
CRM possibilities, and custom-
ers welcome certain approaches.
To introduce a brand new car
model, Nissan created the car
as an avatar that players could
drive in Asphalt 7: Heat, a pop-
ular driving game for mobile
phones.27 This creative use of
mobile devices for marketing takes good advantage of their capabilities and engages
potential customers.
Offering something the customer really values is essential. To promote its Huggies
diapers, Kimberly-Clark created a program to help with toilet training. Parents can text
“bigkid” from their cell phones and then request a free toilet training kit. The website has
resources and tips for parents, who can also sign up for the second part of the program
to schedule cell-phone calls at designated times—for the toddler. On the other end, a
Disney character congratulates the child on his or her progress. To encourage sales, the
company tempts parents with more Disney voices and phone messages if they submit
proof of a Huggies purchase.28
The large selection of commercially available information systems for finance, human
capital, supply chains, and CRM offers tremendous value, as well as some major chal-
lenges. Lack of integration is the most severe one, a drawback that enterprise resource
planning attempts to solve.
EnTERPRISE RESouRCE PlAnnIng
(ERP): BRIngIng IT All TogETHER
As you saw in Chapter 4, early information systems started out in the last century support-
ing individual departments: accounting, payroll, human resources, inventory, manufactur-
ing, or sales. Accountants could quickly tally the day’s receipts and reconcile their bank
deposits. The payroll officer could update salaries in the afternoon and output the payroll
checks that evening.
Nevertheless, the departmental information systems operated as separate “silos,” and
information sharing was difficult. Business processes that crossed departmental bound-
aries were fragmented, and employees grumbled about delays as paperwork passed from
inbox to inbox. Confronted with contradictory reports, managers wondered which ones
were correct. Inconsistencies might be due to variations in data formats, definitions,
or data-entry procedures. The integrated database for the organization’s back-end sur-
mounts these silos and provides much more consistency. However, when departments are
implementing separate systems from different vendors, each one has its own back-end
database.
Responding to the need to consolidate, major software vendors stepped in to build
integrated application suites with functionality for at least two of the core business
processes. Early suites arose from systems that supported “manufacturing resource
planning,” which was software designed for manufacturing companies that helped man-
age inventories and materials. When the software vendors added capabilities for sales
transactions, accounting, human resources, and other common business functions, the
PRODUCTIVITY TIP
Many colleges and universities invite students, alumni, and parents to opt-in
to particular types of targeted messages, such as sports scores, college
news, events, or reminders. You may also be able to opt-in to your college’s
emergency email and text messaging service. The service should let you know
when classes are cancelled due to bad weather.
5 Explain the importance of ERP systems and describe how they
are created, integrated, and
implemented.

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software’s name was elevated to enterprise resource planning (ERP), to underscore its
growing breadth. ERPs have grown well beyond their manufacturing roots and now sup-
port back-office business processes for retailers, universities, hospitals, government agen-
cies, and many other organizations.
ERP Components
ERP suites, at a minimum, provide a solid, integrated back-end that supports the
company’s core functional requirements. Modules typically include financials and
asset management, human resources management, and, if applicable, manufacturing.
Increasingly, ERPs add CRM, SCM, and many other applications to create a “suite of
suites.” Figure 5-18 shows examples of the kinds of functionality that an ERP might
include.
Major ERP vendors include SAP, Oracle, and Microsoft. SAP’s Business Suite, for
example, goes well beyond the basics, adding electronic document management, RFID
and barcode tracking, event management, product design, business intelligence, data
mining, and more. ERP vendors also partner with other companies with attractive prod-
ucts, so they can integrate them for customers.
ERPs specialized for particular industries are rapidly evolving as well. An ERP for
real estate management can manage a portfolio of rental properties, for instance. ERP
suites for higher education include modules for financials and human resources, and
also specialized modules for academic records, financial aid, fund-raising, enrollment
management, and others (see Figure 5-19).
Financials
General ledger
Cash management
Accounts payable
Accounts receivable
Asset management
Scheduling
Human Capital
Management
Human resources
Payroll
Benefits
Professional development
Time and attendance
Talent development
Customer Relationship
Management
Marketing campaigns
Sales force support
Customer service and support
E-commerce
Sales planning and forecasting
Lead management
Manufacturing
Production management
Workflow management
Quality control
Process control
Scheduling
Supply Chain
Management
Supply chain planning
Order entry
Purchasing
Logistics
Transportation
Inventory and warehouse
management
Product Life Cycle
Management
R&D support
Project management
Product data
management
Engineering change
management
Figure 5-18
Enterprise resource planning (ERP)
systems typically include financials
and human resources and often
also support many other business
processes.

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enterprise resource planning (ERP)
Integrated application suite to support the
whole enterprise that includes modules to
manage financials, human resources, supply
chain, customer relationships, and other
business processes.
student’s vIeW oF the erp Sophomore Ellen Chang’s experience shows how an integrated
ERP works at her college (Figure 5-20). Ellen logs in to the student portal to get started.
She first checks her account to confirm that her tuition payment is up-to-date and that her
partial scholarship is there.
She needs another social science course to fulfill her general education requirements,
and since her focus is marketing, she decides to take something in sociology. She searches
the schedule of classes and finds SOC 411: Social Demography. But when Ellen tries to
register, she receives a message saying she lacks the prereqs. Instead, she looks into SOC
100: Introduction to Sociology, and figures she can take the demography course next
year. The display shows which sections still have seats, and Professor Darshan has open-
ings. Ellen clicks on the name to bring up a brief bio, office hours, photo, and contact
information. She clicks to register and within seconds receives a confirmation email.
the FaCulty’s vIeW oF the erp Professor Darshan’s portal for faculty offers many other
self-service tools, such as the ability to update contact information, manage health benefit
choices, record expense statements, view student records, and enter grades. The class list for
Module Description
Financials Tailored for nonprofi t, educational institutions, using fund accounting
Human Resources Human resources and payroll, benefi ts, time and attendance; system is customized
to manage faculty employment conditions, such as tenure and joint appointments
Student Academic
Records
Manages classes, courses, student admissions, student registrations, grades, class
rosters, faculty assignments
Enrollment
Management
CRM tailored to higher education, managing recruitment and retention
Financial Aid Manages fi nancial aid applications, awards, budgets, and interfaces with aid
sources, such as government agencies
Institutional
Advancement
Tracks donations, pledges, and gifts, and manages contacts and donor relationships
E-Learning Provides support for online classes with multimedia presentations, discussion
forums, blogs, wikis, assessments, grade books, and other features
Figure 5-19
Components of an ERP with modules
specialized for higher education.
Academic
Records
Enrollment
Management
E-learning
Ellen retrieves information
from Academic Records,
Financials, and Financial Aid
to see her accounts and
scholarship, and also register
for courses.
Financial Aid
Institutional
Advancement
Human
Resources
Professor Darshan retrieves
information from Academic
Records and Human
Resources to see her class
lists, check her benefits, etc.
Financials
Backend Database
Student
Portal
Faculty
Portal
Figure 5-20
Using the portals of an ERP designed
for higher education.

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SOC 100 now includes Ellen’s name and student ID number, with links to Ellen’s contact
information. When the class is filled, Professor Darshan will send an email to everyone, wel-
coming them to the class.
On the back-end, Ellen’s and Professor Darshan’s clicks are generating requests to
retrieve information from several ERP modules, such as academic records, human resources,
financials, and financial aid. The campus portal controls access for each user, and the inte-
grated database ensures that information is consistent, up-to-date, and unduplicated.
Integration Strategies
How are the ERP modules integrated so the end users have seamless access to whatever
organizational data they need? Figure 5-21 shows the major approaches, each of which
has pros and cons.29
Some products are built from the ground up, so they are engineered with a single
architectural foundation and the same programming language. All the components have
similar user interfaces and the back-end database shares common data elements. An
employee’s email address, for instance, is stored in one place and can be accessed by any
module that needs it.
Some vendors enhance their ERPs through mergers or acquisitions, so integration
must be added later. SAP and Oracle, the two largest ERP vendors, have both bought
numerous smaller companies with attractive software, so then they have to build software
bridges to connect the new products and synchronize fields that might be duplicates.
Organizations may also implement a more limited ERP from one vendor, but select
“best of breed” software for managing customer relationships, supply chain, or some
other aspect of their operations. Many universities, for instance, implement an ERP for
finances and human resources, but build or buy a separate student information system
to match their particular requirements. In these cases, the integration effort is often done
by in-house IT staff.
makIng ConneCtIons WIth mIddleWare The bridges that attempt to connect different
components that might be running on different servers and operating systems are created
with software called middleware. This software allows one application to access data in
another system’s database, and it synchronizes data across multiple systems. A customer’s
email address might be stored in both the finance and CRM modules, and middleware can
synchronize the data and propagate an update from the originating system to all the others.
pros and Cons oF dIFFerent IntegratIon strategIes The engineered suite offers solid
integration on the back-end and consistent user interfaces throughout. Its single architec-
tural foundation can translate to lower IT support costs because staff can focus on just one
platform. However, the individual modules may lack all the rich features users want. Also,
switching costs are far higher for ERPs in which all the modules are so interdependent.
Integration Approach Description Pros Cons
The engineered suite Built from the ground up with consistent
user interfaces, integrated backend
database, and a single architectural
foundation.
Data integrity is high, with
consistent, up-to-date, and
nonduplicated elements.
Modules are highly interdependent so
organizations have to implement and/or
upgrade all systems together. Switching
costs are high.
Suite with synchronized
modules
Vendor provides middleware to connect
and synchronize systems that may be
running on different platforms.
A common, vendor-provided
architecture overlays the
systems to improve consistency
across the modules.
Modules are integrated at the edges, and
the bridges can be fragile.
B est of breed suites Separate systems, deployed because they
each match user requirements closely,
but integration is weak and architectural
foundations can be very different.
Modules can have very rich
functionality and can be
implemented individually,
reducing risk.
Processes, interfaces, and data may not be
consistent across systems. Connections and
synchronization, which can be error-prone
and costly, may be done in-house or by
vendor.
Figure 5-21
Strategies for integrating ERP modules.

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middleware
Software used as a bridge to integrate
separate information systems and
synchronize data across multiple systems.
Another drawback is that tightly integrated ERP systems can be more difficult to
modify to meet changing business needs, compared to more loosely linked best of breed
systems. What seems like a simple change in the structure of a field will ripple through-
out the organization with unintended consequences. Making changes in such systems to
meet new business needs can often take longer than expected.
Organizations that use either the synchronized or best-of-breed approach must pay
close attention to master data management, since the same information will appear in
more than one system. Avoiding the fate in which the different systems report inconsis-
tent versions of the “truth” is a constant challenge.
Implementation Issues
Implementing an ERP strikes fear into the hearts of CEOs, CFOs, and CIOs alike.
Research shows that a very large percentage of such implementations go over budget,
take longer than expected, or fail altogether. Some studies report failure rates as high as
51%.30 Finger-pointing about what or who is responsible for such dismal success rates
and runaway costs is rampant. Even when an organization successfully launches an ERP,
the expected benefits and reduced operating costs may be disappointing.
preparIng For major Changes The engineered suite, in particular, can be most difficult
to implement because it isn’t easy to launch the tightly integrated modules one at a time.
Instead, organizations use the “big bang” approach, going live with all the core modules at
the same time. Simultaneously changing all four tires on a moving car is an apt analogy.
To a large extent, the ERP software requires people throughout the organization
to change the way they handle processes, so extensive training before going live is the
essential key to success. In principle, the ERP’s way of dealing with any particular pro-
cess embodies best practices, but the organization’s old way of doing things might be
quite different. The new processes can involve massive changes in terminology, work-
flow, supervisor approvals, and accounting entries. One school district in Arizona spent
several years trying to implement an ERP, only to find that employees just didn’t want to
switch to paperless workflows with streamlined approvals.31 The need to prepare every-
one for new processes is critical.
erps and soFtWare as a servICe (saas) The drive to lower implementation costs is
pushing vendors toward offering ERPs as software-as-a-service (SaaS) products, in which
companies pay subscription fees to access the vendor’s software in the cloud, via the web.
Small and medium businesses with limited IT budgets are especially interested in this model
because they can usually get up and running more quickly, and they don’t need their own
data center. Salesforce.com, with its online CRM applications, was an early SaaS vendor,
and NetSuite offers access to its online ERP. Larger enterprises are looking closely at the
model as well, and market leaders like SAP and Microsoft are developing SaaS versions of
their own products.
Although SaaS has many advantages, security and privacy are significant concerns.
CEOs are reluctant to house their most valuable assets on servers in the cloud, especially
when other companies, even competitors, might be tenants sharing the same servers.
Although data on a company’s own servers are certainly vulnerable to leaks and attacks,
management at least feels some sense of control.
SaaS ERP solutions also may take longer to implement than managers expect.
They are not really “instant on” products, and they require just as much training and
reengineering of workflows as the on-premise versions. Though IT staff don’t install
and maintain servers and software, people must configure the software, prepare data
for migration, manage the implementation, and train everyone on the new proce-
dures. They may also need to develop interfaces to other systems, so that data can be
synchronized.

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154 IntroductIon to InformatIon SyStemS
erp pros and Cons Despite the implementation hurdles, the ERP, at least to integrate
finance and human resources, is becoming a near necessity for most organizations. Once in
place, it can dramatically enhance operational efficiencies and reduce costs. A key ingredient,
of course, is that the organization’s employees actually change the way they work to take best
advantage of the integrated back-end and paperless workflows.
With all its pros and cons, the ERP is, as one business leader put it, something you can’t
live with and can’t live without. Used properly, it can standardize and streamline business
processes across the whole enterprise, eliminating the waste and redundancy that creep in
when everyone’s work is so focused on a single department. An ERP helps people appreciate
the full process, spanning departments, not just the part that touches their unit.32
Compared to a tangled thicket of poorly integrated systems with rickety electronic
bridges running between them, the ERP is an elegant racehorse. It certainly needs a new
name, though, given that few remember its roots or what the acronym stands for.
T he CEO of Custom Cakes is not happy. “Not again! Seems like every day we are either out of stock—which
makes our customers mad—or we’re loaded with excess
inventory that didn’t sell. So today it’s the line of frustrated
customers. I hope you can fix this supply chain and get a
handle on that bullwhip effect!”
Custom Cakes is a store in the mall that sells delicious
layer cakes with white icing. Inside each box is a special
kit with a packet of decorations and several tiny tubes
of colored icing that customers use to write their own
message on top. Procrastinating customers who forget to
order party cakes in advance really appreciate those kits,
and also buy templates so their cake writing looks more
professional.
The company is growing fast, and most of its
information systems are supporting business pro-
cesses well. But its growth is hampered by lost revenue
because of supply chain problems. The former assistant
manager did his best, but now it is your turn. As the new
assistant manager, your job is to get familiar with the
company and its information systems, and then take on
the supply chain problem. Log in when you are ready to
get to work. . . .
MyMISLab Online Simulation
Custom Cakes
A Role-Playing Simulation on Enterprise Information Systems
and the Supply Chain

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Learning Objectives
The four major categories of information systems that support business processes common to
most organizations are finance and asset management, human capital management (HCM),
supply chain management (SCM), and customer relationship management (CRM). Finance
and asset management systems incorporate modules to support accounts payable, accounts
receivable, procurement, cash management, budget planning, asset management, general ledger,
and financial reporting. Compliance reporting has become especially important for financial
systems, with stringent regulations that require electronic reporting using XBRL, a business
report language in the XML family intended to make reports more transparent, consistent, and
computer-readable.
Human capital management systems include core human resources functionality, along with
other modules that support a broader range of employee-related applications. Workforce
management software offers labor-scheduling tools, and also tracks time and attendance,
leave, and project assignments. Talent management helps map the employee life cycle, from
recruitment through career development, and to retirement. Social software is also sometimes
included, especially to encourage mentoring. Metrics from these systems, including performance
and productivity measures, can help reveal how well an organization is managing and nurturing
its human capital.
Supply chain management supports processes that optimize the flow of products and services
from their source, through the company, and to the customer. The five steps in supply chain
management are (1) plan, (2) source, (3) make, (4) deliver, and (5) return. Improving visibility
in a supply chain helps managers see metrics that help assess overall effectiveness, in a retailer’s
real-time sales, for example. The bullwhip effect occurs in a supply chain when visibility is
low. Collaboration to improve visibility among suppliers and customers uses electronic data
interchange (EDI) or XML. Sensing technologies such as RFID and GPS also help improve
visibility.
Customer relationship management (CRM) revolves around customer records, especially to
improve retention, increase profitability, grow revenue, and listen to customer sentiments.
CRM’s diverse software applications are especially useful in marketing, sales force automation,
and customer service and support. Included in this category are software tools to support
email marketing, loyalty programs, marketing campaigns, online customer service, contact
management, sentiment analysis, mobile phone advertising, and more.
Enterprise resource planning (ERP) systems integrate two or more of the applications that
support major business processes common to most organizations, especially finance and human
resources. ERPs from major vendors incorporate functionality for CRM, SCM, manufacturing
processes, analytics, and other business requirements as well. Some ERPs have tightly integrated
modules, whereas others synchronize data across modules that are more loosely integrated, using
middleware. Implementing an ERP is a major challenge, partly because so many applications are
replaced and so many processes are affected at the same time. SaaS versions are being offered,
which can be easier for some organizations. Despite the hurdles, most organizations find the
integrated ERP solution very valuable, especially for finance and human resources.
C H A P T E R
5 chapter summary
1
4
2
5
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financial management
system
eXtensible Business
Reporting Language (XBRL)
human capital management
(HCM)
human resources
management (HRM) system
workforce management
module
talent management
supply chain management
(SCM)
visibility
demand forecast accuracy
(DFA)
bullwhip effect
electronic data interchange
(EDI)
global positioning systems
(GPS)
customer relationship
management (CRM)
sentiment analysis
web beacon or web bug
enterprise resource planning
(ERP)
middleware
Key terms and concepts
chapter review Questions
5-1. What are the four major categories of information
systems that support business processes common to
most organizations? Which basic business functions
does each provide?
5-2. What role does a financial and asset management infor-
mation system serve in an organization? Why is finan-
cial reporting important? What are exception reporting
and compliance reporting? Why is each important?
5-3. What is human capital management? What are the
major components of a human capital management
information system? What are examples of metrics used
to quantify human capital? How are these metrics used?
5-4. What is supply chain management? What is the most
important metric in supply chain management? What
does it measure? What are examples of supply chain
management software? How is each used to support
supply chain processes?
5-5. What is customer relationship management (CRM)?
What are the objectives of CRM? How do organizations
measure their customer relationship? How do informa-
tion systems support each objective of CRM? What are
three basic categories of CRM technologies? How do
information systems support activities in each area?
5-6. Why are ERP systems important to organizations? What
are the typical components of an ERP system? What is
meant by the term “a suite of suites”? What are three
approaches to ERP integration? What are some of the
issues associated with an ERP implementation? What is
the success rate for ERP implementation? What is the
primary benefit of a successful ERP implementation?
5-7. Sensing technologies are everywhere in the supply
chain. Describe some of these sensing technologies
and discuss the benefits they provide. Search the
Internet to learn more about one of these technolo-
gies and how it is used in the supply chain. Prepare a
5-minute presentation of your findings.
5-8. Do you tweet? Twitter claims its users are sending
400 million tweets a day.33 That’s a lot of Twitter chat-
ter! What is sentiment analysis? How do organizations
use sentiment analysis to manage customer relation-
ships? Visit www.tweetfeel.com and enter the name of
your city to learn what Twitter users are saying about
your hometown. Then visit www.tweetfeel.com/biz to
learn how organizations can use this online tool to
improve customer relations. Describe how TweetFeel
works. What are search sets? Does TweetFeel work
in real time? How do you think Twitter chatter will
change when users learn it is being monitored?
5-9. Does your college or university let you sign up to
receive emergency alerts on your cell phone? What
are the advantages of this system? How does this dif-
fer from using mobile devices for marketing purposes?
What are the challenges of implementing mobile CRM
targeted to customers? Describe several approaches to
mobile CRM that are welcomed by customers. What
are the advantages to employees of providing them
mobile access to CRM?
5-10. Many colleges and universities use Banner, a higher
education software ERP system. Describe the ERP
system at your college or university. Compare the mod-
ules described in Figure 5-19 to the system components
that you access during the semester. Which modules do
you use? How do you use those modules? Which mod-
ules are used by university faculty and staff?
5-11. Many CRM systems are integrating social networking
technologies to improve customer relationships. Search
several social networking sites such as Facebook,
Twitter, and YouTube to identify how a specific com-
pany such as Dell, Coca-Cola, or McDonald’s is using
social media to interact with customers. Prepare a
5-minute presentation of your findings.
5-12. Work in a small group with classmates to identify
the types of information that you would need for an
HCM module to help you identify individuals in an
organization who have the potential for promotion.
How would you use this information to manage high
potential employees?
projects and discussion Questions
156 IntroductIon to InformatIon SyStemS

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5-13. ExcEl ApplicAtion:
performance Bicycle parts
Ted Stevens owns an Internet-based bicycle accessories
website that sells bicycle tires, tubes, chains, sprockets, and
seats, as well as helmets and water bottles. The bicycle parts
aftermarket is very competitive, and Ted realizes that having
both a low price and sufficient inventory to offer same-day
shipping are critical to his success. He has a global supply
chain and relies on many different supplier sources for the
quality products his customers demand.
Ted sells more replacement tubes than any other
product. For this item, customers expect high quality at a
competitive price. Ted spent several months evaluating the
quality and performance of six potential suppliers for the
most popular replacement tube, the 29” × 1.85”−2.20”
presta tube. These suppliers manufacture replacement tubes
of comparable quality and performance. With the right
price, quality, and availability, Ted expects to sell an average
of 12,000 tubes per month, or 400 tubes per day, for $6.50
each. However, he is concerned about the amount of cash or
working capital required to support the level of inventory he
needs to provide same-day shipping.
Using the information provided in Figure 5-22, create a
spreadsheet to analyze the replacement tube cost structure
for six potential suppliers. Per unit import duty cost equals
the import duty rate multiplied by the sum of per unit base
cost and the per unit shipping cost. The per unit warehouse
cost is the sum of the per unit base cost and the per unit
shipping cost and the per unit import duty cost. The per
unit total cost is the sum of the per unit warehouse cost and
the average per unit carrying cost.
Required inventory levels are based on projected
daily sales times the number of shipping days required for
delivery from the supplier to Ted’s warehouse. A longer
delivery time requires Ted to maintain a higher level of
inventory. Thus, he wants to include inventory carrying
costs in the analysis. Ted maintains average inventory (units)
based on 150% of projected daily sales multiplied by the
number of shipping days from the supplier. The average
inventory value equals the per unit delivered cost multiplied
by the average inventory (units).
Inventory carrying costs include the cost of putting
away stock and moving material within the warehouse, rent
and utilities for warehouse space, insurance and taxes on
inventory, and inventory shrinkage. Ted calculates his total
inventory carrying costs at 24% of the average inventory
value. The average per unit carrying cost equals the total
inventory carrying cost divided by the total number of units
sold per year (144,000).
Which supplier source requires the highest investment
of working capital or cash for average inventory? Which
supplier source provides Ted with the highest percentage of
gross profit on the presta replacement tube?
5-14. AccEss ApplicAtion:
Vsi consultants
VSI Consultants Group, Inc., is a professional IT consult-
ing firm that provides business and nonprofit organizations
with the highly skilled IT professionals they need to com-
plete IT projects and resolve staffing problems. VSI matches
employees with client projects based on employee educa-
tion, skills, and experience. Emily Loftus, the HR man-
ager, has asked you to use the information provided in the
spreadsheet shown in Figure 5-23, Figure 5-24, and Figure
5-25 to create an Access database to manage employees and
projects. You can download the Excel file Ch05Ex02 and
import the worksheets to tables in your database. Emily
wants you to create two queries. The first query identifies
the best candidates for three client projects: U.S. Brokerage,
Helen’s Clothiers, and Solar Systems. The second query
matches employees with projects. Specifically, she wants
to match projects for two employees: Y326 and T871.
What other queries may be useful to Emily?
application exercises
Figure 5-22
Suppliers for Performance Bicycle
Parts.
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158 IntroductIon to InformatIon SyStemS
Figure 5-24
Skills data.
Figure 5-25
Open projects data.
Figure 5-23
Employee data.

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case study #1
Banita Jacks and her daughters fell through many cracks in the maze of government-funded human services in the District of Columbia. Jacks sought help at least
23 times from 11 different agencies, but their separate information
systems made it difficult for any of them to obtain a complete under-
standing of the family’s desperate plight. Federal marshals finally vis-
ited their row house, where the mother had been living with her dead
daughters’ bodies for more than 7 months. At her trial, Jacks claimed
the children were possessed by demons, and she is now serving a
120-year prison sentence.
The poorly integrated systems left giant information gaps that
hampered agencies trying to help. For example, Child and Family
Services received an anonymous hotline tip that the mother must be
neglecting the girls, but since the agency didn’t have any home ad-
dress, no caseworker followed up. Other agencies had an address, but
their systems didn’t track the complaint. Teachers at the girls’ school
attempted unsuccessfully to contact the family when they were ab-
sent, but they knew nothing about the neglect charge. Information
wasn’t shared, and service workers who handled the family’s requests
rarely followed up.
Although this tragic case led to investigations and a round of
firings, the real problem was in the information systems. Agency di-
rectors want to transform the way these systems work by implement-
ing an integrated information system to share data. The agencies
need the same kind of customer-centric systems that private indus-
tries have when they install customer relationship management
(CRM) software. In a financial institution, for example, employees
in different departments might see individual events that could be
warning signs pointing to a dissatisfied customer. The broker might
know that the customer sold stocks and moved the funds to a cash
account, or the retirement counselor might receive a call from the
same customer, inquiring how to roll over an IRA. With an integrated
system, these individual events will paint a picture so that company
reps can follow up.
Nevertheless, CRM efforts in human services agencies face differ-
ent kinds of challenges compared to corporate CRM initiatives. First,
lawmakers must approve the project and provide funding. A project of
this magnitude could run $10 million or more, and city officials are
reluctant to spend such a huge sum on IT when budgets for shelters
are being cut, despite overcrowding.
Another concern involves privacy. The Child and Family Services
worker, for example, would need access to data on a family’s food
stamps, disabilities, homelessness, health records, and schooling.
Privacy advocates object to legislation that allows widespread access
to so much personal information about children at risk and homeless
families because it impinges on confidentiality. Striking a balance
between privacy concerns and the desire to help these families is
not easy.
Medical records are legally protected, though knowledge about
past history could help caseworkers identify problems. For example,
one woman was treated for mental illness many times, but a case-
worker who visited her home didn’t have that information. She reported
no significant problems in parenting; a few weeks later, however, the
troubled mother tried to drown her children.
While confidentiality, privacy, and funding are challenges, resis-
tance to change also contributes. Former DC Human Services Director
Clarence Carter suggests that many people just want to keep doing
what they do, because that’s how they’ve always done it. “We are
hired and held accountable for the administration of programs, not
for the well-being of individuals. That has got to change,” said Carter.
Adopting a CRM approach that involves listening to the customers and
adapting services to what they need will help.
Helping the Homeless: A Customer-Centric Approach with CRM Software
discussion Questions
5-15. How did the previous lack of integration impact the District of
Columbia Department of Human Services’ ability to serve its
clients?
5-16. With respect to the challenges involved in implementing
projects involving information systems, how does the public
sector compare with the private sector?
5-17. How do privacy challenges in the social service context
compare with challenges in other public services such as
traffic enforcement?
5-18. If you were the DC Human Services Director, what rationale
would you use to gain approval for the multimillion-dollar
investment?
Sources: Al-Khouri, A. M. (2012). Customer relationship management: Proposed
framework from a government perspective. Journal of Management & Strategy, 3(4),
34–54. Business Source Complete, EBSCOhost, accessed March 30, 2013.
Alexander, K. L. (February 22, 2013). Southeast mother charged with attempting to drown
four children by driving them into Anacostia River. The Washington Post, http://articles
.washingtonpost.com/2013-02-22/local/37242587_1_nicole-johnson-children-public-
defenders, accessed March 25, 2013.
Cherkis, J. (October 8, 2009). Banita Jacks is behind bars. Now comes the $6 million
legislation honoring her children. Washington City Paper, http://www
.washingtoncitypaper.com/blogs/citydesk/2009/10/08/banita-jacks-is-behind-bars-
now-comes-the-6-million-legislation-honoring-her-children/, accessed March 25, 2013.
Nash, K. S. (2010). Government IT: Fixing service delivery to put customers first.
CIO Magazine, May 14, p. xx.
Schainker, S. (2013). To achieve exceptional service, you must first listen to your customer.
Public Administration Review, 73(2), 228–229. Retrieved from Wiley Subscription Services,
April 3, 2013.
chapter 5 InformatIon SyStemS for the EntErprisE 159

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discussion Questions
5-19. How does the talent management system help Mandarin
Oriental balance the needs of global coordination and local
responsiveness?
5-20. Why would it be important for Mandarin Oriental to have an
integrated HR database?
5-21. What are the benefits for Mandarin Oriental executives? What
are the benefits for Mandarin Oriental employees?
5-22. What further uses could be possible for the data in this
system?
Sources: Freyemuth, J. (September 13, 2012). Impact of SuccessFactors Acquition on
SAP’s HCM strategy. Gartner Research, ID:G00235670.
Mandarin Oriental: Talent everywhere. (March 2010). HRM Asia, http://www.hrmasia.com/
case-studies/mandarin-oriental-talent-everywhere/40527/, accessed March 25, 2013.
Schein, A. (2013). Mandarin Oriental International Limited. Hoover’s Online, http://
subscriber.hoovers.com/H/company360/overview.html?companyId=101774000000000,
accessed March 25, 2013.
Otter, T., Freyemuth, J., & Hanscome, R. (March 14, 2013). Magic quadrant for talent
management suites. Gartner Research, ID:G00227698.
SuccessFactors supports Mandarin Oriental Hotel Group global growth strategy. (2009).
S. C. Study, http://www.successfactors.com/docs/Mandarin_CaseStudy_final_art_CRAIG_
approved_JM_0121 , accessed March 29, 2013.
160 IntroductIon to InformatIon SyStemS
case study #2
Colleagues is the term that the Mandarin Oriental Hotel Group uses to refer to employees, and a major goal for this luxury chain is to recruit, train, and retain the most
productive people in the hospitality industry. Starting in 1963 with a
single luxury hotel in Hong Kong called the Mandarin, the company
expanded slowly, acquiring a stake in the landmark Oriental Hotel in
Bangkok. That hotel first opened in 1865 and enjoyed a grand tra-
dition, having survived several wars and hosted countless authors,
celebrities, and government leaders.
Over the years, the Mandarin Oriental Hotel Group grew to over
40 properties in more than 25 countries, with 15 more in development
in locations such as Doha, Qatar, and Shanghai, China. Each hotel is
as distinctive as the first two. The company does not want a “monocul-
ture,” so each property takes on its own personality to match the local
market. But the company’s leaders also strongly believe in establish-
ing clear standards and performance indicators for every position and
job function. The Hotel Group’s HR department in Hong Kong oversees
the process so that, for instance, the chef at the Mandarin Oriental
in Singapore will meet the same standards as the chefs in Boston,
Bangkok, and Bermuda. Locally, each hotel’s human resources team
can tweak policies and procedures, especially because employment
laws and cultural factors differ. But the underlying standards are global.
To manage this empire and ensure that every hotel contributes
to its reputation for unsurpassed customer satisfaction, the com-
pany relies on a global approach to talent development. With more
than 10,000 colleagues speaking many different languages in Asia,
Europe, the Americas, Middle East, and North Africa, the company
implemented a specialized talent management system. The system
relies on SuccessFactors’ cutting edge human capital management
(HCM) system, which was purchased by SAP in 2012 to replace SAP’s
aging HR system.
The HCM system provides the building blocks to assess each col-
league’s performance, and it also adds a means to determine career
development paths and training needs. Both staff and managers can
input information about performance, and they can add notes about
development plans so that colleagues know what they should do to
advance their careers.
The system also supports succession planning, because every
individual’s capabilities and career progression are easily accessed.
This helps managers see functional areas that might lack depth, and
in which a sudden departure of a key employee could be a serious
setback. If there is no one with the knowledge and skills to step in eas-
ily, either by transferring someone from a different hotel or promoting
someone locally, the chain is taking a risk.
Group Director of HR Paul Clark says, “The system is doing the
job of tracking careers with the [Mandarin Oriental] group. It helps
us to determine who is ready for the next career step and then we
actively promote internally.” A major advantage is that colleagues are
well aware that they have attractive career opportunities, and they
know what training they need to pursue them. A side benefit of sys-
tems such as this is that the emphasis on career development and
interactivity increases the motivation of executives to do performance
appraisals with more care.
Companies may never actually win the war for talent, but they
must engage in it continually to attract and retain the most productive
people. Talent management systems can help them do that.
Winning the War for Talent: The Mandarin Oriental’s Talent Management System

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e-project 1
This e-project explores how human services agencies strive to improve
customer relationship management capabilities.
Make a table like the one in Figure 5-26, and then visit the websites
of those Departments of Human Services. Attempt to answer the ques-
tions for each site, but if you can’t find the answer to a question within
3 minutes, enter “Not found.”
http://www.oregon.gov/DHS/
http://www.dhr.georgia.gov/portal/site/DHS/
http://www.dhs.dc.gov/
5-23. How do you compare these departments in terms of how customer-
centric their websites are for visitors with different goals?
5-24. What measures are these human services agencies taking to
make it easier for people to obtain services that are designed for
them?
5-25. In what ways could CRM help agencies improve services and
reduce costs?
CRM for Human Services Agencies
Oregon Georgia District of Columbia
How do I apply for
food stamps?
Where can I fi nd the
nearest homeless
shelter?
What services are
available for deaf
people?
Figure 5-26
How customer-centric are human services agencies’ websites?
e-project 2
In this e-project, you will compare the major publicly accessible career
management websites and test their capabilities.
Founded in 1995, Careerbuilder.com claims to be the largest
online job site in the United States. A chief rival is Monster.com, which
pioneered digital recruitment in 1994. Its parent company, Monster
Worldwide, Inc., also offers similar services in other countries with local
listings. Both companies earn revenue from fees charged to employers
for posting jobs and searching through resumes for qualified candidates,
and also from online advertising.
5-26. Visit each site and check out the “About Us” sections to better
understand how the two companies differ. Compare and contrast
their vision statements.
5-27. Imagine you are a hotel manager looking for a job in a major U.S.
city of your choice. Compare the positions you find with Monster
to those you find with Careerbuilder.
5-28. Now enter each site as though you are a human resources
manager for a luxury hotel, and would like to post a job for hotel
manager. Compare the various services and packages that each
site offers employers. In which one would you choose to post
your ad, and what factors led to your decision?
Evaluating Employment and Recruitment Websites
chapter 5 InformatIon SyStemS for the EntErprisE 161

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http://www.dhr.georgia.gov/portal/site/DHS/

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chapter notes

http://search.proquest.com/docview/1080736971?accountid=11752

http://search.proquest.com/docview/1267260699?accountid=11752

http://search.proquest.com/docview/1281844364?accountid=11752

http://www.forbes.com/sites/sap/2012/05/08/dow-chemical-using-social-media-to-educate-and-train-the-next-generation/

http://www.zdnet.com/apple-discovers-underage-workers-fires-supplier-7000010323/

http://www.bloomberg.com/news/2013-01-24/netflix-soars-as-new-subscribers-lead-to-surprise-quarter-profit.html

http://search.proquest.com/docview/1151089925?accountid=11752

http://searchcrm.techtarget.com/feature/Social-media-for-businesses-begs-for-more-listening-and-less-marketing

http://www.sas.com/success/farmers.html

http://articles.latimes.com/2008/may/10/business/fi-secondlife10

http://articles.washingtonpost.com/2009-08-21/news/36872805_1_tweets-twitter-account-140-character-limit

http://www.forbes.com/sites/danbigman/2013/02/17/looking-for-your-missing-1800flowers-valentines-day-delivery-use-twitter-not-the-phone-study-says/

http://www.motorauthority.com/news/1080947_drive-the-nissan-juke-nismo-now–in-asphalt-7-heat

http://www.forbes.com/sites/danbigman/2013/02/17/looking-for-your-missing-1800flowers-valentines-day-delivery-use-twitter-not-the-phone-study-says/

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Learning Objectives
Identify and provide examples of four goals an organization might choose as it develops its web strategy,
and explain how websites are named.
Provide examples of different website information architectures, explain the importance of usability and
accessibility, and describe how websites are created with various software tools.
Explain how e-commerce works, and why security and trust are critical ingredients.
Define m-commerce, and explain how mobile payments work.
Explain how organizations market their websites using search engine optimization and web advertising,
and describe some of the challenges of online marketing.
Explain how the evolving web continues to develop by incorporating attributes such as crowdsourcing,
expanded data sources, the “Internet of things,” machine learning, and “big data.”
1
4
2
5
3
C H A P T E R
6 the Web, E-Commerce, and M-Commerce
EVERY ENTERPRISE NEEDS A WELL-THOUGHT-OUT WEB
STRATEGY, one that features its website as the front door.
Whether the organization actually sells products, solicits
donations, or tries to build mindshare and loyalty, its web
presence is a focal point.
In the online simulation for this chapter, you will experi-
ence first-hand what it is like to own a start-up that needs a
lively web presence. You inherited a gourmet food truck called
“Cruisin’ Fusion,” and business is booming. You and a couple
of partners will get together to plan your website, choose a
name, and develop strategies to make the business prosper.
You will certainly want customers to find you easily through
search engines, and you want to give them easy directions with
interactive maps. You’ll also need to be wary of scams that prey
on websites. The decision-making simulation introduces you to
the major concepts in this chapter as a way to learn by doing.
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.
6

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chapter 6 The Web, E-CommErCE, and m-CommErCE 165
In “Cruisin’ Fusion,” the web will be your ally as you build your food truck business. But the web and the Internet itself unleash creative destruction that demolishes other
business models. For example, the web bulldozed the newspa-
per business is short order. Beset by readership losses, layoffs,
and plummeting advertising revenue, print newspapers are in
deep trouble. Some have already gone bankrupt or drastically
cut back their activities. It’s not that people aren’t interested in
news. It is that they can get most of it for free, online, and in
much livelier multimedia formats. Even more appealing, they
can join the conversation, adding comments, debating opinion
pieces, and contributing their own breaking stories.
To thrive, companies must tap the web’s power to engage
customers, motivate employees, compete against rivals,
and earn revenue. They must also be forward looking about
e-commerce, as well as mobile commerce (m-commerce).
M-commerce is taking off rapidly, and people will be using
their smartphones as wallets—in addition to everything else
they use them for. This chapter explores these important top-
ics, beginning with an organization’s web strategy.
MyMISLab Online Simulation
Cruisin’ Fusion
A Role-Playing Simulation on Website Development for a Chain of Concession
Stands
C
ha
rl
ot
te
L
ak
e/
Sh
ut
te
rs
to
ck
.

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dEvEloPIng A WEb STRATEgy
Barely two decades old, the web offers an inexpensive virtual home to any organization,
one that is accessible 24/7. An effective website requires a clear vision of the site’s goals.
Who do you want to attract as visitors, and what do you want them to do while there?
What do you want to learn about them, to find ways to improve the site’s effectiveness
and lure them back?
Choosing a Goal
The primary web goals of most organizations fall into four broad categories:
▶ Inform or entertain the audience
▶ Influence the audience
▶ Sell products or services
▶ Facilitate offline relationships
Inform or EntErtaIn thE audIEncE Organizations that aim to inform an audience, or enter-
tain people in some way, offer content that drives traffic to the site. To earn revenue, many sell
advertising, or offer premium access to specialized content for fee-paying members. Online
magazines, video sites, and free game sites usually adopt this goal. At AddictingGames.com,
for instance, the games are free, but the site’s ads target the likely demographic of the players.
Huffington Post, the online newspaper that features blogs by unpaid celebrities such as Ron
Howard, also relies on ad revenue.1
An infomediary focuses on informing visitors and empowering them with aggregated
information about products from different suppliers. Consumer Reports, for instance,
tests consumer products in its labs and shares its results so consumers can compare
brands. Many infomediaries are also e-marketplaces that bring together buyers and sell-
ers, often from all over the world. Bizrate.com, with its “Search, compare, conquer” slo-
gan, compares sellers on thousands of items, showing buyers which retailer has the best
price. Buyers who check such sites before purchasing can save hundreds every year.
E-marketplaces are often classified based on the buyers and sellers they serve
(Figure 6-1). Bizrate and Expedia, for instance, focus mainly on business to consumer (B2C)
transactions, in which many suppliers post their wares and consumers can compare them on
pricing and features. E-marketplaces also support business to business (B2B) relationships.
On AliBaba.com, a retailer who needs to restock the inventory for a product can compare
wholesale prices, minimum orders, and payment terms from suppliers in dozens of countries.
Consumer to consumer (C2C) e-marketplaces include eBay and Craigslist. Individual
sellers can post their wares, and shoppers use the search tools to find what they want.
Consumer to business (C2B) relationships, in which consumers sell products or services
online to business, are also facilitated by e-marketplaces. Amazon, for instance, pays
bloggers a fee when their readers buy something they promote on the blog.
Identify and provide examples of
four goals an organization might
choose as it develops its web
strategy, and explain how websites
are named.
1
Business
Consumer
(or Citizen)
Business
Government
Consumer
(or Citizen)
Government
FIGURE 6-1
Types of e-marketplaces.

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business to consumer (B2C)
E-commerce relationship in which businesses
offer products for online sale to consumers.
e-marketplace
A website that facilitates transactions by
bringing together buyers and sellers from
all over the world.
Government websites also support online interactions, so terms such as G2C, G2G,
and C2G have appeared. For example, G2C encompasses services such as online pay-
ment for car registration renewals, and C2G might include electronic filing of tax forms.
Infomediaries are multiplying because so much information is becoming available in
machine-readable forms, typically XML. Innovative start-ups are capturing and analyz-
ing the data, and making it available so people can make smart choices. First Fuel, for
instance, gathers hourly electric bill data from utility companies and combines that with
GPS and hourly local weather data. Customers can see how efficiently their building is
using energy, and then make changes if needed.2
InfluEncE thE audIEncE Companies that are not actually selling directly to the public
online hope to influence their audience in subtle ways. They might want to increase brand
awareness, or persuade visitors to consider new technologies and upgrades. For instance,
automobile manufacturers offer numerous tools to construct a virtual car, choose accesso-
ries, read reviews, and learn about new options.
Nonprofit organizations, political blogs, campaigns, and public service initiatives
might also emphasize influence as the primary goal of their web presence, disseminating
information and encouraging visitors to get involved with local activities and events.
SEll ProductS and SErvIcES Selling is the primary goal of organizations whose websites
live and die by e-commerce transactions. Overstock.com, iTunes, and Amazon include many
features to help visitors find what they are looking for, read product information or reviews,
compile wish lists, and buy online. The checkout process on these sites is critical to customer
satisfaction. It must include several payment options, easy shipping solutions, and a simple
return policy.
Many nonprofit websites feature e-commerce as well, although the emphasis is on
donations to worthwhile causes rather than product sales. They must make a convincing
case, and then make it very easy for visitors to donate. For instance, a bright red “Donate
Now” button is prominently featured on SPCA International’s website, a nonprofit dedi-
cated to the safety and well-being of animals.
facIlItatE offlInE rElatIonShIPS For companies such as hotels, restaurants, ice cream
shops, and sports centers, the website’s goal is to facilitate offline relationships. Retail stores
might offer online buying with in-store pickup, and restaurants might provide directions and
discount coupons. India’s Taj Mahal Hotel website features special deals, event planning,
virtual tours, reward programs, and food preference surveys, along with online reservations.
Websites for colleges and universities typically create engaging tours for prospective
students and portals for current students, faculty, alumni, and staff. Along with many
online self-service applications, the sites include college news, sports scores, access to
digital libraries, and online learning support.
The goal an organization emphasizes for its website will help drive choices about
its design, navigation, features, and effectiveness metrics. For example, Suzanne Brace,
executive director of Hopewell Cancer Support in Ohio, stressed that the main focus
of the group’s website should be to get newcomers to attend a welcome meeting. That
simple goal drove her team’s decision making and helped them avoid costly distractions
when choosing features.3
Naming the Website
Let’s follow a group of dog lovers who met while on a study abroad program in Thailand.
They learned about dog breeds—like the Thai Ridgeback and Japanese Akita—that
infomediary
Focuses on informing visitors and
empowering them with aggregated
information about products from different
suppliers. business to business (B2B)
E-commerce relationship in which businesses
can buy and sell products or services online
to one another.
consumer to consumer (C2C)
E-commerce relationship in which individual
consumers can buy and sell to one another
over the Internet.
consumer to business (C2B)
E-commerce relationship in which individual
consumers can sell products or services
to businesses.

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originated in their different home countries. The students hope to promote breeds like
these and raise money to fund rescue services by creating a website called “Heritage
Dogs.” Their lighthearted approach will feature a social network in which owners can
post messages on their pet’s behalf (Figure 6-2).
claImIng a url for thE WEbSItE Selecting a name for the website is a critical first step,
and the team hopes to grab the name “HeritageDogs.org,” if it hasn’t been taken yet. The
uniform resource locator (URL) is the unique global address for a web page or other resource on
the Internet.
Every device connected to the net, whether it is your home videogame console or a
major corporation’s mainframe, has a unique, numerical IP address, such as 10.181.25.56.
These IP addresses are not human-friendly, though, so the Internet’s designers added the
Domain Name System (DNS)—the hierarchical naming system that maps a more memorable
URL, such as HeritageDogs.org or cnn.com, to the actual IP address. Mapping responsi-
bilities are distributed to many different servers across the Internet, each of which main-
tains the mappings within its own domain. A great advantage of DNS is that the URL
stays the same even if the organization moves the website to a new server with a different
IP address. The new mapping will propagate to all the other name servers on the Internet.
comPonEntS of a url The URL itself is a string of characters, and each component has a
specific meaning (Figure 6-3). The first few letters followed by the colon and forward slashes
indicate the transmission protocol used to connect to the resource. The most common is
hypertext transfer protocol (http://), which shows that the resource is a web page contain-
ing code the browser can interpret and display. In fact, the http:// is so common that most
browsers add it automatically if you enter a web address without the protocol. Another is file
transfer protocol (ftp://), which indicates that the resource is a file to be transferred.
The actual name of the site follows the protocol, as in www.southwest.com or
whitehouse.gov. The last string of letters is the top-level domain, such as .com, .org, .gov,
or .mil. The students chose .org because this usually signifies a nonprofit organization,
which is what they plan for Heritage Dogs.
managIng domaIn namES and vIrtual rEal EStatE As the maxim goes, the three most
important features of real property are location, location, and location. For online property,
the URL is the critical ingredient, not the physical location of the server. Organizations com-
pete to grab the “best” names for their URL, those that visitors will most easily remember or
could easily guess.
The students want heritagedogs.org because it nicely reflects their mission and is
easy to remember. They can go to one of the domain name registrars, such as www
.networksolutions.com or register.com, to see whether that URL is available. If it is, they
can pay a small fee to register it.
FIGURE 6-2
Heritage Dogs web page.
Hey there, I’m a Heritage Dog called Tor. I
come from Thailand and some think my breed
is more than 2000 years old!
Select a Country
Afghanistan
Czech Republic
France
Germany
Japan
Mexico
Thailand
United Kingdom
United States
Thailand
Source: Keattikorn/Shutterstock.

www.southwest.com

www.networksolutions.com

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hypertext transfer protocol (http://)
A URL component that specifies the resource
is a web page containing code the browser
can interpret and display.
Domain Name System (DNS)
The hierarchical naming system that
maps a more memorable URL to the actual
IP address.
uniform resource locator (URL)
The unique global address for a web page
or other resource on the Internet.
The Internet started in the United States as a rather obscure technology used mainly
by academics and government researchers; as a result, the naming conventions are some-
what U.S.-centric. For instance, the top-level domains “.gov” and “.mil” refer only to
U.S. government agencies and military. The net’s astounding growth led to the adoption
of hundreds of additional top-level domains, including all the two-letter country codes
from the Ascension Islands (.ac) to Zimbabwe (.zw).
The Internet Corporation for Assigned Names and Numbers (ICANN) is the nonprofit
organization charged with overseeing the net’s naming system. ICANN works out
contracts with the organizations that manage URL assignments within each of the
top-level domains, accredits the registrars who sell domain names, resolves disputes,
and establishes policies. For instance, the net’s naming system originally accepted
only domain names written with the Roman alphabet, but ICANN opened the
door for other scripts. Egypt was one of the first to apply to use Arabic script for
domain names under its “.eg” top-level domain. ICANN also ruled to accept applica-
tions from organizations that want to use brand names, city names, or keywords as
top-level domains. Over 2,000 applications were submitted, with strings such as “.art,”
“.paris,” and “.nike.”4
dISPutES ovEr domaIn namES Domain name disputes break out, and legal battles are
common. Companies take quick action if a name is registered with even a whiff of trade-
mark infringement. Social content sharing service Pinterest (www.pinterest.com), for exam-
ple, is fighting the owners of Pinterest.info. Pinterest also objects to Amazon’s request to own
a new top-level domain called .pin.5
A related offense is “cybersquatting,” in which someone registers a domain name that is
a company’s trademark, hoping to resell it to the company at an exorbitant profit. Although
laws have been passed to stop the practice, variations on a company’s name can still confuse
web surfers. “Typosquatting,” for instance, is registering a replica site with a misspelling in
file transfer protocol (ftp://)
A URL component that indicates the resource
is a file to be transferred.
top-level domain
The last string of letters in a URL that indicates
the type of organization or country code.
Internet Corporation for Assigned
Names and Numbers (ICANN)
The nonprofit organization charged with
overseeing the Internet’s naming system,
establishing policies, and resolving disputes.
Component Examples Description
Protocol
Identifi er
http://microsoft.com (web page) Identifi es the protocol that will be used to connect
to the address following the forward slashes.
Registered
domain name
http://wwww.etrade.coom
http://wwww.umd.edu
http://wwww.edu.cn
Maps to the unique IP address of the destination
location.
Top-level
domain
http://youtube.com
http://www.whitehouse.gov
http://www.army.mil
http://redcross.org
http://www.dw-world.de
http://canada.gc.ca
The top-level domain typically indicates the type of
organization or the country of origin, such as those
below. New rules passed in 2011 clear the way for
using brand names, cities, or general keywords as well.
.com—commercial
.edu—education
.org—nonprofi ts
.gov—US federal government
.ca—Canada
.de—Germany
.cn—China
.tn—Tunisia
Filename
(optional)
Specifi es a particular web page within a site, in this
case, one with the fi le name of FAQ.htm.
Port (optional) Directs the connection to a specifi c port on the
server. If absent, the default http port (80) is used.
FIGURE 6-3
Components of the web address,
or uniform resource locator (URL).

www.pinterest.com

http://microsoft.com

http://www.etrade.com

http://www.umd.edu

http://www.edu.cn

http://youtube.com

http://www.whitehouse.gov

http://www.army.mil

http://redcross.org

http://www.dw-world.de

http://canada.gc.ca

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the trademark name that users might easily mistake for the real thing and enter personal
information and passwords for the squatter’s fraudulent use. The squatter might also dis-
play negative information about the actual company, hoping the CEO will pay a ransom to
get the name back. Damage to the brand can be extensive, and many companies want to
get control over those rogue sites.
All the new top-level
domains may make it more dif-
ficult for trademark owners to
track down cybersquatters that
lay claim to one of the many
new endings and combine the
brand name (or a close match)
with it.6 ICANN is setting up
a clearinghouse where owners can register their trademarks, but disputes may become
more common.
buIldIng THE WEbSITE
Once confined to experienced programmers, the task of building the website has been
simplified considerably. Nevertheless, creating a professional and well-designed site con-
taining features that support the site’s major goals requires skill and careful attention to
visitors’ interests and motivations.
Website Design
The best-designed website is the one that achieves its goals, and many different approaches
work. TripAdvisor.com’s strategy has made it one of the most trusted sources of travel advice
on the web, with more than 75 million reviews and opinions. Visitors can quickly tap into the
collective knowledge of reviewers to read their candid opinions on restaurants, hotels, cruises,
and more. Advertisers in the hospitality and travel industries pay top dollar to post ads rele-
vant to the visitor’s query. Someone reading reviews for hotels with golf courses in Scottsdale,
Arizona, will see ads for just those hotels, and perhaps special deals on golf clothing.
The reviews that travelers contribute help build trust in the site; however, malicious or
fake reviews may also be posted.7
WEbSItE InformatIon archItEcturE and navIgatIon Just as an architect designs build-
ings that are easy to use and beautiful to see, web designers strive to reach similar goals with
their site’s information architecture. Designers must find ways to organize the information,
provide navigational tools, and ensure visitors don’t struggle to find what they are looking
for and complete a transaction.
Figure 6-4 shows some examples of website architectures. Although visitors can enter
a website at almost any location, designers consider the home page as the conceptual
gateway and entrance point, and they build out the information architecture from there.
For a very small site, a flat architecture serves well, with a home page linking to four or
five additional pages. For larger sites, a common design is the hierarchical website archi-
tecture, in which the top-level home page contains links to second-level pages, which then
link to further relevant pages. For example, Heritage Dogs will use a hierarchy based on
countries, so visitors to the home page can drill down to the images and rescue opera-
tions for dogs in each nation. Many organizations start out with a hierarchical design,
following their own organizational charts or product lines.
The strict hierarchy has appeal, but frustration mounts if visitors drill down the
wrong path, looking for information that doesn’t easily fit or that spans categories. For
instance, a visitor to a newspaper website who wants to know what time the horse races
start would not know whether to drill down into Sports, Entertainment, or Events.
The multidimensional website architecture recognizes that information can be catego-
rized in many ways, and that visitors need multiple paths through the site. Panasonic’s
website, for instance, offers links to different visitor categories in the top navigation bar,
PRODUCTIVITY TIP
You may need your own website someday, so you might consider reserving a
good domain name now for a few dollars a year—before someone else takes
it. Most people choose a common pattern such as www.FirstnameLastname
.com. Other top-level domains might interest you, such as .net, .org, .biz, or
your country code.
Provide examples of different
website information architectures,
explain the importance of usability
and accessibility, and describe how
websites are created with various
software tools.
2

www.FirstnameLastname.com

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sequential website architecture
Website structure that guides visitors step by
step through a transaction, survey, or learning
module.
multidimensional website architecture
Website structure with multiple links to pages
at all levels, allowing visitors multiple paths
through the site.
hierarchical website architecture
Website structure in which the top-level home
page contains links to second-level pages,
which then link to further relevant pages.
Services Products
Mission Contact Privacy Tech Home Consult Phone
Home
Flat Architecture
Hierarchical Architecture
Multi-Dimensional Architecture
Sequential Architecture
Contact Clients
About
Us
MissionHome
About
Us
Mission Contact Privacy Tech Home Consult Phone
Products Services
Home
Choose
Model
Choose
Colors
Choose
Features
Choose
Financing
Home
FIGURE 6-4
Information architectures
for websites.
including consumers, business, and industrial. Along the right navigation bar, it offers
links to product lines, such as printers, audio and video electronics, and others. Amazon
.com helps users browse by department, keyword, and sales promotions. Within “Books,”
visitors can also browse by categories such as best sellers, textbooks, or sales.
A sequential website architecture is useful in some settings, particularly when designers
want the visitor to proceed step by step through a transaction, survey, or learning mod-
ule. The example in Figure 6-4
shows how a website might help
a shopper design his or her own
dream car. Each page would
have only one link, often labeled
“Next Step.”
Search functionality that
confines the search to the web-
site rather than the whole web
dramatically improves the visitor’s ability to find relevant material, particularly on very
large websites. One drawback is that a search may retrieve obsolete pages the organiza-
tion neglected to delete.
PRODUCTIVITY TIP
Search is a powerful tool, but it works best when you use less common words
or strings that are as specific as possible. Search for graphic design and you
retrieve more than 277 million web pages. Graphic design jobs New York City
retrieves far fewer but more relevant web pages. Putting quotation marks
around a string will return web pages with an exact match.

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uSabIlIty and uSEr IntErfacE dESIgn Usability refers to the ease with which a person can
accomplish a goal using some tool, such as a website, a mobile phone, or a kiosk. Does the
user struggle to find directions to the company’s address? Do many visitors abandon their
shopping carts? Figure 6-5 lists several elements of usability that apply to websites.
Usability relies partly on clear information architecture, and also on the user inter-
face design. For example, designers use color to manage the user’s attention, drawing on
principles of visual perception. Bright red—especially against a darker background—
attracts the eye. That color is very often used for the DONATE NOW! button on non-
profit websites. Note how the red button on the left side of Figure 6-6 seems to leap out,
even though it is the same size as the dark blue button on the right. Figure 6-7 lists basic
tips for designing an effective user interface.
A good way to assess a site’s usability is to ask visitors to perform a sequence of tasks
and observe the problems they encounter. At the University of Nevada, Las Vegas, for
instance, researchers assigned students tasks related to library research, such as these:
1. Find a journal article on the death penalty.
2. Check whether the library is open on July 4.
3. Locate the most current issue of Popular Mechanics.
Visitors easily found the library’s hours, but they had trouble finding content because
they could not easily distinguish between “Journals” and “Articles and Databases,” or
between “E-Reserves” and “Other Reserves.” They tended to ignore the navigation tabs at
the top, and they also found little use for “Subject Guides.”8 Usability tests are critical to
help designers improve the site for the people who actually use it, not the ones who design it.
Element Sample Metrics
Ease of learning To what extent can a user accomplish simple tasks on the fi rst visit?
Effi ciency After learning the site’s basic design, how quickly and effi ciently can a user perform tasks?
Memorability When a user returns to the site after a period of time, how much effort does it take to
regain the same level of profi ciency?
Error rates How many mistakes do users make when they attempt to accomplish a task, and how
easy is it to recover from those mistakes?
Satisfaction
level
How do users rate their experiences on the site? Do they describe it as pleasant and
satisfying, or frustrating?
FIGURE 6-5
Elements of website usability.
DONATE
NOW!
DONATE
NOW!
FIGURE 6-6
Designers use color to manage the
visitor’s attention on a web page.
▶ Keep it structured. Use a clear and consistent design that is easy for users to recognize throughout the site.
▶ Keep it simple. Make the common tasks very simple to do, so users can accomplish them on the fi rst try without frustration.
▶ Keep users informed. Let users know in clear language when something on the website changes, or the user has completed an action.
▶ Be forgiving of errors. Let users easily undo their actions or return to previous states.
▶ Avoid distractions. Especially when the user is engaged in a sequential task, avoid adding unnecessary links or options.
FIGURE 6-7
Tips for effective user interface design.

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assistive technologies
Devices and software that help people with
disabilities, such as screen readers for the
visually impaired.
web accessibility
Refers to how easily people with disabilities
can access and use web resources.
usability
Refers to the ease with which a person can
accomplish a goal using some tool, such as
a website, a mobile phone, or a kiosk.
Web Accessibility for PeoPle With DisAbilities Web accessibility refers to how easily
people with disabilities can access and use web resources. Impaired vision, hearing loss,
limited motor skills, and other kinds of disabilities can hinder or even block people
from using the web. In the United States,
the disabled comprise almost 20% of the
population, a figure expected to grow
as the population ages. Studies of the
websites for large enterprises show that
while most large companies have made
some improvements, hurdles remain for
many users.9
The Web Accessibility Initiative (WAI) develops guidelines for web accessibility that
are widely regarded as international standards. It also offers tutorials to help organi-
zations improve their sites and understand how design techniques can radically alter a
site’s accessibility. Its site (www.w3.org/WAI) offers links to a variety of software tools
that designers can use to check a site’s accessibility against the guidelines. Fujitsu, for
instance, offers free software to assess text and background color combinations that
might not work for people with cataracts or color blindness (Figure 6-8).
Assistive technologies designed to help people with disabilities range from the low-
tech magnifying glass for the visually impaired to motorized wheelchairs. When using
the web, mouse foot pedals, screen readers, Braille displays, head-mounted pointers,
joysticks, and speech-to-text translators for the deaf can all improve access.
Figure 6-9 shows a wireless device that tracks small head motions and converts them
to mouse movements, designed for people with limited use of their hands.
Did You Know?
Sixdegrees.org simplifies donations by offering four easy ways to do it: Click here to
donate or volunteer; click here to buy a gift card for a friend to donate to a charity
of his or her choice; click here to use a gift card; and click here to create a charity
badge. It’s a creative approach, with effortless usability.
FIGURE 6-8
Software tools can help designers
audit website accessibility. Fujitsu’s
free software alerts developers when
their color combinations for back-
ground and text may be unreadable
for people with cataracts or one of
several types of color blindness.
Source: http://www.fujitsu.com.
FIGURE 6-9
Wireless sensor mounted on the
laptop picks up tiny head movements
from the small blue tracking dot on
the boy’s forehead and converts the
motion to mouse movements. The
HeadMouse® Extreme from Origin
Instruments is designed for people
with limited use of the hands.
Source: Origin Instruments Corporation
www.orin.com. Source: Origin Instruments Corporation.

www.w3.org/WAI

http://www.fujitsu.com

www.orin.com

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Designers should address accessibility issues in the site’s information architecture,
with design elements that meet the needs of a wider range of users and work well with
assistive technologies such as screen readers. Figure 6-10 lists some dos and don’ts for
web designers.
Software Development Strategies for the Web
Creating the website can be as simple as typing into a word processor and uploading
some files, or as complicated as writing thousands of lines of code from scratch. The goal
is to create pages that a visitor
can access with a web browser—
the software application that
retrieves, interprets, and displays
web resources. Figure 6-11 lists
popular web browsers, all of
which are free to end users.12
PRODUCTIVITY TIP
Browsers offer many accessibility features that are helpful to everyone. For
example, the Windows shortcut to increase text size for Internet Explorer
and Firefox is to hold the Control key down and press the plus sign. On a
Macintosh, the shortcut for Safari is Command+.
Why are organizations so slow to make their websites accessible to people
with disabilities? Even government websites in many countries fall very short,
so the disabled have trouble obtaining critical services.10 In the European
Union, despite laws that require accessibility features, only a third of govern-
ment websites are fully accessible.
Some web developers are concerned that there is a conflict between
usability and accessibility, and that an accessible website will have to bypass
many of the rich features and graphical elements that make them pleasing
and attention-getting.
Although the challenge of creating accessible websites is not trivial,
organizations can make tremendous progress by building in accessibility
from the start. A common obstacle for visually impaired people, for instance,
is a button that can only be accessed with the mouse. One university’s new
virtual student union had that flaw on its “Let’s get started!” button, so blind
students couldn’t ever get started.11 But it is just as easy to program the but-
ton to also respond to a key press, if the designers keep that feature in mind.
Though many organizations see efforts to improve accessibility for
people with disabilities as additional costs, others are learning that acces-
sibility adds strategic benefits in the form of heightened corporate social
responsibility and Internet visibility. Making the site more accessible from the
beginning also broadens the potential base of customers and thus makes
good business sense.
THE ETHICAL FACTOR Website Accessibility: Why Is Progress So Slow?
Do:
▶ Add alternative text tags for every image, so visually impaired people know what the image is.
▶ Use self-explanatory links.
▶ Use “More on cosmetic dentristy” rather than “click here for more.”
▶ Make bold headings, short paragraphs, and orderly paragraph arrangements, so screen readers follow
the fl ow correctly.
▶ Create text-only alternative versions for devices such as tablets or mobile phones.
Don’t:
▶ Use fi xed text sizes, which may make it impossible for visually impaired people to use the site.
▶ Create very tiny clickable areas, which hinder those with limited mobility or motor function.
▶ Implement forms that require a mouse click, which prevents keyboard-only users from typing in their
information.
▶ Use overly complicated designs with no simple alternative for browsing on a tablet or mobile phone.
FIGURE 6-10
Design tips for improving website
accessibility.
Web Browser Market Share Description
Microsoft
Internet Explorer
45% Microsoft initially bundled its browser with the operating system to
gain an early lead in the “browser wars.”
Google Chrome 24% Google’s web browser, developed using the open-source model;
rapidly gained market share in recent years.
Mozilla Firefox 19 % Developed in the open-source model, Firefox has a loyal following
with its many useful add-ons, such as one that blocks all advertising.
Apple Safari 10% Dominant browser for Apple computers, laptops, and mobile devices.
Other 2% Opera, Gecko, and others
FIGURE 6-11
Major web browsers.

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JavaScript
A language used to add interactivity to
web pages.
hypertext markup language (HTML)
The original language used to create web
pages; HTML specifies the web page’s format
using tags in angle brackets that browsers
can interpret and put into reader-friendly
output.
web browser
The software application that retrieves,
interprets, and displays web resources.
html and html 5 The original language used to create web pages is called hypertext markup
language (HTML), which specifies the web page’s format and helps put it into reader-friendly
output. The language uses tags
in angle brackets that browsers
can interpret (Figure 6-12), such
as

, to indicate the start of a
new paragraph. Usually, the page
will still appear even if the code
includes many mistakes in the
tags, though it may not be for-
matted quite the way the designer
intended in all the browsers. Competitive battles for market share often lead browser devel-
opers to add special features and proprietary tags that work only with their own browser,
creating headaches for software developers who must test their code in one browser after
another, and also in several versions of each browser.
The latest version of HTML is HTML 5, which will reduce problems for web devel-
opers struggling to support different browsers running on so many different devices,
from desktop computers and
laptops, to smartphones, tablets,
and TVs. HTML 5 offers many
new features, such as the ability
to access location information
from a mobile device without
having to write special code for
each one. Developers can also
do fancier graphics and word art, rather than having to import such images from soft-
ware like Photoshop.13
HTML 5 also reduces the need for web developers to ask customers to download spe-
cial browser plug-in software, like Adobe Flash, especially for video. Flash was becoming
a near universal requirement for browsers because so many videos on the web used the
Flash format. But when Apple banned Flash from iPhones and iPads, developers needed
a substitute. Although workarounds to the ban are available for Apple users, HTML 5 is
rapidly taking over as the favorite development tool.14
crEatIng IntEractIvE, mEdIa-rIch WEbSItES HTML 5 goes a long way toward helping devel-
opers build engaging websites. Another popular tool is JavaScript, which can be used within
HTML to add interactivity to web pages. Pop-up alert boxes, lively images that appear when
your mouse rolls over the page, and validation for your input on forms are all examples of what
PRODUCTIVITY TIP
Common browsers support many add-ons to boost your productivity and
customize your web browsing. Ad blockers, Flash blockers, spyware protection,
Facebook toolbars, to-do lists, reminders, web page previews, and news feeds
are just a few examples. Be selective, though, since some add-ons, or just too
many of them, can impede your browser’s performance.
PRODUCTIVITY TIP
If some web pages stop displaying the way you expect, it may be because you
upgraded your browser to a new version that the website developer had not
tested. With Internet Explorer 10, you can try using Compatibility View (under
Tools) to visit those websites.
HTML
code
Formatted
on the web
page
River Hair Salon
–Where beauty is our vision–
Directions
River Hair Salon
—Where beauty is our vision—
Directions
FIGURE 6-12
Example of how hypertext markup
language (HTML) formats text and a
link on a web page.

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JavaScript can do. A JavaScript library called JQuery contains a growing collection of open
source code to help developers create interactive pages that work in many different browsers.
AJAX is a mix of technologies that builds on JavaScript and enlivens the web even
more, adding instant intelligence drawn from live data to create interactive displays.
Go to www.google.com and try typing the word computer into the search box, but type
slowly. You will see a rapidly changing list of words as you enter each letter, showing
suggestions even before you finish typing. Many interactive maps and charts that show
updated data as you move the mouse over different regions also use AJAX, drawing the
data from a database (Figure 6-13).
The World Wide Web Consortium (W3C), of which the Web Accessibility Initiative is
one part, is an international body that establishes and publishes standards for program-
ming languages used to create software for the web. Headed by Tim Berners-Lee, the
inventor of the World Wide Web, the W3C strives to make sure the web continues to sup-
port communication and commerce for all people, regardless of their hardware, software,
native languages, or geographic location. So far, its work has helped developers avoid the
fate in which the web fragments into islands that can’t interact with one another, but
there is more to do. Berners-Lee says, “The Web as I envisaged it, we have not seen it yet.
The future is still so much bigger than the past.”
WEb contEnt managEmEnt SyStEmS As websites grow in size and incorporate audio,
video, text, graphics, and other kinds of unstructured content, organizations need better
ways to manage not just the content, but the many tasks and people required to maintain the
site. Content management systems encompass a large group of software products that help
manage digital content in collaborative environments. The web content management system
supports website development and maintenance for larger teams.
These systems enable multiple people, often with limited web development and
HTML skills, to contribute to the website from any place in the world. The site’s overall
look and feel, including the navigation bars that should appear on each page, are created
as templates with consistent fonts, colors, and layout. The templates include cascading
style sheets (CSS) that control the fonts and colors to appear when an editor identifies
some text as a page heading, a paragraph title, or some other style.
Website editors can create new pages using a software environment similar to word
processing, and their content is converted to HTML so it will appear nicely formatted
FIGURE 6-13
Interactive map showing population by
congressional district, using AJAX.
Source: http://www.census.gov/2010census/popmap/.

www.google.com

http://www.census.gov/2010census/popmap/

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content management system
Software used to manage digital content in
collaborative environments. The web content
management system supports teams that
develop and maintain websites.
World Wide Web Consortium (W3C)
An international body that establishes
and publishes standards for programming
languages used to create software for
the web.
AJAX
A mix of technologies that builds on
JavaScript and draws on live data to create
interactive online displays.
on the website, inside the appropriate template. The content management system and its
CSS can enforce a consistent look and feel throughout the site, preventing contributors
from straying too far from the designer’s templates.
Content management systems have many other features to support collaborative
website development. For example, they prevent two people from trying to edit the same
page at the same time, and they save older versions of each page as the website evolves.
The systems also include workflow functionality so that new content can require a super-
visor’s approval before publication to the actual website.
E-CommERCE
E-commerce refers to the buying and selling of goods and services over the Internet or
other networks, encompassing financial transactions between businesses, consumers,
governments, or nonprofits. Canny marketing promotions, increased consumer confi-
dence in online payments, and even paralyzing snowstorms help steer shoppers to the
Internet.
The Online Transaction and E-Commerce Software
Websites whose main goal is selling or soliciting donations need e-commerce capabilities.
Many software vendors offer information systems to support online stores with secure
web-based financial transactions. These systems help web developers create a catalog of
products using a back-end database, conduct online marketing and sales promotions,
manage the financial transactions, and handle reporting.
E-commerce systems typically include shopping cart software that tracks purchases
as customers navigate the site and click “add to cart” as they go. When the customer is
ready to check out, the software tallies the purchase, calculates taxes, computes ship-
ping costs, and also posts a discount if the customer enters a valid promotional code.
The shopping cart analogy and the software underlying it work well for nonprofits like
Heritage Dogs, though it may seem odd to add your donation to a “cart.”
Online retailers know that customers often abandon their carts, so they work hard to
make the process as stress-free as possible. Unexpected surprises at the end, such as high
shipping costs, turn customers away.15
E-Commerce Security
The success of e-commerce depends heavily on its security and the perceptions people
have about its trustworthiness. Online fraud cost e-retailers as much as $3.5 billion in
2012, but companies are ramping up countermeasures. For example, their information
systems rate the risk of any particular transaction by checking data such as order value,
past transactions with the card number, and lists of risky accounts.16
An e-commerce transaction must be secure from end to end, despite including several
steps on different servers that can be geographically quite distant. The web address origi-
nating the transaction should show the https:// protocol, indicating the transmission to
that server is encrypted and secure.
cascading style sheets (CSS)
The part of a website template that controls
the fonts, colors, and styles that appear when
an editor identifies some text as a page
heading, a paragraph title, or some other
style.
e-commerce
The buying and selling of goods and
services over the Internet or other networks,
encompassing financial transactions
between businesses, consumers,
governments, or nonprofits.
3 Explain how e-commerce works, and why security and trust are
critical ingredients.
shopping cart software
Computer software that tracks purchases
as customers navigate an e-commerce
site and click “add to cart” as they go. The
software tallies the purchase, calculates taxes
based on the customer’s location, computes
shipping costs, and also posts a discount if
the customer enters a valid promotional code.

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The credit or debit card information is transmitted to the payment gateway, which
facilitates online shopping by mediating the interconnections to the merchant’s bank, the
bank or other entity that issued
the card, and then back to the
original website. If the transac-
tion is approved, a confirma-
tion is returned to the seller’s
site. All these connections must
also be encrypted and secured.
Chapter 10 explores security in
more detail.
E-Commerce Trust
Trust is an essential element
of e-commerce—buyers need
assurance that an organization
selling products online is repu-
table and secure. Well-known
brands such as Macy’s, Best
Buy, and Walmart can rely on
their own reputations, built
from years of operating physi-
cal stores. Some large online
retailers that lack actual retail
locations, such as Amazon.com
and Overstock.com, struggled
to build trust over time but now
enjoy solid reputations and loyal
customers.
Building trust is a daunting
task for less well-known orga-
nizations and requires close
attention to consumers’ motiva-
tions and buying behavior. Businesses can apply for a “seal of approval” from inde-
pendent organizations that audit websites to verify their compliance with minimum
trust requirements in different countries. TRUSTe gives its approval to U.S. websites
that follow strict privacy standards, such as explaining to visitors how personal data is
collected.
Another way companies attempt to build trust is by tapping customers’ social net-
works, through social commerce or “s-commerce.”17 Social networks can personalize the
shopping experience, so that people learn about products from those they know and trust.
That feedback is more valuable than the reviews posted by unknown customers, some of
which might be fake. Opensky.com, for example, is an s-commerce site where shoppers
earn reward points not just for their own purchases, but for those made by people they
invited to join. Companies are fast building their own presence on social networks such
as Facebook, Pinterest, and Twitter, seeking to engage friendship networks in social shop-
ping sprees.18
mobIlE dEvICES And m-CommERCE
Why Mobile Matters
Much of the web’s development occurred before mobile devices with high speed Inter-
net access spread so widely. But these devices are saturating markets around the world
very quickly, particularly for younger buyers. Smartphones, for instance, are on track to
Define m-commerce, and explain
how mobile payments work. 4
PRODUCTIVITY TIP
The secure connection confirmed by the https:// protocol relies on a certificate
issued by a recognized authority such as the VeriSign Trust Network. With
most browsers, you can click on the padlock symbol to see encryption details
(Figure 6-14).
FIGURE 6-14
Details about the website’s security, Note also the https:// protocol in the URL, indicating
transmission is encrypted.
Source: © 2013 Maryland Motor Vehicle Administration (MVA). All rights reserved.

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payment gateway
An e-commerce application that facilitates
online shopping by mediating the
interconnections to the merchant’s bank, the
bank or other entity that issued the card, and
then back to the original website to approve
or decline the purchase.
spread faster than any other technology in history.19 What makes these devices different—
and so appealing? Three features stand out:
▶ Small size and light weight. They fit in a pocket or purse, and no extra bag is needed.
▶ Mobile with wireless connectivity. They stay connected wirelessly, even when their
owner is moving at high speed.
▶ Versatility. Although the screen is small, the functionality is remarkable and growing
quickly, especially for applications that take advantage of the device’s small size and
mobility.
The computing industry is affected as well, as PC sales slump and smartphones surge.
The major players are companies like Apple and Samsung, not PC makers such as Dell,
HP, and Toshiba. Mobile devices upset other industries, too, as people drop their land-
line telephones.
They also change the way people communicate. Texting, for instance, has created a
whole vocabulary of abbreviations to keep messages short, and a growing debate about
smartphone “manners.” The always available smartphone also creates the expectation
that you can be reached at any time. Mobile definitely matters.
Designing Websites and Apps for Mobile Devices
The lively websites designed for desktop computers and larger screens fall short on tiny
smartphones. But organizations need to offer a mobile-friendly experience, given the
rapid growth of these devices and the new possibilities they offer. For instance, a fam-
ily looking for a new home might drive by an attractive property. Instead of calling the
agent’s number on the sign and leaving a voice message, the family could view all the
details on a smartphone.
mobIlE aPPS vS. mobIlE WEbSItES Companies can choose to build separate mobile apps for
each of the major mobile operating systems. These are separate applications that customers
download from the company website or an online app store and then install on their own
devices. Organizations as varied as Zillow, In-and-Out Burger, CVS Pharmacy, E-Trade, and
Major League Baseball all offer innovative apps that tap the special features of mobile devices.
Companies can also choose a lower cost approach in which they develop a compan-
ion website optimized for mobile devices that customers can access with their mobile
browser. When a mobile users visit the full site, they are redirected to the mobile-friendly
version. Figure 6-15 compares the pros and cons of apps and mobile-friendly websites.
mobIlE-frIEndly dESIgn The biggest difference between mobile devices and desktops with
large screens is size, so mobile developers must make the best possible use of screen real
estate. They must decide what information mobile users might be interested in, display it with
fonts large enough to read without zooming, and do so without requiring any scrolling. Any
FIGURE 6-15
Mobile apps vs. mobile-friendly
websites.
Mobile App Mobile-Friendly Website
▶ Higher cost
▶ Best for interactive games
▶ Customers will use the app regularly and
personalize it
▶ The app will perform complex calculations
▶ Customers will want to use the app without an
Internet connection.
▶ Easier to delete
▶ Lower cost
▶ Customers don’t need to download anything
▶ Mobile website is accessible across many
different devices
▶ Customers can fi nd your website with search
engines
▶ Easier to update
▶ Can’t be deleted

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FIGURE 6-16
Mobile-friendly design for Cruisin’
Fusion Food Truck.
Order from menu
Find a Cruisin’ Fusion truck
Grab a discount coupon
Send feedback
Desktop Site Espaňol
Cruisin’ Fusion buttons or links should be large enough for clumsy thumbs. The design should be a slim-
mer, leaner version of the organization’s main website, so that users recognize the brand.
Figure 6-16 shows how Cruisin’ Fusion, the food truck company featured in this chapter’s
online decision-making simulation, might slim down a website to make it mobile friendly.
Figure 6-17 offers tips on mobile-friendly design.20
M-Commerce and Mobile Payments
Mobile commerce (m-commerce) refers to the use of wireless, mobile devices to conduct
e-commerce. M-commerce has been going on for quite some time, as customers use
their wireless devices to connect to the Internet for banking, shopping, and bill pay-
ing. They use credit cards, debit cards, electronic checks, or services like PayPal.
Another type of m-commerce gaining speed is the use of mobile devices as digital
“wallets” that actually pay bills on the spot, eliminating the need to carry cash. The trend
is further ahead in some countries such as Sweden, where public buses in many cities
don’t accept cash at all. Riders must use their mobile phones to purchase tickets.21 The
case study at the end of the chapter takes a closer look at the mobile payment industry.
How does a mobile phone pay a bill? The most common approach relies on
near field communication (NFC), which is a set of standards for technology that sup-
ports communication between mobile devices when the two are very near one another.
People with smartphones equipped with NFC chips can tap a special terminal at a café,
bus station, sporting arena, or any other participating vendor. The bill is automatically
charged to the customer’s account.
One advantage NFC systems have over credit and debit cards is that the smartphone
can carry many other kinds of information, such as loyalty points, coupons, and cus-
tomer preferences. And NFC-equipped phones can also communicate with one another,
to exchange contact information, for instance.22
In the United States, companies offering mobile payments are taking different
approaches, and the digital wallet has a slow start. The competition is fierce, and the
systems and companies that eventually win this competition will need to fully protect
security and privacy. The cashless society may take some time.
mARkETIng THE WEbSITE
How do organizations attract people to their site, as buyers if the site’s main goal is to
sell, or as visitors for sites with different goals? Marketing majors certainly need a deep
understanding of how the web works to develop creative and effective approaches. They
also need to know how different kinds of people use the web, and why they return again
and again to some sites but ignore others.
Search Engine Optimization
Seeing your website at the top of the first page on the results list from a search engine is
a joyful experience for web marketers, especially because most people don’t look beyond
that first page. Search engine optimization (SEO) uses strategies to increase the quantity and
quality of traffic from search engines, often by improving the site’s position in result lists.
5Explain how organizations market their websites using search engine
optimization and web advertising,
and describe some of the
challenges of online marketing.
FIGURE 6-17
Tips for mobile-friendly design.
▶ Display the most important content fi rst.
▶ Avoid popups, Flash animations, and large photos.
▶ Use branding consistent with the main site.
▶ Use a single column design.
▶ Use fonts large enough so that users need not zoom in.
▶ Make links and buttons large enough so that users can click them with fi ngertips.
▶ Ask users to test out your design on different mobile devices.

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near field communication (NFC)
A set of standards that supports
communication between mobile devices
when the two are very near one another.
Search engines such as Google and Bing continually send out “spiders”—software
programs that crawl the web, visiting sites to analyze the keywords, headers, content, and
links to other sites. The spiders update their own databases, and the search engine uses
the new information to compute relevance when people enter a search term. Web mar-
keters must understand not only what data search engines collect and how they use it to
judge relevance, but also how people use the web to find what they want.
SEarch tErmS and KEyWordS For users, search terms are key. Developers must guess what
people who would be interested in their site might type as a search term, and then make sure
their site gets a high relevance rating for that term. Choosing the most effective keywords for
the descriptors on your pages is critical.
You should always put yourself in the mindset of the website visitor, and use more
specific phrases rather than generic keywords. For example, the students creating Heri-
tage Dogs should ask what search terms a user who is interested in native dog breeds
might enter. Many websites arrange these terms into a tag cloud, which is a visual depic-
tion of keywords related to the search, with font size and position indicating relevance.
Figure 6-18 shows an example for Heritage Dogs.
PagEranK and rElEvancE Search engines rely partly on popularity to determine relevance,
and the rules they use to rate popularity take into account the number and quality of exter-
nal links to the site from other websites. Google’s PageRank system, for example, named
for cofounder Larry Page, inter-
prets a link from Site A to Site B
as a vote, thereby improving B’s
rank. The ranking system also
considers the page that casts the
vote, weighing votes more heavi-
ly if they come from pages that
are themselves highly ranked.
Web marketers launch link-building campaigns to improve their search results, con-
tacting sites that might add a link and making deals to do reciprocal linking. Online tools
such as www.linkdiagnosis.com help developers keep track of which other sites include
links to their web pages and the PageRanks of those sites.
SEarch EngInE ScamS The drive to improve search results gets so heated that some
unscrupulous developers use devious strategies to outwit the engine’s ranking system.
For example, one technique to build valuable external links is to look for guest books on
authoritative sites whose votes would be particularly valuable, such as those in the .gov
or .edu domains, and then include a link to the scammer’s site in an area that lets any
visitor add comments. Scammers also build giant link farms out of servers whose only
purpose is to increase the number of external links. Such techniques often result in penal-
ties or outright bans by major search engines.
mobile commerce (m-commerce)
The use of wireless, mobile devices to
conduct e-commerce.
search engine optimization (SEO)
An Internet marketing strategy used to
increase the quantity and quality of traffic
from search engines, often by improving the
site’s position in result lists.
tag cloud
A visual depiction of keywords related to the
search, with font size and position indicating
relevance.
FIGURE 6-18
Sample tag cloud for country dog
breeds.
PRODUCTIVITY TIP
Check out the pagerank of your college or university’s website by using sites
such as www.prchecker.info or www.checkpagerank.net.
pet
akita
wolfhound
setter
collie
country
d
ridgeback
akita
retriever
heritage
breed dog
spaniel
puppy
spaniel
shepherd
poodle
kennel

www.linkdiagnosis.com

www.prchecker.info

www.checkpagerank.net

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Some scammers aim to get a competitor’s site banned, or at least move its site lower
in the results. They can inject code onto a competitor’s site that repeats the same keyword
over and over in a header, which spiders can easily spot and penalize as an unacceptable
trick to make the page seem extremely relevant. Scammers might also invite raunchy
adult-oriented or gambling sites to add links to the competitor, which can result in penal-
ties and lower ranking.
Web Advertising
Pop-up ads, floating images, banners, music, and flashy animations appear on many web-
sites, and overall spending for online ad campaigns worldwide is higher than for televi-
sion. For example, a fitness company that wants its banner ad to appear on top of a
sports website pays a fee for a certain number of impressions, perhaps 50 cents per 1,000.
Prices vary depending on factors such as the site’s popularity or how likely the company
thinks people who see the ad will click on it and perhaps buy a product. The click-through
rate (CTR) is an important metric for such ads, computed as the number of visitors who
click on the ad divided by the number of impressions. Typical click-through rates for
banner ads are low—about 1/1000 (.1%).
uSIng cooKIES to targEt advErtISIng A cookie is a small text file that the website’s server
leaves on your computer when you visit and then retrieves when you visit again, usually to
personalize the site for you. The file typically contains a unique ID and information such as
date and time, or the page you visited. The cookie can also store information you yourself
provide, such as the zip code for a city you intend to visit on a weather site. When you return,
the site can immediately display that city’s weather.
E-commerce sites rely on cookies to keep track of the products a customer places in a
shopping cart. As you collect items, the web server retrieves your unique ID and stores it
with the item number in its own database. If you leave the site and return later, the soft-
ware can retrieve your ID and refill your shopping cart. The site can also deliver targeted
ads and recommendations, without asking you to log in, by retrieving your cookie and
checking to see what that ID has viewed in the past.
Ad networks such as Brightroll and Casale Media have sprung up that facilitate even
better targeting. They deliver banners and other ads to their clients’ websites and also
deposit their own cookies whenever someone visits one of the client sites. These are called
third-party cookies, because they are not tied just to the site you are visiting. They let the
ad network track you as you visit any client site and then serve targeted ads at other sites.
Suppose on your favorite news site you click on an ad for Caribbean cruises designed to
appeal to single women in their twenties. The ad network associates that information with
the unique ID for you. If you
move to a travel site that is also
a network client, your cookie
will be retrieved and you will
see more ads about cruises for
young singles. Targeted advertis-
ing is growing very sophisticated
to improve click-through rates.
SEarch EngInE marKEtIng Google pioneered a simple marketing approach that relies on
your search terms rather than on cookies. Your search terms reveal your current interest, and
Google developed the Adwords program to serve small, text-only ads related to your search
in a list of sponsored links. Type in “shiba inu,” for example, and you will see sponsored
links offering puppies for sale. Whether the ad actually appears to someone who submits a
keyword the organization has chosen for its ad depends partly on how much the company is
willing to spend each day. Unlike buyers of most banner-type ads, these advertisers pay only
when someone actually clicks on the ad, not each time it appears. Search engine marketing
accounts for the vast majority of Google’s revenue.
Figure 6-19 shows the global market shares for the major search engines. Google
dominates on desktops, and also on mobile devices. Because search engine marketing is
PRODUCTIVITY TIP
You can adjust the settings in your browser to control how it handles cookies
as you browse—to prohibit third-party cookies or prompt you for permission
to download them, for example. Try overriding automatic cookie handling to
see how your favorite sites are using cookies.

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third-party cookies
Small text files that a website leaves on a
visitor’s computer that are not deposited by
the site being visited; used by ad networks to
track customer behavior across all their client
websites.
cookie
A small text file left on a website visitor’s hard
drive that is used to personalize the site for
the visitor, or track web activities.
click-through rate (CTR)
A metric used to assess the impact of an
online ad; computed as the number of
visitors who click on the ad divided by the
number of impressions.
so effective, the companies compete fiercely to attract users. Facebook rolled out a new
feature for its underperforming search engine called Graph Search that taps the social
networks to return results. Type in “friends who like hiking” and the engine will retrieve
relevant posts and photos from the Facebook network, in addition to relevant external
websites.23
onlInE marKEtIng challEngES Although online marketing offers tremendous promise, it
also poses new challenges. Fraud is certainly one, but unfortunate or embarrassing product
placements are another. For example, an ad for Folger’s coffee appeared next to a news story
about how coffee may trigger heart attacks.24
Third-party cookies are controversial from a privacy standpoint, as well. Yahoo!
Canada, for instance, has agreements with more than 30 different ad networks, creating
a web of interconnections that can follow people’s tracks as they browse different sites.
As we discuss in Chapter 10, your online tracks reveal quite a bit about you that can also
be tied back to publicly available offline data—your address, phone number, age, marital
status, net worth, and political donations. Although web surfing may seem anonymous,
digital tracks are much deeper than most people realize.
WEb 2.0 And bEyond
In its early days, people compared the web to a vast and rapidly growing library with
unlimited shelf space, in which valuable documents could be published alongside trivial
junk. As businesses entered and e-commerce matured, the web emerged as a global shop-
ping mall in which tiny start-ups could share space with giant retailers. Marketers and
advertisers developed the business approaches, and giant web portals such as Yahoo! and
America Online dominated visitors’ online experiences.
Innovation exploded and the web also became home to services that offered peo-
ple opportunities to participate in new ways—gaming, photo sharing, blogging, menu
planning, restaurant reviewing, community building, and much more. Web 2.0, as we
discussed in Chapter 1, features an emphasis on interaction, conversation, participa-
tion, collaboration, and endless sources and streams of data. While new technologies
FIGURE 6-19
Search engine market shares.
6 Explain how the evolving web continues to develop by
incorporating attributes such as
crowdsourcing, expanded data
sources, the “Internet of things,”
machine learning, and “big data.”
Google
83%
Yahoo
8%
Bing
5%
Baidu
2%
Other
2%
Desktop computers Mobile devices
Google
90%
Yahoo
6%
Bing
2%
Baidu
1%
Other
1%
Source: Data from www.netmarketshare.com, accessed February 3, 2013.

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continually emerge that support these activities, Web 2.0 is less about the technologies
than about the ways in which people and organizations are using the web.
One significant trend for Web 2.0 is that the web serves as a platform not just for deliver-
ing software as a service or for presenting useful applications online, but for harnessing the
collective intelligence of its users as well. Websites that find ways to leverage this wisdom tap
into a vast reservoir of talent and knowledge that can continually improve the site’s value.
Crowdsourcing and Collective Intelligence
The term crowdsourcing describes how tasks can be delegated to large diffuse groups or
communities who often volunteer their contributions. Unlike outsourcing, in which an
organization contracts with a vendor to do work, crowdsourcing depends on engaging
people in tasks they find interesting or rewarding, or collecting data about what people
are doing anyway as they go about their daily work.25
Google, for instance, relies on everyone who clicks on links or embeds links in their
websites to continually improve its ranking system. All those clicks and external links are
votes that adjust relevance rankings for every website. Amazon harnesses collective intel-
ligence by inviting your product reviews, summarizing the ratings, and then encouraging
people to rate the value of each review as well.
Amazon’s Mechanical Turk site goes one more step, bringing organizations that need
human wisdom together with all the people who have a few moments to spare and want
to earn a bit of money. Visitors sign up to receive payments and then browse through the
thousands of available tasks that are best done by humans rather than computers. For
example, CastingWords offers $1.10 to anyone who will transcribe some audio files.
Innocentive (www.innocentive.com) provides a platform for even higher payouts
for innovative solutions to real problems. For example, one organization will award up
to $7,500 to whoever submits the best idea about how to motivate hospital workers to
reduce infections by washing their hands more often.
Wikipedia is another well-known site that amasses collective intelligence and vol-
unteer labor, in this case to create a vast online encyclopedia with more than 3 million
entries. Debates over its accu-
racy continue to rage, with one
early study finding that Wiki-
pedia entries compared favor-
ably to Britannica articles.26 But
bias is not uncommon, espe-
cially regarding hot political
issues. For instance, staff of U.S.
Congress members have been
caught editing articles about their bosses and deleting references to campaign pledges
they never fulfilled.27
Expanding Data and Sensory Input: The “Internet of Things”
Another important trend for Web 2.0 and beyond—to what some call “Web 3.0,”28—is
the exponential growth of data and innovations in the way organizations collect, use,
and value it. The flood of human participation is one contributor to the growing vol-
ume, through crowdsourcing and social media, for example. New sensors are adding far
more, through RFID technology, smartphones, cameras, camcorders, GPS devices, and
other sensory input. The original IP address system is overwhelmed because so many
new devices need unique addresses, but the new numbering scheme described in Chapter 3
will make room for quadrillions more to accommodate the “Internet of things.”
Companies can achieve distinct competitive advantages when they manage to get
control over valuable data collected by all these sensors, organize it into a database, and
find ways to understand customers and create new products.29
For example, innovative companies leaped at new ways to use GPS data when the
U.S. government decided to unscramble some of the data from military satellites. Now a
PRODUCTIVITY TIP
Citing Wikipedia entries in your term papers as part of the bibliography is
controversial. Many universities and faculty object, due to concerns about bias,
reliability, accuracy, and the lack of identified authors. If you do use Wikipedia,
include your evaluation of its quality as a source for your topic, just as you
would for other web-based sources with unknown authorship.

www.innocentive.com

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crowdsourcing
Delegating tasks to large diffuse groups
or communities who often volunteer their
contributions.
smartphone with GPS can help you navigate to the store, find Italian restaurants
near your location, and measure the distance from your golf club to the putting
green. Navteq, for instance, creates
digital maps for navigation devices—
not just for car travel, but for walkers
and bike riders (Figure 6-20). While
GPS innovation toppled the paper
map-making business, it added many
billions to the economy in new services
and applications.
The Learning Web
The massive and ever-growing mounds of data are valuable not just in their own right,
as revenue sources for companies or as features to attract more users. They also provide
resources for machine learning, making the web and its applications ever smarter. One
example shows how Google created a software program to translate texts from Arabic to
English and back and then pushed it to learn on its own.
Drawing on an enormous volume of already-translated texts and documents on the
web, Google developed a text translator that acquires its skills directly from the data. The
software is not programmed with any rules about Arabic semantics or syntax. Instead,
it statistically compares phrases from text in one language to its parallel in text that has
already been translated by humans into English. Feeding it more paired, translated texts
from United Nations documents and other sources makes the translator ever more pow-
erful. The more data it has to learn from, the smarter it gets.
Google claimed it didn’t even use native speakers to double-check any translations,
a fact that astonished the CEO of Systran, a rival company that develops translation
software relying on language rules and syntax. In one competition, Systran’s software
translated an Arabic headline into:
“Alpine white new presence tape registered for coffee confirms Laden.”
Google’s translation read,
“The White House Confirmed the Existence of a New Bin Laden Tape.”
FIGURE 6-20
For China’s urban residents, GPS
geography analysts add map details
relevant to pedestrians or bicyclists
who want the quickest routes through
crowded streets.
Did You Know?
Metropolitan areas offer smartphone bus and train schedule apps that predict the
placement of your desired means of transportation every few seconds. You can
even watch the bus and train icon move down the map on your phone. With this
technology, you’ll know just when your ride will arrive.
Source: BartlomiejMagierowski/Shutterstock.

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Peter Norvig, who worked on the project at Google, remarked, “We don’t have better
algorithms. We just have more data.”30
The translator also continually learns, adding more languages and more natural
sounding phrasing. It also draws on crowdsourcing by asking users to rate its output.
The more people use it, the better it gets.31
The web grew from a document-publishing environment to one that supports secure
financial transactions and interactivity. Now it is transforming again, even surprising its
own creators. As Tim O’Reilly, the person credited with coining the term Web 2.0, says,
“The Web is growing up and we are all its collective parents.”32
You inherited a mobile concession truck from your un-cle, who sold tacos and bottled drinks at lunchtime.
Uncle Al liked talking to people and his stand had become
a local legend. He served only top of the line mahi mahi,
chicken, and cheese tacos in freshly baked shells. He also
grew his own herbs to make “fusion” sauces that blended
flavors from Mexico, Thailand, Korea, and India. His cur-
ried chicken taco was a favorite and long lines formed
every day.
You’re not sure what to do with the concession truck,
but a couple of your friends think Al was onto something
with his unusual taco food truck. They want to partner
with you to expand, targeting sports events, outdoor con-
certs, political rallies, holiday marches, and other events
where customers might pay a little more for a very dis-
tinctive and healthier meal. With the right marketing,
this could be a promising business venture. Log in when
you’re ready to start planning the website. . . .
MyMISLab Online Simulation
Cruisin’ Fusion
A Role-Playing Simulation on Website Development
for a Chain of Concession Stands

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Learning Objectives
The Internet is a disruptive technology that causes waves of creative destruction, and an
organization’s web strategy is increasingly critical to its success. Four major goals that
organizations choose to stress for their websites are (1) inform or entertain the audience;
(2) influence the audience; (3) sell to the audience; and (4) facilitate or extend offline
relationships. The website’s name in the form of its URL uniquely identifies the site on the
Internet, mapping to its numerical IP address. The URL’s components include the top-level
domain, such as .com, .gov, .org, .cn, or .de, which reflects the organization’s mission or country
code. Name disputes are common and are resolved by ICANN.
Building a website requires paying attention to the site’s information architecture, which might
adopt a hierarchical, multidimensional, flat, or sequential structure. Usability should be assessed
early, and the user interface should follow design principles that will make it easier for visitors
to accomplish their goals on the site. The website should also support accessibility for people
with disabilities. Software development for websites starts with HTML, the programming
language used to format web pages. HTML 5 is the latest version that reduces problems for web
developers, reduces the need for browser plug-ins like Flash, and adds new features, especially
for mobile devices. Media-rich and interactive websites are created with other programming
tools, such as JavaScript, AJAX, Flash, and programming languages that interface with back-
end databases. Web content management systems enable teams to work together on a website,
offering simple ways to format content and providing support for version control and other
features.
E-commerce is the buying and selling of goods and services on the Internet. E-commerce
software, including shopping carts, can support secure and encrypted transmissions, manage
product catalogs, and track transactions. Trust is a critical element in e-commerce, and
independent organizations audit websites, granting a seal of approval to those that meet
minimums standards. Social commerce (s-commerce) also helps tap trust by engaging friendship
networks in shared shopping experiences.
Use of mobile devices, such as smartphones and tablets, is growing extremely rapidly, and
they offer small size and light weight, mobility with wireless connectivity, and versatility. Their
features require web developers to design mobile-friendly websites and specialized applications.
Mobile commerce (m-commerce) takes advantage of these mobile devices to conduct
e-commerce on the go. Mobile devices can serve as digital “wallets” to make mobile payments
using technologies such as near field communications, eliminating the need to carry cash or
credit cards.
Marketing strategies on the web start with search engine optimization (SEO), which seeks to
improve a website’s position on result lists returned by search engines. Organizations choose
appropriate keywords and encourage links from external sites to achieve higher rankings in the
search results. Web advertisers also use pop-up ads, banners, floating ads, and other techniques.
Ad networks use third-party cookies to track user behavior across multiple websites, gathering
data used to improve targeting. Search engine marketing, in which relevant text ads are served
alongside results for the user’s query, are most effective. Online marketing raises ethical issues,
especially because tools such as third-party cookies can threaten privacy.
Web 2.0 represents the current generation of web capabilities, which rely particularly on
crowdsourcing and collective intelligence, expanded data sources, and input from sensors. As
the web continues to evolve, the massive amount of data contributed by individuals, companies,
governments, and the “Internet of things” is greatly enhancing its power and potential, opening
new opportunities for innovation. The growing sources of “big data” also support machine
learning, so the web can continue to grow smarter.
1
4
2
5
3
C H A P T E R
6 chapter summary
6
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Key terms and concepts
infomediary
e-marketplace
business to consumer (B2C)
business to business (B2B)
consumer to consumer (C2C)
consumer to business (C2B)
uniform resource locator
(URL)
Domain Name System (DNS)
hypertext transfer protocol
(http://)
file transfer protocol (ftp://)
top-level domain
Internet Corporation
for Assigned Names and
Numbers (ICANN)
hierarchical website
architecture
multidimensional website
architecture
sequential website
architecture
usability
web accessibility
assistive technologies
web browser
hypertext markup language
(HTML)
JavaScript
AJAX
World Wide Web Consortium
(W3C)
content management system
cascading style sheets (CSS)
e-commerce
shopping cart software
payment gateway
mobile commerce
(m-commerce)
near field communications
(NFC)
search engine optimization
(SEO)
tag cloud
click-through rate (CTR)
cookie
third-party cookies
crowdsourcing
6-1. What are four primary goals an organization might
choose to develop its web strategy? What is an exam-
ple of each?
6-2. How is a URL related to a registered website name?
Why does a URL include a protocol identifier? What
are the components of a website address? What are
typical suffixes that identify top-level domains?
6-3. What is website architecture? What are examples of
website architecture?
6-4. What is the difference between usability and acces-
sibility? How do website developers test for usability?
How can website design improve accessibility? How
do text and background color combinations relate to
website accessibility? What are the benefits of design-
ing accessible websites?
6-5. List some software development strategies used for
websites. What is an advantage to using basic HTML?
How does HTML 5 reduce problems for web devel-
opers? What is an advantage to using JavaScript?
Why is AJAX used to develop websites? What role
does a content management system play in website
development? Why do content management systems
use templates?
6-6. What is e-commerce? What activities does it include?
How do online transaction sites use databases and
shopping cart software? Why is security critical
for e-commerce success? Which protocol supports
secure Internet transactions? Why is trust critical
for e-commerce success? Aside from having a well-
known brand name, how do online sellers signal their
trustworthiness to potential customers?
6-7. What is m-commerce? What is near-field communica-
tion and how does it facilitate mobile payments?
6-8. What is search engine optimization (SEO)? What are
two examples? How do organizations improve their
position on search result lists?
6-9. How does web advertising work to target ads for
individuals? How can users avoid targeted ads?
6-10. What is Web 2.0? What is crowdsourcing? What is an
example of crowdsourcing? How do Web 2.0 capa-
bilities change the way in which people and organiza-
tions use the web?
chapter review Questions
6-11. VeriSign is a recognized authority on website security,
and the VeriSign seal tells online customers they can
trust the website to encrypt sensitive data that is trans-
mitted over the Internet. Visit verisign.com to learn
more about the VeriSign Trust Seal. In addition to
verifying encryption, what else does this seal tell con-
sumers about the websites on which it appears? What
is SSL security? How does it work? Prepare a brief
report of your findings.
6-12. Pop-ups, such as windows that open to provide a
return shipping label, and web browser add-ons, like
the Google toolbar, can make browsing more fun or
more effective, but sometimes they can slow down your
computer or cause the browser to shut down unex-
pectedly. Most add-ons require user consent before
they are downloaded, but some might be downloaded
without your knowledge and some may be tracking
your browsing habits. How do you know which add-
ons are running on your computer? Click on Tools to
learn about your browser’s settings. How do you allow
some pop-ups and disallow others? Review your add-
ons. Which ones are allowed on your browser? What
projects and discussion Questions
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specific functionality does each provide? Did you dis-
able any add-ons? Which ones and why?
6-13. Visit a site that uses AJAX to create interactive maps,
such as www.MeasureofAmerica.org. What features
does this technology add to make the site more inter-
active? How might you use this technology to present
an interactive map showing the changing incidence
of reported cases of flu by geographic area, as the flu
season progresses?
6-14. Visit an e-commerce site such as Amazon.com, a
nonprofit site such as the Cancer Research Institute
(www.cancerresearch.org), and a government website,
such as the California Department of Motor Vehicles
(www.dmv.ca.gov). For each site, assume you want
to accomplish an e-commerce task: purchase a travel
guide to Peru; donate $10 to cancer research; and pay
a traffic fine online. Compare your overall experiences
on each site, and note how easy it is to accomplish the
tasks. How do these sites track purchases or dona-
tions as users navigate the site? Do all the sites use
secure transmissions for e-commerce (https://)? What
improvements would you recommend for these sites?
6-15. Visit joomla.com to learn more about this open source
content management system. What types of content
does it manage? Who uses Joomla, and what are its
advantages? Visit two sites that use Joomla and com-
pare them. How are they similar? How are they differ-
ent? Prepare a 5-minute presentation of your findings.
6-16. Work in a small group with classmates to evalu-
ate website accessibility issues. Select a website to
evaluate, and then choose three pages from the web-
site for your sample. Your sample should be varied,
but should ideally include pages that contain tables,
images, multimedia (e.g., a video or sound file), and a
form. Conduct the following tests, using at least two
different browsers.
a. Turn off images (usually under Tools). Do all the
images have alternative text that properly describes
the image? Screen readers for visually impaired
people will need accurate verbal descriptions to
grasp the content of the image.
b. Turn off sound. Is there a text transcription for the
narration that hearing impaired people will need?
c. Use the controls on the browser to increase the
size of the fonts. Can the fonts be adjusted using
the browser? Visually impaired people often
need larger fonts to read, but some websites use
fixed font sizes.
d. Using just the keyboard, not the mouse, try navi-
gating through the links and the fields on a form.
Can you reach all the links, and do they describe
what they link to? Can you navigate through
the form with the keyboard without using the
mouse? This is a good test to see if screen readers
will work properly.
e. Print out the three pages using only black, white,
and gray. Is there sufficient contrast without color
to accommodate color-blind visitors?
f. Compare the results for the different browsers
you’ve tested, and prepare a 5-minute presenta-
tion of your group’s results.
6-17. What do people look for on the front page of a
university website? Work in a small group with class-
mates to review your university’s website. What is the
goal or goals of the site? What type of architecture
does it have? Describe its usability. Do you struggle to
find specific information or is navigation easy? How
many clicks does it take to locate holiday hours of
operation for your library? Prepare a list of sugges-
tions for the university web master that describe spe-
cific ways to improve your university’s website.
chapter 6 The Web, E-CommErCE, and m-CommErCE 189
application exercises
6-18. Website ApplicAtion:
Heritage Dogs
Use Microsoft Word to create a simple website for Heritage
Dogs. Launch Word and type “Heritage Dogs” into the
document. Click File > Save As and save your file as a Web
Page named “index.html” rather than as a Word Document.
Save the file as “index.html.” (Depending on your version
of Word, the default for the file extension may be “htm,”
which is also recognized as a web page.) Click New to create
another page and type “Thai Ridgeback” into the document.
Save it as “Thai Ridgeback.html.” Create additional web
pages for each breed that Heritage Dogs plans to promote.
Return to the index page and type “Thai Ridgeback” into the
document. Highlight “Thai Ridgeback” and click Insert >
Hyperlink and locate “Thai Ridgeback.html.” Select the file
and click OK. You have just created a hyperlink. After you
create additional hyperlinks for each breed, save and close
the files. To view the website in a browser, right-click on the
Start button in the lower-left corner of your screen and select
“Open Windows Explorer.” Browse to locate and open the
index file you created. Check the hyperlinks. Do they work?
What type of website architecture did you create? Explain
how this simple website can be expanded to provide addi-
tional content for visitors to HeritageDogs.org.

www.MeasureofAmerica.org

www.cancerresearch.org

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FIGURE 6-21
Heritage Dogs website metrics.
6-19. excel ApplicAtion:
Heritage Dogs Website Metrics
The board of directors at Heritage Dogs is meeting to con-
sider how its website is serving the needs of volunteers,
donors, and potential adoptive pet owners. The website
coordinator has asked you to create an Excel spreadsheet
to help her analyze quarterly data for several key indicators
including percentage of repeat visitors, page views per visit,
and bounce rate. The bounce rate is the percentage of visi-
tors who view only one page. Together, these are a measure
of website “stickiness”—the ability to keep visitors inter-
ested and coming back for more. Additionally, she wants
two line charts that display website usage statistics.
Create the spreadsheet shown in Figure 6-21 and add
calculations for Total Visitors, Percentage Repeat Visitors,
Page Views per Visit, and Bounce Rate. To calculate Bounce
Rate, divide Page Views by Single Page Views.
Create one line chart that shows Visits, Total Visitors, and
Page Views. Create a second line chart that shows the Bounce
Rate and the Percentage Repeat Customers. For both charts,
select a layout that includes a chart title, axis title, and a legend.
How would you describe the pattern of website usage
in terms of visits, total visitors, and page views? How would
you describe the website in terms of “stickiness”?
6-20. Access ApplicAtion:
springfield Animal shelter
The Springfield Animal Shelter manages a volunteer foster
program in which volunteers care for sick and immature
animals in their homes and take in injured or abused ani-
mals when the shelter facility is full. Animals may be in fos-
ter care for a few weeks or a few months, depending on the
need. When the animal is healthy and ready to be adopted,
the shelter will post its picture and story on the website.
Foster parents are given first choice to adopt the animal but
are not required to do so. Volunteers enroll in the program
on the shelter website, and the information they provide
is stored in an Access database. Download the Springfield
Animal Shelter database Ch06Ex03 and create three detail
reports for the shelter manager. A detail report displays all
information for each volunteer.
The first report will list all active volunteers who speci-
fied they wish to care for a cat. The second report will list
all active volunteers who wish to care for a dog. The third
report will list all inactive volunteers regardless of animal
preference. Review the information being collected about
volunteers and suggest other types of information that may
be useful to the shelter manager.
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case study #1
In a country where cash is king and almost everyone owns a cell phone, Japan’s NTT Docomo led a major drive into mobile payments and m-commerce. The mobile phone
carrier pioneered the use of “near-field communications” (NFC) chips
inside its cell phones, enabling them to exchange data wirelessly
over a few centimeters. More than 56 million people subscribe to
Docomo’s wireless voice network, and they can all pay for their cap-
puccinos at participating stores by tapping their cell phone against a
special terminal or just waving it nearby.
When a customer taps the cell phone to pay, the expense is au-
tomatically logged into a digital expense report and charged to the
customer’s account. Called osaifu keitai in Japanese, the cell-phone
wallet frees people from carrying cash. Consumers use their cell-
phone wallets to buy subway, train, and airline tickets, and the phone’s
chip also serves as an electronic key to control access to buildings
and homes. Cell-phone wallet holders can check their balances,
loyalty points, and purchasing history from the handset and receive
promotional discounts.
In the United States, mobile payments have been slow to take off,
partly because credit cards are so popular and also trusted. The credit
card industry builds in essential safeguards against fraud, and also of-
fers incentives such as cash advances, frequent flyer miles, or reward
points. Switching to mobile payments would be a major change in
customer behavior.
Many mobile payment trials are underway, however, involving NFC
chips, barcodes, QR Codes, or other strategies. For example, Dunkin’
Donuts customers can use their Apple Passbook mobile wallet to pur-
chase coffee by letting an employee scan the pass on their phone,
which is actually a QR Code.
While Apple may become a major player in the mobile payment
industry, the company has had some slip-ups that make customers
wary. While waiting for his tech support appointment at a New York
Apple store, one customer decided to purchase some headphones.
He used the Apple app to scan the barcode, and charged the pur-
chase to his iTunes account. Later, when he started to leave with his
headphones in a bag, an employee asked to see a receipt. He located
the app on his smartphone, but then found the transaction had not
completed. Instead of letting him click the last button to confirm, the
clerk called the police and the customer was arrested for shoplifting.
In Japan, NTT Docomo had to take over a bank to build its osaifu
keitai services, so it would have the financial backbone to actually
handle electronic payments. In the United States, though, the credit
card companies or other well-established payment services, such as
Paypal, are likely to be major players or partners.
Mastercard, for example, unveiled its own version of a digital wal-
let in 2013, called PayPass. The technology uses an NFC chip in a
card, key fob, or smartphone, and users can use the mobile payment
feature at participating retailers.
Consumers will need more incentives to try out any of these
new services, and they must develop the kind of trust they already
have in credit cards, debit cards, checks, and cash. Convenience is
one incentive, but creative retailers can tap other features that tie
mobile phones to purchasing. Teen clothing chain Aeropostale, for
instance, offered an app that let customers choose what music the
store would play. The teens hung around the store for 30 minutes or
more to hear their selection. The long wait offered plenty of time to
shop, and the company learned a great deal about their customers’
music preferences.
As mobile payment experiments play out, and technologies like
NFC become more widespread, those lines at checkout counters may
get shorter and shorter. Leather wallets stuffed with credit cards, loy-
alty cards, photos, and cash may become extinct.
Mobile Payments and the Digital Wallet
discussion Questions
6-21. What are the potential benefits of this technology for con-
sumers? What are the potential benefits for retailers?
6-22. What are the risks for consumers and retailers? What are
some ways that these risks could be overcome?
6-23. How could this technology impact the telecommunications
and consumer banking industries?
6-24. Do you believe this technology would work in the United
States? Why or why not?
SOURCES: Analysis: How has m-commerce evolved? (December 21, 2012), Retail Week,
http://search.proquest.com/docview/1242202472?accountid=11752, accessed June 10, 2013.
Chaley, C. (March 20, 2013). Partnerships provide the muscle in the mobile payments war.
Fast Company, http://www.fastcompany.com/3007281/industries-watch/partnerships-
provide-muscle-mobile-payments-war, accessed March 24, 2013.
NTT Docomo, Inc. Hoover’s Company Records. (March 25, 2013). LexisNexis Academic, http://
www.lexisnexis.com.proxy3.library.jhu.edu/hottopics/lnacademic/, accessed July 8, 2013.
Siwicki, B. (March 11, 2013). Dunkin’ Donuts customers can now pay through Apple’s
passbook. Internet Retailer, http://www.internetretailer.com/2013/03/11/dunkin-donuts-
customers-now-can-pay-through-apples-passbook, accessed April 3, 2013.
chapter 6 The Web, E-CommErCE, and m-CommErCE 191

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case study #2
Music CD sales collapsed when Napster began its online music site, where visitors could find the song they wanted and download it for free.
Though Napster ran afoul of copyright law and was shut down, the
demand for single-song downloads was so intense that Apple’s iTunes
store became an instant hit. Reluctantly, record labels such as Sony
and Warner made royalty deals with iTunes, Amazon, Rhapsody, and
even Walmart.
Now, the music industry’s business model is under assault once
again. Song download sales are shrinking, and analysts predict that
streaming Internet radio services such as Pandora will take a chunk
out of the market.
Billed as the station that “plays only music you like,” Pandora.com
offers music lovers access to their own customized “radio stations.”
Pandora’s website visitors can submit a favorite song, artist, or com-
poser, and Pandora’s software builds a playlist of similar songs. The
company focuses on effortless usability for its websites, and mobile-
friendly designs for its apps.
The software that powers the playlist emerged from the Music
Genome Project, launched by Pandora founder Tim Westergren. He and
a team of musicians and musicologists analyze 10,000 songs a month
for hundreds of attributes—harmony, rhythm, lyrics, instrumentation,
vocals, genre, and others. The result of their efforts is an immense and
continuously growing database that powers a recommendation engine
to suggest music with similar attributes—the same musical “DNA.”
A visitor who asks to hear Glenn Miller’s music of the 1940s will
be offered old favorites such as “Heart and Soul” or “Smoke Gets in
Your Eyes.” An Usher fan’s playlist will fill with songs by artists such
as Chris Brown and T-Pain. The musicologists don’t count popularity
as an attribute, so unknown bands appear regularly, giving them a
welcome opportunity for exposure. Though artists earn a royalty from
Pandora each time their song plays, the service is far less profitable
for them than paid song downloads. A song must be streamed at least
200 times to earn the same royalty as one download.
As users rate each song in the playlist with a thumbs up or down,
the company collects “big data” about over 175 million users and
their musical preferences. Even skipped songs provide useful informa-
tion. The company uses Hadoop to analyze the data, the open source
database software that processes immense datasets that span hun-
dreds of computers.
Pandora relies on targeted advertising and premium subscriptions
for revenue. Westergren says, “If you’re a car or beverage company,
you can come to Pandora and say I’d like to put this advertisement in
front of men in their 30s listening to rock music in Kansas.” People can
buy subscriptions for a few dollars a month to omit the ads.
Although most users initially enjoyed Pandora’s services while
sitting at their computers at home or work, they can now add the
streaming, customized radio service to their smartphones. The shift
makes their “radio” mobile, and this is what threatens to disrupt the
music industry’s business model again. “It’s impossible to overstate
[the smartphone],” says Pandora’s founder. “The iPhone has . . . almost
doubled our growth rate overnight.” This time around, the online stores
that sell MP3 downloads will also have some adapting to do.
One of Pandora’s major challenges comes from their royalty
arrangements with record labels. Pandora pays 0.11 cents per song,
a rate set to rise to 0.14 cents in 2015. While Pandora pays out
almost half of its revenue in royalties, other radio services, such as
Sirius XM, average just 7.5%. Pandora is lobbying to reduce royalty
payments.
Although Pandora claims 74% of the Internet radio market, com-
petition is intensifying. Pandora is only available in a small number
of countries outside the U.S., and other companies, such as Spotify,
may get a headstart over Pandora in places such as Europe. When
rumors circulated that Apple was launching an Internet radio service,
Pandora’s stock shares plummeted. Despite challenges, however,
Pandora has an enormous lead with its attractive and easy-to-use
website, and its gigantic hoard of data to match musical DNA with
each user’s taste.
Pandora Internet Radio: The Net Threatens the Music Business (Again)
discussion Questions
6-25. What are the various components of Pandora’s business?
6-26. What are some shortcomings of downloading music?
6-27. How does Pandora address some shortcomings of
downloading music?
6-28. How could music labels and online stores use the web to
respond to Pandora?
Sources: Fixmer, A. (2012). Pandora is boxed in by high royalty fees. Bloomberg
Businessweek, (4310), 52–54.
Fixmer, A. (March 12, 2013). Spotify said expanding Pandora-like web radio worldwide.
Bloomberg, http://www.bloomberg.com/news/2013-03-11/spotify-said-expanding-pandora-
like-web-radio-worldwide.html, accessed March 25, 2013.
Grover, R., & Satariano, A. (July 1, 2010). The fall of music downloads. Bloomberg
Businessweek, http://www.businessweek.com/magazine/content/10_28/b4186037467816
.htm, accessed March 21, 2013.
Kharif, O., & Fixmer, A. (2012). Apple radio might put Pandora in play. Bloomberg
Businessweek, (4298), 54–56.
Mone, G. (2013). Beyond Hadoop. Communications of the ACM, 56(1), 22–24.
Pandora Media Inc., Hoover’s Company Records (2013), LexisNexis Academic, http://www
.lexisnexis.com.proxy3.library.jhu.edu/hottopics/lnacademic/, accessed July 8, 2013
192 inTroducTion To informaTion SySTemS

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e-project 1
The success of m-commerce depends partly on the quality of the user’s
experience when accessing the site from an Internet-enabled mobile
phone. Load time is important, and Figure 6-22 shows the average load
time for three retailers in 2013.
6-29. Create the spreadsheet in Figure 6-22 in Excel. Then visit each of
the retailers using an Internet-enabled mobile phone. Time how
long each one takes to load, using a stopwatch (www.online-
stopwatch.com). Enter your data in the “Current load time” column.
6-30. Enter the formula to compute the Percentage Change in the row
for Target and copy the formula to the other cells in the column.
6-31. Which retailer’s m-commerce site has shown the most change
since 2013?
Examining Top M-Commerce Sites
6-32. What factors contribute to a site’s load times? Why would your
data be different from a classmate’s when accessing these sites?
6-33. Conduct an experiment to compare m-commerce at Walmart
and Target. Start the stopwatch, load Walmart’s site, and search
for a Fodor’s travel guide to Mexico. Add the product to your cart,
check out up to the point at which you would enter a credit card
number, and then write down the time from the stopwatch. Do
the same experiment at Target’s site. How did your time esti-
mates compare for the two m-commerce experiences? Overall,
which site do you think offers the best user experience?
Retailer Website
Load Time
(seconds) 2013
Current Load
Time (seconds)
Percent
Change
Target www.target.com 7.43
eBay www.ebay.com 9.8
Sports Authority www.sportsauthority.com 14.86
FIGURE 6-22
Key metrics for m-commerce sites.
e-project 2
In this e-project, you will explore the Pandora website to learn more
about its web model. Then, you will examine the site’s analytics using
Alexa, a web information company that offers free information about
traffic to websites.
6-34. Visit www.pandora.com and click on Register. (You don’t need to
register unless you would like to.) Why does the site ask for your
birth year? Why does it collect your zip code? Why does it ask for
gender?
6-35. Visit www.alexa.com and search for Pandora.com to retrieve the
website’s analytics. Click on Get Details.
a. What is Pandora’s Alexa Traffic Rank, and what does that
term mean? (It’s above the graph.) Compare the Alexa Traffic
Rank, which is worldwide, to the Traffic Rank in the United
States. What accounts for the large difference?
b. Go to the Traffic Stats Tab. Check out the weekly and monthly
trends under Traffic Rank, Reach, and Pageviews. On what
days of the week does Pandora have relatively few visitors?
What does that suggest about how people use the service?
How would you generally describe Pandora’s main market?
Check out the section called “Who visits Pandora.com?”
c. Which other websites are Pandora visitors most likely to
come from just before they go to Pandora (upstream sites)?
Exploring Pandora’s Web Analytics
chapter 6 The Web, E-CommErCE, and m-CommErCE 193
Source: Data drawn from http://www.internetretailer for week ending March 24, 2013.

www.online-stopwatch.com

www.target.com

www.ebay.com

www.sportsauthority.com

www.pandora.com

www.alexa.com

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ries with generic domains. Forbes.Com, 15.
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8. Ipri, T., Yunkin, M., & Brown, J. M. (2009). Usability
as a method for assessing discovery. Information
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amongst the Forbes 250: Where art thou O virtuous
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doi:10.1007/s10551-012-1309-3
10. Vandystadt, N. (December 3, 2012). Commission to
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accessed February 2, 2013.
11. Parry, M., & Brainard, J. (2010). Colleges lock out blind
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17. Shin, D. (2013). User experience in social commerce: In
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19. DeGusta, M. (May 9, 2012). Are smart phones spread-
ing faster than any technology in human history? MIT
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29. McAfee, A., & Brynjolfsson, E. (2012). Big Data: The
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Learning Objectives
Define business intelligence and describe the three levels of decision making that it supports.
Describe the major sources of business intelligence and provide examples of their usefulness.
Explain several approaches to data mining and analytics that help managers analyze patterns, trends,
and relationships, and make better data-driven decisions.
Explain how web analytics are used as a source of business intelligence, and why they are so valuable
for understanding customers.
Describe how dashboards, portals, and mashups help visualize business intelligence, and explain the role
that the human element plays in business intelligence initiatives.
1
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C H A P T E R
7 business intelligence and Decision Making
MAKING SMART BUSINESS DECISIONS TAKES MORE THAN
GOOD JUDGMENT. It takes a clear understanding of the infor-
mation relevant to solving the problem, and knowledge about
where that information can be obtained. It also takes insight-
ful analysis, often relying on sophisticated software tools
that can do much of the work. This chapter explains what
business intelligence is, why you need it, where you can find
it, and what decision support tools are available to help you
analyze it all. You will also learn how to organize and display
the information that is most important to you, which will help
you avoid the trap of information overload.
In “Chocolate Lovers Unite,” the online simulation for this chapter, you will get first-hand experience with a business intelligence problem. Your job is to help
the company decide what works best on the company’s
website. The managers there have just been guessing
(and arguing) about this, but you’ll have different photos,
taglines, and ad copy to actually try out. Each period, you’ll
create two versions of the website to compare, and visitors
will be randomly directed to one or the other. You’ll col-
lect data, and when the experiment is over, you’ll analyze
the results. Instead of guesswork, you’ll have real business
intelligence to support the recommendations you make
to the CEO.
Data continues to pile up, turning into the “big data”
described in earlier chapters. It comes from databases, the
web, social networks, surveys, cameras, smartphones, RFID
sensors, digitized books, electric meters, GPS devices, and
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.

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more. The information systems we use to tap this mother
lode intelligently are the subject of this chapter, and particu-
larly the ways we can identify trends and patterns to make
better decisions. Determining which photos and text work
best on a company website is just one decision that can be
improved with business intelligence and decision support
tools. Here are more:
▶ How much should we spend for online ads this season?
Which ads work best?
▶ Should we create more fish dishes for our menu? How
much can we charge?
▶ When should we start our phonathon to raise money for
disaster relief? Should we invite celebrities to promote it?
▶ How should we address the bad publicity about our
product recalls? Should we ignore it?
Business intelligence (BI), introduced in Chapter 1, is an
umbrella term that includes the vast quantities of information
an organization might use for data-driven decision making,
from within its own data repositories and also from external
sources. The term also encompasses the software applica-
tions, technologies, and practices that managers apply to the
data to gain insights that help them make better decisions.
Chocolate Lovers Unite
A Role-Playing Simulation on Web Analytics
A
di
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/S
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tt
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oc
k.
chapter 7 Business intelligence and decision Making 197
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LEvELs of dECIsIon MAkIng
Consider the roles that these three people play in a busy city hospital:
▶ Monica works the evening shift in the call center, scheduling appointments, referring
patients, registering callers for hospital seminars, and routing calls.
▶ Colin just joined the hospital as assistant director of marketing. He will track online
campaigns intended to call attention to the hospital’s top-ranked specialties, such
as sports medicine and cardiology. His business major in college, with its focus on
information systems and marketing, was critical to his selection for this position.
▶ Bora, the hospital administrator, is responsible for the hospital’s overall financial
and operational health. She plans budgets, sets rates, recruits and hires the medical
and administrative staff, and, working with the different teams, develops hospital
policies. She earned her MBA, and also holds an MS in health care administration.
Each of these people makes dozens of decisions every day, at different levels of the
organization and across business units. They draw on written policies, formal training,
unwritten norms, business intelligence, and their own insights and gut instincts to make
the best decisions they can. At different levels, their decisions all contribute to the success
or failure of the whole organization. Figure 7-1 illustrates typical decision-making levels.
Operational Level
Employees working primarily at the operational level make countless decisions as they
deal directly with customers and handle all the routine transactions. Many decisions
follow predetermined policies and procedures that spell out how to handle different situ-
ations. Monica took training for her call center position, in which rules for dealing with
each type of call were specified. She learned how to deal with angry callers, impatient
callers, and callers who appear to be in severe physical or mental distress. Within this
structure, however, Monica also makes decisions independently, such as how long to
spend with each caller, how to encourage a caller to attend a hospital event, and how
sympathetic to sound in each situation.
Business intelligence for use at the operational level is attract-
ing considerable attention as organizations find ways to bring
meaningful, performance-related information to all employees.
Timely data showing the outcome and effectiveness of their deci-
sions can dramatically affect performance.
At 1-800-CONTACTS, the world’s largest contact lens store,
operational business intelligence fine-tunes the decision making
of every call center agent. Each one has access to a customized
screen with color-coded gauges showing daily metrics, such as his
or her average calls per hour and average sale size. Bar charts show
these metrics, comparing them to the agent’s monthly averages.
The screens also contain displays updated from a data warehouse
every 15 minutes so agents get quick feedback. Bonuses are tied
to a formula based on these measures, so motivation to move the
needles on their dials is high. After the system was implemented,
revenues increased $50,000 per month, with consistently high call
quality.1 Figure 7-2 shows an example of the kinds of screens
used in call center settings.
Tactical Level
People at tactical levels draw on business intelligence to make mid-level decisions, the
kind that may guide individual business units. Decisions about marketing plans, product
development, membership drives, departmental budgets, and other initiatives are gener-
ally tactical. A management information system (MIS) supports this kind of decision
making, combining data, software, and reporting tools that managers need to carry out
Define business intelligence and
describe the three levels of decision
making that it supports.
1
Strategic
Tactical
Operational
Structured
Information
Unstructured
Information
Figure 7-1
Different levels of decision making in an organization rely on
different mixes of structured and unstructured information.

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their responsibilities. (As we discussed in Chapter 1, the term MIS also describes the
academic discipline that focuses on the people, technology, processes, and data making
up information systems.)
Much useful management-level business intelligence comes from the routine weekly
or monthly reports that the organization’s information systems generate. For instance,
Colin needs weekly reports on the number of patients admitted, organized by clinical
area. If his department is conducting a marketing campaign featuring the sports medi-
cine clinic, he can use summarized data to check his outcomes.
While operational-level decision making requires detailed, structured information
about actual transactions by customer, tactical decision makers need to see trends and
summaries, sorted and tallied in different ways, to monitor success and plan next steps.
Strategic Level
The leadership guides longer-term strategy. Decisions at this level can have widespread
effects throughout the organization and beyond, to suppliers, customers, and even the
whole industry. Each decision could commit huge amounts of capital and people to
major initiatives. For instance, hospital administrator Bora may need to decide whether
to open a new pediatrics wing or use those resources to enlarge sports medicine.
A high-tech CEO might ask, should we make an offer to buy out a rival? A phar-
maceutical company’s CFO may wonder how much the company should invest in R&D
over the next 5 years. A college president will need extensive data from financial analysts,
faculty, and students—both current and prospective—to weigh whether to eliminate an
academic department with very few majors rather than lay off people or raise tuition.
The business intelligence that executives need to make better decisions is often less
structured than at the operational or even management level. Top-level execs certainly
need summary and historical data from the company’s own transactional systems and
data warehouses. But they also need business intelligence that draws on big data, to learn
more about their rivals, their industry’s landscape, and overall economic trends.
In fact, most people in an organization need decision support at more than one level,
depending on the situation. A CEO will want to see the detailed transaction records of a
high-value client, and the call center staff can suggest process improvements if they have
access to reports showing longer-term patterns. Colin, who usually operates at the tactical
level, will be very interested in analyzing the sports blogs to see what people say about the
hospital. He’ll need tools to tap such external information sources as much as any CEO.
Metric Minutes
and
Seconds
Current call length 13:42
12:41Your average call length
today
Today’s average call
length, for all agents
This week’s average
call length, all agents
10:25
13:32
Average Call Length by
Type of Problem
Applications
45
40
35
30
25
20
15
10
5
0
Hardware Operating
System
Virus
Time on current call Average for all calls Escalation rate Resolved ratettA ll llTi t ll RE l
Figure 7-2
Call center agents can see
timely data on their own and
their coworkers’ activities,
especially to support opera-
tional decision making and
improved performance.

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souRCEs of BusInEss InTELLIgEnCE
A hurdle for business intelligence (BI) projects is not too little information. It’s too much.
Throughout the organization and well beyond its borders, valuable information sources
that can improve decision making at all levels abound.
Transactional Databases, Data Warehouses, and Internal Data Sources
The heart of BI is the transactional system used for daily operations. Within the organiza-
tion’s own databases is a treasure trove of data about its customers, employees, suppliers,
and every financial transaction. Databases maintained by suppliers or customers are also
critical BI sources.
As we discussed in Chapter 4, transactional systems must be tuned for operations. Agents
must be able to retrieve a customer’s screen in microseconds; however, BI reporting can bog
the system down. When a call agent has to say, “I’m sorry, but the system is really slow now,”
a good guess is that some unwitting manager is running summary reports.
Most organizations build separate data warehouses by extracting part or all of the data
from those databases, cleansing it, and then loading it to the warehouse, using the extract,
transform, and load (ETL) process described in Chapter 4. They might do extractions
once a day, or even once a week. But with a growing need for real-time intelligence, busi-
nesses are finding ways to freshen their data warehouses much more frequently. Satellite
TV provider DIRECTV, for instance, implemented software to capture the transaction
logs and post them to the warehouse in near real-time. Within seconds of any transaction,
the new data is streamed to the gigantic data warehouse, where agents can draw on it to
offer new promotions to customers who are about to switch to a different TV provider.2
Valuable intelligence may also be housed in departmental systems, email, electronic
documents, filing cabinets, individually maintained spreadsheets, and PC hard drives.
These are more difficult to dig into, but as you will see, some progress is being made to
unleash these sources.
External Data Sources and Big Data
External databases that are either purchased or publicly accessible are also excellent
sources of business intelligence. The U.S. Census Bureau, for instance, maintains many
databases with information about demographics, educational levels, income, ethnicity,
housing, employment, and more. Figure 7-3 shows an example of output from a query to
its extensive international database.
Describe the major sources of
business intelligence and provide
examples of their usefulness.
2
Figure 7-3
Data useful for business intelligence
can be downloaded from the
U.S. Census Bureau’s website.
Source: www.census.gov/ipc/www/idb/country.php.

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intelligent agents
Software programs or “bots” that are sent out
to conduct a mission and collect data from
web pages on behalf of a user.
IntellIgent Agents Besides retrieving downloadable files from online sources, com-
panies can also use intelligent agents to extract useful business intelligence from pub-
licly accessible websites. These software programs, often called “bots,” are sent out to
conduct a mission and collect data from web pages on behalf of a user. For example, a
tour operator in China might want competitive business intelligence about airline ticket
pricing between the United States and Hong Kong, updated daily. Using robot-building
software, the operator can design an agent to interact with each airline’s website, record-
ing all the steps a human performs to get a listing of first- and coach-class ticket prices
(Figure 7-4). The agent can be sent on its mission every day, bringing competitive pricing
information home to the company’s own data warehouse.
Intelligent agents are useful
for many tasks and are growing
smarter and more capable each
year. Search engines use them
to classify and index web pages,
and infomediaries deploy them
to retrieve current product prices
from different vendors.
BI And BIg dAtA Big data adds
semi-structured and unstructured
information in addition to the
structured information found in
databases or retrieved by agents.
As Chapter 4 explained, big data
has huge volume, high velocity,
and tremendous variety. It might
include websites, blogs, wikis,
social networks, photo sharing
sites, video repositories, discussion forums, tweets, and text messages, any of which could
be useful for business intelligence. A major contributor is the “Internet of things,” in which
sensors connected to the net collect and send data automatically.3 That source will soon out-
strip all others in terms of sheer volume, with input from sensors in smartphones, consumer
products, vehicles, animals, lawn sprinklers, medical monitors, and more.4
Get Prices
Search for flights
From:
To:
Departure Date: Return Date:
Economy Business First
LAX
HKG
Figure 7-4
To build a bot, the designer carries out the steps a human being would
perform to capture data on public websites, and the software creates the
agent that will carry out the tasks on its own.
PRODUCTIVITY TIP
You can create an agent to carry out online searches for recent articles
relevant to your upcoming term paper. Yahoo, Google, and many online
library databases offer this service, usually called “alerts.” Schedule it to
run daily and email you whatever it finds.
PRODUCTIVITY TIP
How well are you managing your own big data? You might not have
petabytes, but you do have great variety and growing volume. Cloud-based
services such as Evernote offer tools to organize your web links, tweets, online
articles, notes to self, and other resources, and also make them searchable so
you can find them again.

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dATA MInIng And AnALyTICs
Once a firm has identified the sources of business intelligence, the next step is to
start mining them to spot patterns and support decision making. Some analytic efforts
focus on describing the patterns, or modeling them to estimate costs or other variables.
Predictive analytics refers to data mining approaches and statistical techniques used
to predict future behavior, especially to unlock the value of business intelligence for
strategy. For instance:
▶ Which customers are most likely to renew their subscription to our service at the
regular price?
▶ What special offers might persuade different customers to renew?
▶ What behaviors signal that a customer is about to cancel?
Let’s look at some of these techniques and the kinds of questions they can answer.
Analyzing Patterns, Trends, and Relationships
BI analytical tools are becoming extremely powerful and user-friendly, and many take
advantage of in-memory computing so results appear quickly.6 Some tools are stand-
alone BI platforms that the organization can add to its environment to support decision
making and link to its data warehouses. Other tools are offered as part of enterprise
information systems, and ERP vendors are adding BI capabilities to their product suites.
Microsoft adds BI functionality to its SQL Server database, integrating it with its other
products, especially Excel.
In addition to the data warehouses that rely on relational databases, many organiza-
tions are adding newer platforms that handle less structured big data, such as Hadoop
and NoSQL (discussed in Chapter 4). Sears, for instance, saves considerable time by
loading terabytes of data into Hadoop, without doing the extract, transform, and load
process used for a data warehouse.7
BI software includes innovative tools to visualize data in new ways that go beyond
the usual bar graphs, pie charts, and tables. Color, object shapes, object sizes, 3D views,
and interactivity can help display data in human-friendly ways so that meaning is more
apparent. For example, Figure 7-5 is an interactive map that shows changes in the popu-
lation of coastline counties over time. The dynamic display quickly reveals trends in a
way that a table of numbers could not.
Tagging online photos of faces with people’s names is wildly popular and very
helpful as a means to add structure to information. Those old group photos
come alive when you don’t have to struggle to recall long-forgotten names.
However, these tags are raising serious privacy concerns and ethical dilemmas.
Although you may have no reluctance to tag yourself in your own pho-
tos, will your friends and family want you to tag them? They may think the
photo is unflattering. Or they may be concerned that their employers will
stumble upon tagged images you thought were amusing, but that employers
think show poor judgment. Parents may also object to tagged images of their
children appearing online.
Though photo sharing sites offer assurances and many choices about
privacy, the potential for harm is not trivial, especially because you can’t con-
trol what others are doing. Uploaded photos might include metadata that you
may not even know is attached, such as GPS coordinates that can “geotag”
your photo to indicate location, and the date and time the photo was taken.
The services offer facial recognition software to ease the tedium of indi-
vidually tagging each photo. After you tag some faces, the software can find
those people in other photos and tag them on its own. Though very handy,
this tool greatly amplifies the chance that people will be tagged without their
knowledge or consent, and the information will be used in unpredictable
ways by marketers, employers, relatives, or law enforcement. Facebook
implemented this kind of service, but regulators in Europe insisted that
Facebook delete all facial recognition data for European users because of
privacy concerns.5 With cell phone cameras widespread and photo uploads
so simple to do, the “anonymous face in the crowd” may become rare
indeed, despite mounting privacy regulations.
THE ETHICAL FACTOR The Ethics of Tagging Faces in Photos
Explain several approaches to data
mining and analytics that help
managers analyze patterns, trends,
and relationships, and make better
data-driven decisions.
3

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online analytical processing (OLAP)
Software that allows users to “slice and
dice” or drill down into massive amounts of
data stored in data warehouses to reveal
significant patterns and trends.
predictive analytics
Data mining approaches and statistical
techniques used to predict future behavior,
especially to unlock the value of business
intelligence for strategy.
OnlIne AnAlytIcAl PrOcessIng (OlAP) Exploring the data warehouse, with its hundreds
of tables, thousands of fields, and dozens of relationships among the tables, is not for the
fainthearted. Although programmers and some power users can write SQL code to frame
complex queries, most business users need views into their data that are more intuitive. They
want to visualize it in many different ways to find patterns and relationships that don’t easily
show in routine reports from the transactional system.
Online analytical processing (OLAP) systems allow users to interactively retrieve mean-
ingful information from data, examining it from many different perspectives and drill-
ing down into specific groupings. The software allows users to “slice and dice” massive
amounts of data stored in data warehouses to reveal significant patterns and trends.
Managers might check sales transactions by customer gender and age group and find
relationships that can guide marketing campaigns.
OLAP systems help spot suspicious activity as well. Medicare anti-fraud strike forces,
for example, use such systems to detect unusual billing that might point to illegal scams.
One analysis found that charges for home health care services in Miami jumped a star-
tling tenfold in just 2 years, though the city showed no noticeable increase in elderly
residents. That insight led inves-
tigators to bills totaling $155,000
for nurses to help an elderly
Miami man inject insulin twice
a day. They discovered the man
was not diabetic and the nurses
did not exist.8
Figure 7-5
Data visualization using an interactive
map that shows changes in population
in coastal counties over time.
Source: http://www.census.gov/dataviz/visualizations/039/.
PRODUCTIVITY TIP
Excel is a powerful OLAP tool itself, thanks to its pivot tables and charting
capabilities. It uses in-memory computing so your charts appear almost
instantly, even with very large worksheets.

http://www.census.gov/dataviz/visualizations/039/

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OLAP systems achieve their speed and their slice-and-dice capabilities by building
multidimensional cubes.9 These are data structures that contain detailed data, and also
aggregated values for the dimensions, metrics, and hierarchies the users need. A com-
pany might want a cube that managers could use to analyze total sales by store location,
by product, or by time period (Figure 7-6). These categories could be represented as
dimensions of the cube, and time period could also be structured in the cube as a hier-
archy. Managers might want to see sales by product, by month, by quarter, or by year.
Although the term cube suggests that three is the limit for dimensions, these structures
can actually incorporate dozens.
stAtIstIcs And MOdelIng technIques Data mining and predictive analytics often use sta-
tistical analysis and models, not just to display averages or changes over time, but also to
identify real patterns—ones that probably did not occur just by chance. Colin’s survey of
patient families suggests that women rate the pediatrics ward somewhat more favorably than
men. But before launching a campaign based on this finding, Colin would use statistics to
analyze the data more closely, not just view it on a graph. If the difference is significant,
Colin would be confident about a decision to target men in the next campaign.
Statistical relationships can be especially useful to spot. For example, a technique
called market basket analysis looks for such relationships to reveal customer behavior
patterns as they purchase multiple items. Are customers who buy soda more likely to also
Date
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Multidimensional cube created from
tables in a data warehouse and used
for OLAP.

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text mining
A technique used to analyze unstructured
text that examines keywords, semantic
structures, linguistic relationships, emotion-
laden words, and other characteristics to
extract meaningful business intelligence.
market basket analysis
A statistical technique that reveals customer
behavior patterns as they purchase multiple
items.
buy candy? Are people who buy
larger TVs more likely to also
purchase high-priced speaker
systems? Online retailers make
very obvious use of the tech-
nique to cross-sell. For instance,
Amazon’s product screens con-
spicuously show sections titled,
“Frequently Bought Together”
and “Customers Who Bought
This Item Also Bought.”
TexT Mining Dipping into the vast storehouse of unstructured text-based data contained
in emails, blogs, tweets, online product reviews, and comments yields critical business intel-
ligence. Text mining, a variation of data mining, is a dis-
covery process in which unstructured text information is
the source of business intelligence, rather than structured
data (Figure 7-7). Text mining software tools rely on key-
words, semantic structures, linguistic relationships, parts of
speech, common phrases, emotion-laden words, and even
misspellings to extract meaningful information.
Choice Hotels uses text mining software to make
sense of the comments section of customer surveys.
Although it is easy to analyze the quantitative scales on
which customers check off responses ranging from “Very satisfied” to “Very dissatisfied,”
it is far more time consuming to analyze the comments from hundreds of thousands of
survey responses. With the software, managers can retrieve graphical displays of problem
types expressed in the comments, as well as positive and negative comments sorted by
location, time of year, and other variables.
Companies are even more motivated to “actively listen” to web and Twitter chatter
with text mining because any anonymous complaint can spread so fast. For instance,
travelers reserving a hotel room can check The Bedbug Registry, a website that publishes
bedbug reports by state. Even one mention will turn away guests.
Text mining can also help iden-
tify fake product reviews. Researchers
estimate that a significant percentage
of online reviews are likely fakes, cre-
ated by people paid to write positive
comments without actually using the
product.10 Companies like Expedia
and Yelp use text mining and other
measures to spot suspicious reviews
and delete them, such as those that
just repeat ad copy.11
Simulating, Optimizing, and Forecasting
Decision support systems also include tools that help managers simulate events and make
forecasts for the future. Download CH07_Simulations.xlsx to try out the tools described
in this section in Excel.
PRODUCTIVITY TIP
An add-in for Excel that you might want to install is called “Analysis ToolPak.”
Tools include descriptive statistics with mean, mode, median, standard
deviation, correlation, and several modeling and hypothesis-testing tools.
Some knowledge of statistics is needed.
From a blog:
“The sales rep at Reliance was really rude. He kept insisting that I add
more services when all I wanted was a lower price. Made me mad so
I canceled completely.“
New London Mom
Figure 7-7
Text mining software can extract useful business intelligence from blogs.
Did You Know?
Text mining on historical documents turned up a fascinating tidbit about how views
of the United States changed. Authors wrote “the United States are . . .” well into
the 1800s, when they began using “the United States is . . . .” Apparently, Americans
didn’t think of the United States as a single nation rather than a collection of states
until long after the country was born.12

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WhAt-If AnAlysIs A tool called what-if analysis builds a model that simulates relationships
between many variables. Excel is popular for building relatively simple models, such as the
one in Figure 7-8. Bora is considering launching the hospital seminar series and uses this
what-if analysis to play with the variables that contribute to revenue and expenses. She can
estimate and change any of the variables in yellow, and the worksheet computes revenue,
expenses, and net profit or loss. For example, she calculates the speakers’ fees by:
Speaker fee (per session) * Number of seminars per year.
Now Bora can ask, “What if I offer fewer seminars?” or “What if I spend more on
marketing?” The model shows how any changes affect the bottom line.
gOAl seekIng Goal seeking is similar to what-if analysis, but in reverse. Instead of estimat-
ing several variables and calculating the result, the user sets a target value for a particular
metric, such as profit/loss, and tells the program which variable to change to try to reach the
goal. For instance, Bora might wonder what the average attendance at each seminar needs
to be for the project to break even. She can use the goal-seeking tool in Excel on her what-if
spreadsheet (Figure 7-9). She enters net profit/loss as the cell to set, zero as the goal, and the
estimated attendees per session as the changing cell. When she clicks OK, she sees she’ll need
about 31 guests per seminar to break even.
Figure 7-8
What-if spreadsheet to estimate
revenue and expenses for a hospital
seminar series. The user can change
the estimates for any variable in
yellow, and the spreadsheet
recomputes Net Profit/Loss.
Figure 7-9
Goal seeking. The user sets a target
value for one cell, such as Net Profit/
Loss, and then enters the cell that
Excel can change to reach the target.

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what-if analysis
A simulation model, often constructed using
Excel, that calculates the relationships
between many variables; users can change
some variables to see how others are affected.
optimization
An extension of goal seeking in which the
user can change many variables to reach
some maximum or minimum target, as long
as the changes stay within the constraints the
user identifies.
goal seeking
A decision support tool, often based on an
Excel model, in which the user sets a target
value for a particular variable, such as profit/
loss, and tells the program which variable to
change to try to reach the goal.
OPtIMIzIng In many cases, managers need to use optimization tools to find the best solu-
tions that require some juggling of trade-offs. Airlines, for instance, try to optimize profit per
flight, taking into account constraints such as fuel costs, ticket discounts, gate availability,
airport congestion, and connections. The list grows ever longer and complex as the deci-
sion support tools try to balance many competing variables. For example, a Department of
Transportation regulation about publicizing each airline’s on-time record adds a new con-
straint. To keep their on-time rating high, most airlines decided to pad their published flight
durations so even delayed flights count as “on time.” One puzzled traveler remarked, “If you
leave late, you know you will arrive late. But now you leave late and arrive early.”13 Excel also
offers an add-in tool called Solver that helps with optimization problems.
fOrecAstIng Forecasting tomorrow’s demand, next month’s sales, or next year’s stock price
relies especially on statistical decision support tools. Forecasting tools usually analyze his-
torical and seasonal trends and then take into account existing and predicted business condi-
tions to estimate some variable of interest, such as customer demand or projected revenue.
For example, Figure 7-10 is a simple model that shows the historical relationship between
weekly snowfall and sales revenue from ski lift tickets. Although not perfect, the correlation
between them is reasonably high (+0.64): the more snow, the higher the revenue. Using the
graph, the weather report for 15 centimeters next week forecasts revenue of about $60,000.
More sophisticated models incorporate many other variables that affect the forecast, draw-
ing widely on business intelligence sources.
Artificial Intelligence
Artificial intelligence (AI) describes the capability of some machines that can mimic
human intelligence, displaying characteristics such as learning, reasoning, judging, and
drawing conclusions from incomplete information. For business, AI makes valuable con-
tributions in areas such as financial monitoring, scheduling, diagnosing problems, and
Figure 7-10
Forecasting ski lift ticket sales
revenue from weekly snowfall based
on historical patterns.
artificial intelligence (AI)
The capability of some machines to mimic
aspects of human intelligence, such as
learning, reasoning, judging, and drawing
conclusions from incomplete information.
forecasting
A statistical decision support tool used to
analyze historical trends and other business
intelligence to estimate some variable of
interest, such as customer demand.

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analyzing customer behavior. Amazon’s software, for example, continually learns about
each customer to make more relevant recommendations for new purchases.
The AI underpinnings for Watson, IBM’s supercomputer that beat human champions
in the game show Jeopardy!, show extraordinary promise. The stunt demonstrated that
AI has a very bright future for interpreting human language and drawing on an immense
knowledge base to find answers. The next step is to apply Watson’s capabilities to the real
world beyond Jeopardy! Plans are already underway to create a physician’s assistant service.
Artificial intelligence is especially important to handle all the data coming in from
sensors. In fast-moving emergency situations, for instance, when the volume of incoming
data could overwhelm human decision makers, AI could be enormously helpful. After an
earthquake, AI can analyze information from fire alarms, cameras, 911 calls, and other
sources to quickly decide how best to allocate ambulances across a city.
Robotic technology also depends on advances in artificial intelligence. The robots
that creep around Mars, vacuum airports, assemble cars, defuse bombs, and assist the
disabled are specialized to perform certain functions, and they are growing more power-
ful and useful. The underlying intelligence to vacuum a living room without get-
ting stuck under an armchair is more complicated than it looks.
Unfortunately, AI is also used by
scammers who want to pose as human
beings, especially as online bots. Com-
panies that offer free email services, for
example, do not want bots registering
for thousands of accounts. And news
sites want to block “blog bots” that
post automated comments to articles
containing spam or malicious soft-
ware. Web developers increasingly add
obstacles they hope will block these
rogue intelligent agents.
One such obstacle that thwarts most software bots is the CAPTCHA, a
test the visitor must pass before continuing to register or enter the site.
One variety presents an image of some letters and numbers and the user
must correctly read and enter them before proceeding (Figure 7-11). The
image is fuzzy and the fonts are irregular. Humans have trouble reading
them, but bots have even more difficulty. As technology develops that can
discriminate between the mouse movements and keystrokes of bots and
humans, CAPTCHAs may no longer be so widespread.14
Some of the most useful applications of AI for businesses and other
organizations are found in expert systems and neural nets, described next.
experT SySTeMS An expert system mimics the reasoning of a human expert, drawing
from a base of knowledge about a particular subject area to come to a decision or rec-
ommendation. To build an expert system, developers work with experienced and special-
ized professionals as they provide answers to questions and explain their reasoning pro-
cesses. The output is fine-tuned continually as the experts contribute more knowledge to
the base, refine the rules, and add additional questions. The process is challenging, often
because experts don’t quite know exactly how they reach their conclusions. Formally
identifying the actual steps is harder than you might think, but the results can be quite
dramatic and enormously useful for decision support.
Medical diagnostics reap huge benefits from expert systems, particularly with
increases in computer power and available data.16 These systems can analyze far more
than a human physician can, tapping genetic information, clinical test data, demograph-
ics, and more to diagnose the problem, recommend treatments, and also reduce costs.
Mobile AI is also offering much promise. In Kenyan villages, for example, health
workers carrying a small test kit visit rural households looking for signs of malaria. They
send the results via text message to the expert system, which in just a few seconds returns
an automated response about the proper course of treatment based on its analysis. The system
also sends additional messages about follow-up treatments and clinic appointments.17
Enter the words above
Figure 7-11
A CAPTCHA designed to ensure visitors are actually
human beings and not bots.
Source: © 2013 Google.
Did You Know?
A usability expert calls the CAPTCHA one of the most hated user interactions on
the web. Each one can take a user from 10 to 15 seconds to figure out, assuming
they don’t give up, which collectively adds up to 500,000 hours every day.15 But the
hours aren’t totally wasted. Your human eyes help digitize old books with fonts
too strange or blurry for optical character readers, so the text can be searched.
CAPTCHA is an acronym for “Completely Automated Public Turing test to tell
Computers and Humans Apart.”

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neural network
An information system that attempts to
mimic the way the human brain works; often
used to spot suspicious activity in financial
transactions
expert system
Software that mimics the reasoning and
decision making of a human expert, drawing
from a base of knowledge about a particular
subject area developed with the expert’s
assistance.
CAPTCHA
A test created by software developers that
the visitor must pass before continuing to
register or enter the site; designed to thwart
software bots.
neurAl netWOrks Neural networks attempt to mimic the way the human brain works,
with its vast network of interconnections. Each of the 10 billion+ neurons connects with
thousands of its neighbors, receiving chemical signals from them. The neuron constantly
summarizes the input it receives and the results determine its outgoing transmissions. When
repeated input causes signals to travel the same pathway again and again, the connections
grow stronger and the pathway becomes more permanent and easier to activate. When you
use flash cards to memorize vocabulary words in Japanese, for instance, you are reinforcing
the paths connecting the neural underpinnings for the English word with its Japanese equiva-
lent. After many repetitions, when you see dog you easily recall the Japanese word inu.
Neural networks are far simpler than the human brain, of course, but they borrow
the brain’s approach, using digital signals in place of neural ones. The neural net learns
from training data selected by humans that contain cases defining the paths from input
to output. The net’s success depends largely on the number and quality of the cases it
can learn from. For example, a neural net being trained to predict housing values could
absorb millions of cases in which the input includes location, sales price, square footage,
number of bathrooms, and more. For the training data, the output is the actual sales
price. Once the net is up and running, the output will be the predicted house value.
Neural nets are widely used on big data, such as in the finance industry where
detecting fraud is an important application. Analyzing each card transaction in real time,
neural nets compare the specific
purchase to the cardholder’s
regular spending habits and also
to fraudulent spending patterns.
The neural net will certainly
pick it up if a retiree who hasn’t
traveled beyond Costa Rica
starts racking up charges for hip
blue jeans in Bucharest.
An amusing neural net that encourages Web visitors to contribute cases is 20Q
(www.20Q.net), based on the game called 20 Questions. The player thinks of an animal,
vegetable, or mineral, and the game asks yes or no questions until it makes a correct
guess or gives up (Figure 7-12). Relying on the millions of cases visitors have added, the
neural net’s accuracy is, as one reviewer put it, “scary.”
Figure 7-12
The neural-net called “20Q” plays the
game 20 Questions with visitors, very
often guessing correctly. The training
data includes the millions of games
users play at the site (www.20Q.net,
from 20Q.net Inc.).
Source: © 1988–2013. 20Q, I can read your mind . . . and the neural net on the Internet, are registered
trademarks of 20Q.net Inc. All related titles, logos, and characters are the trademarks of 20Q.net Inc.
All rights reserved.
PRODUCTIVITY TIP
Before you travel outside your home country, it’s wise to let your credit card
company know where you are headed. A neural net may automatically block
your card if unexpected foreign charges appear and the card company is
unable to reach you.

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WEB AnALyTICs
The sheer volume of business intelligence available from an organization’s own website
can be overwhelming. The clickstream data includes every single click by every visitor,
along with associated data revealing customer behavior patterns, such as time spent on
the page, the URL the visitor just left, and the visitor’s IP address. With potentially mil-
lions of clicks per day, clickstream data adds up quickly. Let’s first take a look at what
metrics can be gathered from this BI source.
Web Metrics
Like the proverbial kid in a candy store, analysts have access to an astonishing number of
metrics about clickstream activity to draw upon. Each measure reveals something a little
different that can help describe how people are interacting with the site, and how well the
site is meeting the goals set for it.
WeBsIte MetrIcs Figure 7-13 lists several measures of visitor traffic that are important to
all organizations. All the measures refer to a particular time period the analyst selects, such
as the previous week, month, or year.
These web metrics come from server logs, and each entry contains detailed infor-
mation about the date and time, the page, the source, and any clicks on the page itself.
The logs also contain information about each user, including his or her IP address and
browser. If the site uses cookies, it can collect more information about each user.
sOcIAl MedIA MetrIcs For interactive websites with registered members who contribute
their own materials and build friendship networks, even more metrics may be available to
analysts. Number of active users, posts per user, photo tags, profile information, purchases,
data on friends, group memberships, and product ratings are examples of what these sites
can collect. Privacy settings may prevent the release of some of this information, but increas-
ingly, users allow its release in return for some benefit, such as access to games or discounts.
We discuss these kinds of privacy issues in more detail in Chapter 10, and also in the case
about Facebook and Instagram at the end of the book.
Explain how web analytics are used
as a source of business intelligence,
and why they are so valuable for
understanding customers.
4
Web Visitor-Related Metrics Description
Visitors Number of visitors to the website. (Returning visitors will be counted
again if they return within the time period.)
Unique visitors Number of unique visitors. (Returning visitors are not counted again.)
Average time on site Average amount of time visitors spent on the site.
New visitors Number of new visitors to the site.
Depth of visit The number of page views per visit, which shows how extensively
visitors interact with and navigate around your site.
Languages The number (or percentage) of visitors based on the language they
confi gured to use on their computer.
Traffi c sources The sources from which visitors arrive at your site, such as a keyword
search in a search engine, an ad, or from a link on related sites. Direct
traffi c is a visit from someone who used a bookmark or typed the URL
in the browser.
Service providers The number of visits coming from people using different Internet
service providers.
Web Content-Related
Metrics Description
Page views The number of visits per page on the site, showing analysts the most
popular content.
Bounce rate Percentage of visits in which the user left the site from the same page
he or she entered it. This can mean that the page the user landed on
was not very relevant.
Top landing pages The number of entrances to your site for each page.
Top exit pages The number of exits from the site for each page.
Figure 7-13
Website metrics.

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clickstream data
Business intelligence data that includes every
click by every visitor on a website, along with
associated data such as time spent on the
page and the visitor’s IP address.
Lively real-time social media such as Twitter produce their own set of metrics that
analysts may want to capture. Figure 7-14 shows some examples.
e-cOMMerce MetrIcs If the site includes advertising and e-commerce capabilities, the met-
rics about actual sales will be very relevant. Which pages do they view before they purchase
something, and which pages do they linger on? Which visitors abandoned their shopping
cart, and what pages did they view? Some other useful measures are shown in Figure 7-15.
In the online simulation, “Chocolate Lovers Unite,” you can choose which metrics
you want to collect, and then watch them change each week as you try out different
designs for the company’s website (see Figure 7-16).
Twitter Metric Description
Updates The number of updates the user published within the most recent time period.
Followers The number of followers reported by Twitter at last count.
Following The number of individuals the user is following at last count.
ReTweeted The number of times a user has been retweeted by other people.
Referenced The number of times a particular user has been referenced or cited by other people in
their tweets.
Figure 7-14
Sample metrics for Twitter activity.
E-Commerce Metric Description
Conversion rate The ratio of visitors who complete some activity (such as buying a product)
divided by the total number of visitors.
Clickthrough rate (CTR) The ratio of clicks on an ad divided by the number of times the ad was delivered.
Cost per clickthrough
(CPC)
The amount an advertiser pays each time a visitor clicks on the ad to navigate to
the advertiser’s site.
Cost per impression
(CPM is cost per
thousand impressions)
For banner and display ads, the cost the advertiser pays each time the ad loads
onto a user’s screen from any site on which it appears.
Position on page The position in which a sponsored link appears on a page in keyword advertising
on search engines.
Figure 7-15
E-commerce metrics.
Figure 7-16
In the online simulation for this
chapter called “Chocolate Lovers
Unite,” you compare the metrics
for two versions of the company’s
website.

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Analyzing Traffic and Achieving Success
Making sense of these numbers takes consider-
able skill, and the web analyst who has it is in great
demand. Figure 7-17 shows part of a job posting
for this type of position for an online retailer in
New York.
AnAlytIcs sOftWAre To reap value from all this
information, especially given its volume, organiza-
tions rely on analytical tools. Products specifically
designed to analyze clickstream data are growing
ever more powerful, with easy-to-use interfaces, graphing capabilities, and advanced sta-
tistical techniques. Analysts can quickly see important details about their web traffic,
their visitors, and the links that bring customers to their site.
Some products are embedded in content management systems, some are stand-alone
products, and others are offered as software as a service. Google’s free web analytics,
for instance, is a software-as-a-service (SaaS) product. It requires only a short string of
code on each page to direct the clickstream data to Google’s servers, where the analytical
engine does its work. Figure 7-18 shows one example of the kinds of graphs and tables
available with web analytics.
reAchIng gOAls Web analytics software spews out thou-
sands of graphs, tables, and charts. To make smart deci-
sions, companies should have a clear notion of the major
goals for the site so they know what to look for. These
goals will guide them toward the appropriate metrics, so
they can see whether their decisions bring about improve-
ments. For example, in “Chocolate Lovers Unite” your
primary goal is to increase the percentage of unique visi-
tors who sign up for a newsletter so the company can stay
in touch with current and future customers.
Rail Europe, the company that promotes and sells
European train travel tickets in the North American
market, wanted U.S. visitors to spend more time plan-
ning their trips on its site and eventually buy train
tickets. North Americans, however, are used to driv-
ing, so they rarely went to a railway site for travel
advice. When Rail Europe began analyzing the site’s
clickstream data, the results were discouraging. “We
saw some trends that would basically put us out of
business,” said the company’s VP for e-business.
Rail Europe learned, for example, that most U.S.
visitors stumbled onto the site from a general keyword
search, using vague phrases such as “Paris travel.”
The company added much more travel-related advice,
interactive maps, and content to the site, hoping to
attract U.S. travelers earlier in their trip planning.
The site’s metrics showed major improvements. Bounce rate decreased from 33% to
23%, and conversion rates grew 28% during the critical April to May period. Stickiness,
a term that refers to how long visitors linger at the site, jumped from 6 to 8 minutes in
less than a year. U.S. visitors were especially intrigued by the interactive maps showing
railway lines, so Rail Europe continued to expand these sections.18
AnAlyzIng the effectIveness Of Ads The e-commerce metrics that summarize data on
advertising campaigns are essential for marketers. Cost per clickthrough, conversion rates,
and other measures reveal how well ads are doing and whether advertising dollars are being
spent wisely. Over time, historical patterns can also predict how much the company needs to
spend on online campaigns to achieve sales goals.
Director, Business Intelligence and Web Analytics
▶ Analyzes web traffi c and customer behavior using clickstream and business
intelligence tools
▶ Creates clear and comprehensive reports showing data and trends
▶ Provides recommendations on maximizing revenue and improving customer
experience
▶ Leads efforts to integrate clickstream data into marketing campaigns
▶ BA required, MBA a plus
Figure 7-17
Job posting for a web analyst.
0
10,000
20,000
30,000
40,000
50,000
60,000
5-
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ct
6-
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ct
7-
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ct
8-
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ct
9-
O
ct
10
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ct
11
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ct
12
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ct
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-O
ct
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ct
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ct
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ct
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ct
18
-O
ct
19
-O
ct
20
-O
ct
21
-O
ct
Most Popular Keywords Visits
Peru 987
Latin America 745
South America 158
Number of Website Visits by Day
Figure 7-18
Sample output from web analytics software, describing the number of website
visitors by day and the most keywords used to reach the site.

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key performance indicators (KPIs)
The quantifiable metrics most important to
the individual’s role and the organization’s
success.
dashboard
A graphical user interface that organizes and
summarizes information vital to the user’s role
and the decisions that user makes.
stickiness
The measurement of how long visitors linger
at a website.
Online advertising is a moving target, though, and analysts should track overall
changes in user behavior patterns. For example, the number of people who click display
ads has been dropping, and a small percentage of Internet users actually do most of that
ad clicking. Although display ads may not attract many clicks, research shows they do
raise brand awareness, and they may increase offline sales.19 Findings like these help web
advertisers make smart decisions about how to spend their online marketing budget.
Keyword advertising, in which relevant text ads appear as sponsored links along with
the results of a keyword search in a search engine, is seeing much higher growth than
display advertising. The lion’s share of Google’s and Yahoo!’s revenue comes from these
tiny text ads, and marketers achieve generally good results. Their effectiveness, though,
depends on variables such as the position in which the sponsored ad appears. The top
spot is most effective, with diminishing returns for ads appearing under that.
Clear relevance to the user’s search term is also an important variable that con-
tributes to success. A user who enters “phones for kids” is interested in phones for
kids, or possibly cell phones for children, but not
kid’s bedroom furnishings. To help advertisers
improve their results, search engines allow the
text ads to include variables that will be replaced
by the user’s actual search terms. An online gift
store, for instance, will program the ad to dis-
play “Phones for Kids” as the title, or “Phones
for Children” if that was the user’s search term
(Figure 7-19).
PuTTIng IT ALL TogETHER:
dAsHBoARds, PoRTALs, And MAsHuPs
Staying on top of this endless stream of data from so many business intelligence sources
can be an immense challenge. Transactional records, competitive business intelligence,
clickstream data, news, blogs, tweets, government regulations, and legal cases combine
in a barrage of information overload. Access to this universe of information relevant
to your job and organization may be a wonderful thing, but you also need strategies for
organizing and viewing it in a meaningful way.
Dashboards
Like a plane or car dashboard with its dials, gauges, and other displays of real-time data,
the IT dashboard is a graphical user interface that helps people visualize information
vital to the user’s role and the decisions that user makes (Figure 7-20).
Colin, for instance, wants to track hospital seminar registrations and attendance,
and also results from the online evaluations each attendee is asked to complete.
A dashboard combines those metrics with updated graphs showing clickthroughs for
his keyword ads and the number of unique visitors to the web pages he designed as
landing pages for the ads.
The dashboard should summarize key performance indicators (KPIs), which are the quan-
tifiable metrics most important to the individual’s role and the organization’s success. For
instance, a chief of police might want to see frequently updated charts showing criminal
activity by week or number of crimes solved by type. A regional sales manager launching a
major discount promotion might want hourly updates on sales volume by product.
Dashboard capabilities come with most business intelligence software, but users will
quickly ignore them if the dashboard isn’t relevant, timely, and useful. Figure 7-21 lists
some tips on best practices for dashboard design.20
Search term: phones for children
Phones for Children
The Fun & Easy Way to Find
Phones for Children at Low Prices
Search term: kids’ phones
Kids’ Phone
100s of Kids Phone
Top Brands at Low Prices!
Figure 7-19
Online ads can include variables to customize the text according to the phrase the user
entered as the search term.
5 Describe how dashboards, portals, and mashups help visualize business
intelligence, and explain the role that
the human element plays in business
intelligence initiatives.

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Budget ScheduleS h d l
100
90
80
70
60
50
40
30
20
10
0
Jan Feb Mar Apr May Jun Jul
DD Designs
Alpha Retail
Barbaby Books
Best Oil
D
A
B
B
Figure 7-20
A graphical dashboard example, showing summarized and updated information relevant to a project manager.
Dashboard Feature Design Tip
Key performance indicators
(KPIs)
Choosing KPIs that are most important to the organization and the
person using the dashboard is the most important success factor.
Data quality Dashboards make data look good, but the charts and graphs are only
as useful as the quality of the underlying data. Users should ask for
warnings when data is stale or not altogether reliable.
Timeliness Update the dashboard as often as needed for the user’s situation—daily,
hourly, or minute by minute, if necessary.
Density Use seven or fewer graphs, charts, maps, or tables on one dashboard,
to avoid information overload.
Chart formats Keep tables small and charts simple, using familiar types. Avoid 3D and
unnecessary animations. Be cautious about pie charts, which can be more
diffi cult to interpret.
Maps and visual displays When relevant, populate actual maps, seating plans, campus layouts,
or other visual displays that combine real images with data.
Figure 7-21
Dashboard design tips.
Portals
Portals are gateways that provide access to a variety of relevant information from many
different sources on one screen. They are content aggregators, making it easier for users
to view and drill down into company dashboards, weather announcements, news, traffic
reports, stock reports, to-do lists, email, and discussion groups. Each bit of content or
functionality that a user can customize and add to the display is called a “portlet.”
The enterprise portal (Figure 7-22) is a gateway to the organization’s resources, usually
built and maintained by the IT department using portal software. Working with the busi-
ness units, IT develops default pages with commonly requested content and builds inter-
faces to the organization’s resources. Communications or human resources offices often
play leading roles in the launch, viewing the portal screen as a precious opportunity to
disseminate corporate information and reminders quickly. The “Daily Announcements”
portlet is often front and center.
Portal users, who might be customers and suppliers as well as employees, access the
portal with a company-supplied login ID and password. That login determines which
applications users are able to access and what level of access they are granted. From
within the portal, users can personalize the display, choosing, for example, email accounts,
transactional databases, dashboards, 401(k) retirement accounts, benefits summaries,

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mashup
An approach to aggregating content from
multiple internal and external sources on
customizable web pages that relies on
Web 2.0 technologies.
portal
A gateway that provides access to a variety
of relevant information from many different
sources on one screen; for an enterprise,
the portal provides a secure gateway to
resources needed by employees, customers,
and suppliers.
W-2 tax forms, and other appli-
cations. Portlet choices often
include some external content
as well, such as news, traffic
reports, and weather.
Enterprise portals were
inspired by the consumer por-
tals offered by web companies
that help people combine content to their liking. MyYahoo!, for instance, offers custom-
izable portals with blocks containing snippets of email, news, instant messenger chat,
calendars, horoscope, movie show times, stock prices, to-do lists, favorite bookmarks,
and more. Depending on the portal, the portlets might be called “gadgets,” “widgets,”
“modules,” or just “stuff.” Many social network sites develop interfaces for these portals,
so a block for Twitter, Facebook, or another site can appear on the consumer’s portal
page as well.
Mashups
Increasing demands for more flexible gateways stretch the limits of portal technology.
They also tax IT departments responsible for development and maintenance. Users want
to easily aggregate an exploding array of content from countless business intelligence
sources, merging maps with customer data; combining dashboards, news sources, and
Excel spreadsheet data; adding live camera feeds; and blending information that sup-
ports their work roles.
A more flexible approach to aggregating content from multiple internal and external
sources on customizable web pages is the mashup. This approach relies on Web 2.0 tech-
nologies and programming standards such as XML to blend content and updated feeds
from various inside and outside sources in flexible ways.
Figure 7-22
An enterprise portal.
Source: © Copyright 2013. SAP AG. All rights reserved.
PRODUCTIVITY TIP
If your university or college offers a portal, you can experiment to see what
portlets are available, what functionality you can access, and how much you
can customize it. Set it as your startup page in your browser if you find it
useful enough.

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Mashups can easily incorporate a web feed, for example, which is standard-
ized and regularly updated output from a publisher, such as CNN or Weather.com
(Figure 7-23). Rather than going to the website itself, users can embed the web feed in
their own mashup so they can always see a little content block with the major headlines.
Online publishers, news agencies, weather stations, investment companies, magazines,
and many other organizations create and maintain such feeds. The feed includes the text
for each update, plus XML metadata for some structured data, such as date and author.
How would end users envision a useful mashup? Sometimes too much flexibility
stumps people, so they must understand what information is available, how it might be
displayed, and how often it can be updated. Armed with that knowledge, they can focus
on the information they need most to do their jobs.
Hospital administrator Bora, for example, might benefit from a mashup that shows
KPIs summarized from the hospital’s transactional systems, something she can access
from a dashboard. She could link seminar attendee data to maps, showing where people
who attend the seminars reside. Then, during major storms, she might envision maps
drawn from city data sources that could affect emergency room requirements—from
traffic accidents or fires, for
example. Real-time web feeds
showing emergency notifica-
tions might improve readiness.
Simple consumer-oriented
mashups with maps, feeds, data,
and other elements can be cre-
ated using free online tools such
as Yahoo! Pipes (pipes.yahoo.com). Once they have created the mashup, users can share
it or make it public, and other users can clone, reuse, or tweak the modules (Figure 7-24).
For enterprise mashups, IT departments must ensure security, data quality, and reli-
ability, especially since free services may not provide any assurance of continued existence.
Organizations use software, such as the IBM Mashup Center, which make it easier for
developers to build secure and robust modules that draw on enterprise resources as well
as external content. The workload is reduced, though, partly because mashup software
already includes pre-built interfaces for common ERPs and other enterprise systems. Also,
interfaces are already built for many commonly used external resources, such as Google
maps, YouTube, Facebook, Twitter, and Amazon. Users can mix and match them for their
own customized mashups, retrieving timely data as needed.
Figure 7-23
This symbol indicates that the website
offers a web feed.
Source: christo200/Fotolia.
Figure 7-24
Mashup modules can be created using
software tools such as Yahoo! Pipes. In
this example, the module will display
updated business news from CNN with
the word China in the description.
Source: Copyright © 2013 Yahoo! Inc. All rights reserved.
PRODUCTIVITY TIP
When you visit a website that displays the orange symbol (Figure 7-23), you
can subscribe to that publisher’s web feed for your own consumer portal or
website. Adding too many, though, could cause your portal to load more
slowly.

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web feed
Standardized and regularly updated output
from a publisher, such as CNN or Weather
.com, that can be embedded in a
customized mashup.
Business Intelligence: The Human Element
With targeted, timely, and well-summarized business intelligence at our fingertips, we
have much of what we need to make smart decisions and try new strategies at every level
of decision making. With the information systems described in this chapter, we can use
computers to analyze information, drawing on our own organization’s structured and
unstructured resources. We can also tap the growing mounds of data online, combining
public and private information in new ways to sort out options and reveal new trends.
Of course, decision making also involves a human element, and humans are not always
rational creatures, weighing the evidence the way a computer weighs input.
The most successful BI projects start small, even if the goal is to analyze big data.21
The people who need the information—from marketing, finance, human resources, oper-
ations, or other departments—are at the center; IT plays a supporting role. The focus
should always be on obtaining meaningful insights that can reap huge rewards for the
business. Asking the right questions and using the answers wisely are more important
than generating page after page of colorful graphs using the latest analytic software.
MyMISLab Online Simulation
Chocolate Lovers Unite
A Role-Playing Simulation on Web Analytics
Can you believe this?” whispered the VP to you, as a loud argument broke out among the marketing people,
sales people, web designers, and just about everyone else
in the room. They all thought they knew what design would
be most effective for Chocolate Lovers Unite (CLU)—an
online chocolate retailer with some of the most sumptu-
ous products on the market. The VP asked for quiet in the
room, and when everyone settled down, explained that you
would be working with them to evaluate different website
approaches.
As a web analyst, you were asked to help CLU resolve
these arguments using data-driven decision making and
business intelligence. Which marketing pitch will work
best? Your job is to find out with real data, not guess-
work. Time is short with the gift-giving holiday season
fast approaching, so you better get started. Check your
email and voice messages after you log in. . . .
“

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Learning Objectives
Business intelligence encompasses a vast array of information sources that can contribute to
better decision making, along with the software applications, technologies, and practices used to
analyze it. Levels of decision making that draw on different types of information sources include
operational, tactical, and strategic.
A primary source of business intelligence is the transactional database, or data warehouse, used
by the organization itself for operations, or by its suppliers and customers. Data available online
can also be sources, including websites, blogs, email, downloadable tables, wikis, and business
reports. Along with data from sensors, scanners, and the Internet, these sources form immense
big data collections. Both internal and external sources can include structured, semi-structured,
or unstructured data.
Data mining and decision support tools used to analyze patterns, trends, and relationships rely
on data warehouses and newer platforms such as Hadoop that can handle less structured big
data. Tools include online analytical processing (OLAP), statistics and modeling techniques,
and text mining software. These software systems can analyze immense quantities of data to
identify patterns, spot relationships, test hypotheses, and assess sentiments in online comments.
Several software approaches are useful for simulating business events, forecasting the future,
or determining optimal solutions to business problems given a set of constraints. The what-if
analysis, for example, involves building a model based on relationships among variables that the
user can change. Other tools in this category include goal seeking, optimization, and statistical
forecasting. Artificial intelligence research contributes many important decision support tools,
especially in the fields of robotics, expert systems, and neural nets. These all mimic some aspects
of human intelligence, such as learning or expert decision making.
The organization’s website is a key source of business intelligence with its own metrics. Total
visits, number of unique visitors, traffic sources, page views, bounce rates, and other measures
reveal how well the site is meeting its goals. For e-commerce and advertising, web analysts
rely on display ads and search engine ads, with their own metrics and payment schemes. Web
analytic software tracks and summarizes all the clickstream data.
Dashboards provide graphic displays that summarize key performance indicators (KPIs),
and their content can be customized to meet the needs of individual users. These help reduce
information overload and focus attention on the most important metrics. Portals are gateways
that aggregate content on the screen and provide access to the individual’s resources from a
personalized website. Enterprise portals control access to the organization’s resources, and the
login determines access rights. Mashups also aggregate content and are similar to portals in
concept. However, they use Web 2.0 technologies and standards that provide more flexibility to
incorporate external resources of all kinds. The human element plays a critical role in decision
making, and only people can decide which intelligence to draw on, which tools to use, and how
to interpret the results.
1
4
2
5
3
Key terms and concepts
intelligent agents
predictive analytics
online analytical processing
(OLAP)
market basket analysis
text mining
what-if analysis
goal seeking
optimization
forecasting
artificial intelligence (AI)
CAPTCHA
expert system
neural network
clickstream data
stickiness
dashboard
key performance
indicators (KPIs)
portals
mashup
web feed
218
C H A P T E R
7 chapter summary

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7-1. How do you define business intelligence?
7-2. What are the three levels of decision making that
business intelligence supports?
7-3. What are the most important sources of business
intelligence inside the organization? What makes
them useful?
7-4. What are some examples of external sources of busi-
ness intelligence?
7-5. How can managers use data mining techniques to
analyze patterns, trends, and relationships? How does
this lead to better data-driven decision making?
7-6. What is text mining?
7-7. What are examples of statistical techniques that man-
agers can use to simulate business situations, opti-
mize variables, and forecast sales or other figures?
7-8. What are examples of applications that draw on
artificial intelligence for decision support?
7-9. How are web analytics used to assess the effectiveness
of websites?
7-10. How do dashboards, portals, and mashups support
decision making?
7-11. How does the human element affect decision making?
chapter review Questions
7-12. Why do organizations use external data as a source of
business intelligence? What are examples of sources
of external data? How might retail giant Walmart use
external data to make tactical-level decisions? How
might its decision makers use external data to make
strategic-level decisions?
7-13. How can an intelligent agent assist with a term paper?
Visit your university library’s home page to locate the
“Search Databases” feature. If your library offers
the “ABI/INFORM Complete” database, choose
that and enter several keywords (for example, “social
media in organizations”) into the Basic Search dialog
box. (If your library does not offer ABI/INFORM,
try doing this exercise on a different database.)
Review the results, then select “Refine Search” to
select additional databases and/or specify additional
search criteria. When you have the results you want,
select the “Set Up Alert” option to schedule an alert.
Prepare a brief report that describes the alert options
that are available for your search. How frequently
can you receive updates? How long can you receive
updates? Are there options other than frequency and
duration? Would you recommend using this intelli-
gent agent to other students working on term papers?
7-14. First Class Salons maintains a company website to pro-
mote its chain of 12 health salons. The website includes
links to information about its locations, special offers,
and FAQs about its services, as well as “About Us”
and “Contact Us” links. How can First Class Salons
use information from its website to gain business
intelligence? Consider the various visitor-related and
content-related web metrics and suggest at least six
specific metrics that First Class Salons would want to
analyze. Prepare a brief report of your suggestions.
7-15. The Springfield Family Community Center has an
outdoor pool that operates May through October.
The director is interested to learn whether the cen-
ter can afford the $57,000 cost of installing a pool-
covering dome so patrons can swim year-round.
It will also cost about $200 a month for power to
keep the dome inflated for 6 months each year.
How can the director use forecasting to evaluate
the likelihood of selling sufficient tickets to pay
for this improvement? Prepare a brief report to
the director that explains forecasting. Be sure to
include suggestions on both internal and external
data that would be useful for this analysis.
7-16. Digital dashboards began to appear in the 1990s as
organizations looked for ways to consolidate and dis-
play data to make it accessible and useful for busy
executives. Visit www.dashboardinsight.com or www
.dashboardsbyexample.com or search the Internet
to learn more about digital dashboards. What is the
relationship between digital dashboards and key per-
formance indicators? Work in a small group with
classmates to consider how a digital dashboard can
be used by a Radio Shack or other electronics store
manager. What specific daily performance indicators
would he or she want to see on a digital dashboard?
What design tips would you offer to the dashboard
developer? As a group, create a hand-drawn sketch
of a dashboard design for the Radio Shack manager.
projects and discussion Questions
chapter 7 Business intelligence and decision Making 219

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application exercises
7-17. ExcEl ApplicAtion:
Analyzing Revenue and Expenses
for city Hospital Seminars
Figure 7-25 shows the Excel spreadsheet that Bora uses to
evaluate the variables relating to the hospital seminar series.
She has asked you to use Excel to create a similar spreadsheet
to conduct additional what-if and goal seeking analyses. You
will need to use the following formulas:
Revenue
Registration Fees = Attendees per seminar × Registration
fee × Seminars per year
Parking Fees = (Attendees per seminar / Average
number attendees per car) × Seminars
per year × Parking fee
Expenses
Speakers’ Fees = Speaker’s fee per session × Seminars
per year
Tech Support = Tech support cost per session × Seminars
per year
Marketing = Marketing cost per seminar × Seminars
per year
Room Rental = Room rental per seminar × Seminars
per year
What-If Questions
After answering each question, be sure to return the vari-
ables to their original values shown in Figure 7-25 before
testing the impact of changing another one.
1. What is the impact on net profit if the average atten-
dance per seminar increases to 45?
2. What is the impact on net profit if the average atten-
dance drops to 35?
3. What is the impact on net profit if the parking fee is
reduced to $3?
4. What is the impact on net profit if the speaker’s fee
increases to $550 per seminar?
5. What is the impact on net profit of increasing the mar-
keting expense per seminar to $350, which increases
average attendance per seminar to 50?
6. What is the impact on net profit of an increase in room
rental per seminar to $300?
7. If Bora can negotiate a room rental fee of $160 per
seminar, how much will net profit increase?
8. If technical support is included in the room rental per
seminar, what is net profit?
Figure 7-25
The hospital seminar series data.

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case study #1
Driving around Massachusetts, you might notice an RV frequently parked in your neighborhood with Montana license plates. Perhaps it is someone visiting from out
west, but it might also be a Massachusetts resident who bought the
RV online and registered it in Montana, which has no sales tax. The RV
owner saves thousands of dollars, but Massachusetts loses the tax rev-
enue. This kind of fraud is illegal, but difficult to catch. A Massachusetts
state agency, for example, would not have access to Montana’s vehi-
cle registrations, and would not be able to match them up against
Massachusetts’ tax forms or employment records. The data are there,
but they are not integrated into big data that can be analyzed.
The health care system is especially plagued by fraud, at both
federal and state levels. Analysts estimate that fraud and abuse cost
$125 to $175 billion each year, but problems often goes unnoticed
because they are difficult to identify. Only 3% to 5% of fraudulent
cases are discovered, and the detection often happens so late that
the funds cannot be recovered.
Predictive analytics are the tools that can spot suspicious activity
and unusual patterns. The potential to reduce government waste and
fraud in general is enormous; combined with big data, these tools can
arm investigators with ways to track fraudulent billing patterns buried
in millions of legitimate claims, picking out unusual trends that no
human being working alone could ever see.
Health Care Service Corp. (HCSC), for example, implemented a
fraud detection system, and it paid off almost immediately. An allergist
in Illinois was submitting fraudulent bills, but the individual amounts
were never high enough to trigger any suspicion. Something was
amiss, however, and the analysts for the insurance company were
able to compare what other allergists were charging for the same
procedures. The results helped uncover an $800,000 scam.
With access to big data from multiple sources, fraud detection
systems can spot a large variety of suspicious activities that need in-
vestigation, particularly if data can be drawn from state and federal
databases. In health care, for example, such systems first start with
rules that flag unusual behavior in near real time, such as when a pro-
vider bills for many services in a short time window, or when a person
enrolls in Medicaid in more than one state.
Predictive analytics can also learn from the data to build more
sophisticated models, especially as the tools have access to more
and more data. Fraud rings commit a large number of the scams in
health care and government services, and the software can examine
relationships. Analyzing the linkages can reap huge benefits and un-
cover large criminal gangs, even if each individual transaction on its
own does not trigger any flags. One ring caught in 2012, for instance,
included 107 providers who billed Medicare for over $400 million in
services that were not performed.
Near real-time analysis is especially important because of the
need to spot fraud before any claim is paid. It is much easier to
deny payment than to recover funds that have already been paid
out. The time window is short, however, given pressure on payers
to reimburse quickly. With big data analytical tools, fraud detection
systems can operate quickly enough to catch fishy claims before
they are paid.
For the 50 states with different information systems, and all the
counties that maintain their own records, the challenge of reducing
fraud is daunting. The goal is to create a big data view of citizens,
one that would, for instance, inform a state agency if someone who is
receiving benefits purchases a luxury vehicle in a state with no sales
tax. With states and counties struggling with budget woes, the drive to
catch fraud is strong.
Cracking Fraud with Government’s Big Data
Goal Seeking Questions
1. Given the expenses and variables presented in the fig-
ure, how many attendees per seminar are required to
generate a net profit of $5,500?
2. What parking fee results in a net profit of $4,150?
3. What registration fee per attendee results in a net profit
of $5,750?
7-18. AccESS ApplicAtion:
Marketing city Hospital Seminars
Colin is the assistant director of marketing at a hospital that
conducts seminars on topics such as sports injuries, arthritis,
hip and knee pain, knee replacement, and joint replacement.
He is working on a marketing campaign for a new semi-
nar on minimally invasive knee surgery that the hospital is
planning to offer. Colin has asked you to help identify
potential patients who may be interested in this seminar.
Download the City Hospital database, Ch07Ex02.
Write a query that sorts registrants by the type of semi-
nar they have attended. Include the session date as well as
attendee information. Modify the query to identify regis-
trants who attended a Knee Replacement seminar. Use the
report wizard to create a report that lists the session dates
and the names and phone numbers of those who have
attended Knee Replacement seminars. This report serves as
a “patient contact sheet” that hospital staff will use to call
previous attendees to invite them to attend the new semi-
nar. How many patients are listed on the report? Review the
attendees table. Is there additional patient information the
hospital could collect that may be useful for future market-
ing campaigns?
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case study #2
To understand the audience for TV shows, TV ratings giant Nielsen relies on electronic “People Meters” placed into a representative sample of homes through-
out the United States to track viewing patterns. In half the homes,
Nielsen installs “cross-platform” people meters to detect TV viewing
on computers or mobiles, and also track web traffic. The company
also asks viewers to fill out paper-and-pencil diaries about their TV
viewing habits.
Founded in 1936 when there were very few televisions in the
country, Nielsen grew into the ratings giant that can make or break
any new program, or any TV producer’s career. The ratings affect not
only the show’s survival, but the cost of the ads that appear during the
show. Super Bowl ads, for instance, are most expensive of all because
the Super Bowl has the largest audience of any show on TV.
In the age of Twitter, however, TV viewing is becoming a social
experience that involves many more people than those in a single
home. Viewers, especially those in the coveted 18 to 34 age group,
share their thoughts in real time as they watch a program, trashing the
actors, praising the costumes, or mocking the script. Nielsen teamed
up with SocialGuide, a social media metrics company that measures
the engagement of the TV audience by tracking tweets and posting
results on real-time dashboards for the company’s clients.
SocialGuide’s software picks up tweets related to a particular
TV show by using relevant keywords—actors’ names, characters, in-
cidents, and other tracking tools. It relies also on the hashtags that
identify the topic in many tweets, such as #bigbangtheory, #project-
runway, or #gameofthrones. The dashboard shows relevant statistics
by time period, such as the number of related tweets with positive or
negative spin, and it can scroll the tweets as they flash by. Because the
dashboard is showing real-time data, clients can not only see gross
statistics such as overall number of viewers. They can also see how
viewers are reacting to particular scenes or characters as they appear.
The software tracks over 30,000 programs, so it can generate compre-
hensive comparison ratings for “social TV” viewers, their demograph-
ics, and their preferences.
The use of Twitter feeds to analyze social TV patterns adds a great
deal to Nielsen’s capabilities. For example, Nielsen’s set-top boxes do
not easily capture who in the family is actually watching—even if the
set is just turned on and no one at all is watching. Many people leave
the TV on so they can record shows they like, though they may not
have time to actually view them later. Even if they do, they may fast-
forward through the ads. The set-top boxes are also unable to assess
viewer attitudes during the show or the ads.
Twitter feeds also have disadvantages as an audience rating tool,
however. The tweets are not generated from a representative sample,
for instance, so their content is biased toward a certain population of
viewers. Those who don’t use Twitter are not in the sample, and the
feeds may be overwhelmed by a small group of frequent tweeters who
are loud and vocal.
Despite the drawbacks, research confirms a relationship between
Twitter activity and TV ratings measured by Nielsen’s other tools. For
example, premiere episodes that generated an 8.5% increase in
Twitter volume showed a 1% increase in TV ratings for viewers in the
18–34 age group. The relationship was weaker for other age groups,
probably because fewer people outside that group use Twitter.
The relationship between Twitter volume and TV ratings becomes
stronger as the season continues, and is highest for the season finale.
This suggests that Twitter metrics are not just reflecting a show’s ap-
peal. The chatter may be creating TV buzz that draws more viewers
into the social TV experience.
Social TV may also be drawing people back to viewing shows live,
rather than recording them. If Twitter volume is high during the show,
TV and Twitter: How Nielsen Rates Programs with “Social TV”
Will “big data” become “big brother?” Privacy advocates voice
concerns over the growing access to big data across government
agencies, particularly as ways are found to integrate the data to paint
a meaningful and comprehensive picture of citizen’s financial trans-
actions and government benefits. Disclosures about the extent of the
government’s electronic data gathering for national security has in-
tensified those concerns. Balancing privacy and the need to reduce
fraud will be particularly important.
discussion Questions
7-19. What are some ways that data mining could be used to
detect fraud in health insurance claims?
7-20. How could private insurance companies and public govern-
ment agencies collaborate to combat insurance fraud?
7-21. What types of business skills would be necessary to define
the rules for and analyze the results from data mining?
7-22. What business processes are necessary to complement the
IS component of data mining?
Sources: Efficient use of big data could reduce instances of healthcare fraud. (2013).
GovPlace, http://www.govplace.com/2012/05/efficient-use-of-big-data-could-reduce-
instances-of-healthca00000000re-fraud/, accessed April 2, 2013.
Hanson, W. (March 19, 2013). Can big data crack fraud? Government Technology, http://
www.govtech.com/e-government/Can-Big-Data-Crack-Fraud.html, accessed April 2, 2013.
Horowitz, B. T. (December 28, 2012). Big data can fight fraud in health insurance exchanges:
Operat. eWeek, http://www.eweek.com/enterprise-apps/big-data-can-fight-fraud-in-health-
insurance-exchanges-opera/, accessed April 2, 2013.
Schrieber, R. (2013). Examine the broader context to identify healthcare fraud. Managed
Healthcare Executive, 23(2), 44–45.
Thorpe, N., Deslich, S., Sikula, S., & Coustasse, A. (2012). Combating Medicare Fraud:
A Struggling Work in Progress. Franklin Business & Law Journal, 2012(4), 95–107.

http://www.govplace.com/2012/05/efficient-use-of-big-data-could-reduce-instances-of-healthca00000000re-fraud/

http://www.govtech.com/e-government/Can-Big-Data-Crack-Fraud.html

Big Data Can Fight Fraud in Health Insurance Exchanges: Opera

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e-prOJect 1
Detecting unusual patterns in drug prescriptions is the focus of this
e-project. To begin, download the Excel file called Ch07_MedicalCharges.
The worksheet contains columns showing a sample of hypothetical
prescription drug claims over a period of years.
7-27. Create a pivot table and chart to show the total amounts paid by
year for this pharmacy, by dragging Year to the Axis Fields box
and Amount to the Values box. Be sure you are looking at the
sum of Amounts in your chart. Which year had the highest sales
for prescription drugs?
7-28. Change the pivot table to show total sales by month by removing
Year from the Axis Fields and dragging Month to that box. During
which month of the year does this pharmacy tend to sell the
most prescription drugs?
7-29. Remove Month and put Prescriber ID in the Axis Fields box.
Which prescriber generates the most income for this pharmacy?
7-30. Remove PrescriberID and put PatientID in the Axis Fields box.
Which patient generates the most income for the pharmacy?
7-31. Let’s take a closer look at this patient by filtering the records.
Click on PatientID in the PivotTable Field List and uncheck all
boxes except for this patient. Drag Year under PatientID in the
Axis Fields box so you can see how this person’s spending pat-
terns have changed. Which year shows the most spending?
7-32. Let’s see who is prescribing for this patient. Remove Year from
the Axis Fields box and drag PrescriberID to the box. Which pre-
scriber has the highest spending total?
7-33. Now, let’s see what is being prescribed. Drag DrugName to the
Axis Fields box under PrescriberID. What might you conclude
from this chart?
Detecting Suspicious Activity in Insurance Claims
it means that people have points to make in real time. For instance,
they may prefer to weigh in on American Idol singers right after their
song, rather than wait until the next day. This trend may mean more
live viewers for the ads, as well.
While Nielsen will not drop its careful sampling techniques and
set-top boxes, the company is leading the way toward new ways to
learn about social TV. The networks may also be looking for ways to
make viewers want to share thoughts in real time so they will see
some ads.
Discussion Questions
7-23. What potential value does Nielsen intend to add to their rat-
ings by data mining Twitter to analyze social TV patterns?
7-24. What are the drawbacks of using Twitter as a rating tool?
Do these disadvantages compromise the value of the
Nielsen ratings?
7-25. How might the use of Twitter and other social media be influ-
encing the viewing habits of the American audience?
7-26. If Nielsen extended their data mining of social media to
include Facebook as well as Twitter, what differences might
they expect in the audience being analyzed? Would this
analysis have any value to the networks? Why or why not?
Sources: Humphrey, M. (2012). Nielsen acquires social TV metrics company SocialGuide.
Forbes, http://www.forbes.com/sites/michaelhumphrey/2012/11/12/nielsen-acquires-social-
tv-metrics-company-socialguide/, accessed April 10, 2013.
McLellan, M. (2013). Nielsen Media Research, Inc. Hoover’s Online Database,
http://subscriber.hoovers.com.proxy3.library.jhu.edu/H/company360/overview
.html?companyId=57187000000000, accessed April 13, 2013.
New study confirms correlation between Twitter and TV ratings. (2013, Mar 20).
PR Newswire, http://search.proquest.com/docview/1317970375?accountid=11752,
accessed June 20, 2013.
Nielsen Website, www.nielsen.com, accessed April 10, 2013.
Pomerantz, D. (2013). Can Twitter Save Live TV? Forbes.Com, 9. SocialGuide Website,
www.socialguide.com, accessed April 10, 2013.
chapter 7 Business intelligence and decision Making 223

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www.nielsen.com

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e-project 2
In this e-project, you will explore TV ratings and analyze them with Excel.
Download the Excel file called Ch07_NielsenRatings. This file contains
ratings for popular network programs for two separate weeks in 2013
(http://www.nielsen.com/us/en/top10s.html). The rating represents the
percent of U.S. households that were watching that channel at the time
(of those whose TV was turned on).
7-34. Calculate three new columns:
a. Percent change (up or down) in number of viewers from the
March 25 data to the April 1 data.
b. Percent change (up or down) in rating.
c. Absolute change in the number of viewers.
7-35. Answer the following questions:
a. Which show gains the largest number of viewers from March
25 to April 1?
b. Which show is the biggest loser from March 25 to April 1, in
terms of change in ratings?
c. Compute the total viewers for these shows for March 25 and
for April 1. How many total viewers watched one of the TV
shows in this list during the week of March 25.
d. What is the percent change in total viewers for the shows in
this list from March 25 to April 1?
Analyzing Nielsen TV Ratings with Excel
224 introduction to inforMation systeMs

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chapter notes
1. Watson, H. J., & Hill, J. (July 2009). What gets watched
gets done: How metrics can motivate. Business
Intelligence Journal, 14(3), 4–7. Retrieved June 20, 2013,
from ABI/INFORM Global. doi:1849906461.
2. Briggs, L. (January 2009). DIRECTV connects with
data integration solution. Business Intelligence Journal,
14(1), 14–16. Retrieved May 22, 2011, from ABI/
INFORM Global. doi:1673554871.
3. McAfee, A., & Brynjolfsson, E. (2012). Big data: The
management revolution (cover story). Harvard Business
Review, 90(10), 60–68.
4. Gobble, M. M. (2013). Big data: The next big thing in
innovation. Research Technology Management, 56(1),
64–66. doi:10.5437/08956308×5601005.
5. Essers, L. (February 7, 2013). Regulators confirm
Facebook deleted all EU facial recognition data.
PCWorld, http://www.pcworld.com/article/2027598/
regulators-confirm-facebook-deleted-all-eu-facial-
recognition-data.html, accessed February 16, 2013.
6. Schlegel, K., Sallam, R. L., Yuen, D., & Tapadinhas, J.
(2013). Magic quadrant for business intelligence and
analytics platforms. Gartner Research, ID:G00239854.
7. Henschen, D. (2013). Big data, big questions. Infor
mationWeek, 1349, 18–22.
8. Sutton, J. (July 1, 2009). Government moves to
staunch massive Medicare fraud. Reuters, http://www
.reuters.comarticle/2009/07/01/us-usa-medicare-fraud-
idUSTRE5604FL20090701, accessed May 22, 2011.
9. Schlegel, K., Sallam, R. L., Yuen, D., & Tapadinhas, J.
(2013). Magic quadrant for business intelligence and
analytics platforms. Gartner Research, ID:G00239854.
10. Liu, B. (2012). Sentiment analysis and opinion min-
ing. Morgan and Claypool Publishers. doi: 10.2200/
S00416ED1V01Y201204HLT016.
11. Grant, K. B. (March 4, 2013). Ten things online
reviewers won’t say. MarketWatch, http://www
.marketwatch.com/story/10-things-online-reviewers-
wont-say-2013-03-01, accessed March 10, 2013.
12. McCarthy, M. (February 4, 2013). Text mining revolu-
tionizes academic research. Digital Discourse, http://
www.siia.net/blog/index.php/2013/02/text-mining-
revolutionizes-academic-research/, accessed February 16,
2013.
13. McCartney, S. (February 4, 2010). The middle seat:
Why a six-hour flight now takes seven. Wall Street
Journal (Eastern Edition). p. D1.
14. Chu, Z., Gianvecchio, S., Koehl, A., Wang, H., &
Jajodia, S. (2013). Blog or block: Detecting blog bots
through behavioral biometrics. Computer Networks,
57(3), 634–646.
15. Ticketmaster dumps ‘hated’ CAPTCHA verification
system. (January 30, 2013). BBC News, http://www.bbc
.co.uk/news/technology-21260007, accessed February 17,
2013.
16. Bennett, C. C., & Hauser, K. (2013). Artificial intel-
ligence framework for simulating clinical decision-
making: A Markov decision process approach. Artificial
Intelligence and Medicine (Article in Press doi: 10.1016/
j.artmed.2012.12.003).
17. Sachs, J. D. (2010). Expert systems fight poverty.
Scientific American, 302(4), 32.
18. McKay, L. (October, 2009). Analytics are just the ticket.
Customer Relationship Management, 13(10), 45.
19. Koetsier, J. (July 23, 2012). Online ads equal offline sales.
Venture Beat News, http://venturebeat.com/2012/07/23/
online-ads-equal-offline-sales-says-shopper-analytics-
firm-rapidblue/, accessed February 17, 2013.
20. Richardson, J. (November 19, 2009). Tips for imple-
menters: The basics of good dashboard design. Gartner
Research, doi:G00171685.
21. Marchand, D. A., & Peppard, J. (2013). Why IT fum-
bles analytics. Harvard Business Review, 91(1), 104–112.
chapter 7 Business intelligence and decision Making 225

http://www.pcworld.com/article/2027598/regulators-confirm-facebook-deleted-all-eu-facial-recognition-data.html

http://www.reuters.comarticle/2009/07/01/us-usa-medicare-fraud-idUSTRE5604FL20090701

http://www.marketwatch.com/story/10-things-online-reviewers-wont-say-2013-03-01

http://www.siia.net/blog/index.php/2013/02/text-mining-revolutionizes-academic-research/

http://www.bbc.co.uk/news/technology-21260007

http://venturebeat.com/2012/07/23/online-ads-equal-offline-sales-says-shopper-analytics-firm-rapidblue/

http://www.reuters.comarticle/2009/07/01/us-usa-medicare-fraud-idUSTRE5604FL20090701

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Learning Objectives
Describe the major collaborative technologies, and explain the features that each one offers
for communications and productivity.
Identify and describe Web 2.0 technologies that facilitate collaboration.
Explain how unified communications contribute to collaboration.
Describe features of online environments that can affect human behavior and group dynamics, and identify
strategies to make virtual teams more productive and successful.
1
4
2
3
C H A P T E R
8 collaborating with Technology
MANY HUMAN RELATIONSHIPS NOW HAVE SOME VIRTUAL
COMPONENT, even for people who see one another every
day. Collaborative technologies support these interactions,
and they go well beyond email, text messages, and tele-
phone. They transform the way people in organizations work
together, whether they are in the next office or across the
globe.
In the online decision-making simulation for this chapter
called “Department of Social Services,” you join coworkers
at the agency who want to take advantage of collaborative
technologies for virtual teamwork. Everyone is tired of long
commutes, and convinced that they can be more productive
if they can be more mobile and flexible. You’ll help them
put together a proposal for the agency’s director that iden-
tifies benefits and possible drawbacks. As you work with
the team, you’ll be using those technologies on a simulated
smartphone and laptop equipped with the features you need
to make the project work. At one point, the team faces an
emergency that needs virtual teamwork, and you can help
if you’re alert and fast enough with the new features of your
smartphone.
Collaborative technologies open new possibilities for
productive work and social activity, but as you will see in
the simulation and read about in this chapter, these online
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.

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environments affect human behavior and group dynamics in
subtle and often unexpected ways. This chapter first covers
the major technologies used for collaboration and the facets
of human interaction they support. Finally, we explore why
they are different from face-to-face interactions and how you
can best use them.
MyMISLab Online Simulation
Department of Social Services
A Role-Playing Simulation on Collaborative Technologies
and Virtual Teamwork
A
nd
re
sr
/S
hu
tt
er
st
oc
k.
chapter 8 Collaborating with Technology 227

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THE EvoluTIon of CollAboRATIvE
TECHnologIEs
Samuel Morse inaugurated his telegraph in a grand public demonstration in 1844. Keenly
aware of the history-making potential of this technology, Morse chose a dramatic phrase
as his first message: “What hath God wrought!”
Ray Tomlinson, widely credited with sending the first email message, can’t even
remember what it was. He suspects it was something like “QWERTYUIOP.” Despite the
lack of fanfare, Tomlinson’s invention triggered a tidal wave of online collaboration, and
billions of messages are now sent daily. Figure 8-1 shows the major generations in the
evolution of tools that support online collaboration. Many of them rely heavily on the
database and database management systems discussed in Chapter 4. In fact, without a
shared database, tools like calendaring, contact management, and social networks could
not exist.
Email
Technically, email transmission is relatively simple (Figure 8-2), although the steps vary
depending on the type of email server that is hosting your mail. You usually start by
identifying the servers that will handle your outgoing and incoming mail. For outgoing,
you enter the name of the SMTP server, which stands for “simple mail transfer protocol.”
Describe the major collaborative
technologies, and explain the
features that each one offers for
communications and productivity.
1
1st Generation
Email
Discussion
forums
Time
management and
calendaring
Contact
management and
address books
2nd Generation
Instant
messaging
3rd Generation
Web 2.0
4th Generation
1990 2000 2010 2020
Universal
dashboards
Unified
communicationsBlogs
Wikis
Social networks
and profiles
Microblogging
Virtual worlds
Texting
GDSS
Web
conferencing
Interactive video
Shared
workspaces
FIGURE 8-1
Evolution of collaborative
technologies.
Email client
Email client
SMTP
SMTP
POP3
smtp.myuniversity.edu
smtp.hongkongcorp.com
pop.hongkongcorp.com
FIGURE 8-2
Sending email.
Source: Photos/Illustrations: Lana Rinck/Shutterstock, Shutterstock, Bryan Solo-mon/Shutterstock.

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microformats
A set of formats that rely on the XML family
of standards to represent metadata in HTML
code, and that support electronic exchange
of business cards, calendar appointments,
and other kinds of data.
IMAP (Internet mail access protocol)
A protocol for handling incoming email.
For example, a student in Hong Kong may rely on her university’s host. When she types
a message to a friend and clicks “send,” her message is first transmitted to a special port
on the university’s SMTP server, and then the server software takes over. The SMTP
server adds date and time information, and then directs the message to the server identi-
fied after the @ sign.
Mailbox accounts also spec-
ify the name of the server that
handles incoming mail. Many
begin with “pop,” such as pop
.myuniversity.edu. A newer pro-
tocol for incoming mail is IMAP
(Internet mail access protocol),
in which mail is actually maintained on the server and organized into folders there.
IMAP is especially useful when you use more than one device. You can access your
mail from your smartphone, tablet, or any other device, and also see the symbols that
show whether you read or replied to the message. For a mobile workforce, these features
are essential.
Web-based email services, such as Google’s Gmail or Yahoo! Mail, are built from
the ground up to work within the browser rather than with client software installed on
your computer. One drawback is that some organizations block access to those websites
over concerns about productivity. Some governments have blocked access as well, such as
those in Iran and Myanmar.
The Address Book, Business CArds, And ConTACT MAnAgeMenT Email’s explosive suc-
cess led to enhancements and new features. Its simple address book expanded to a rich con-
tact management system that supports distribution lists, photos, birthdates, and much more.
Keeping all this information about clients and coworkers together, synched to a smartphone,
boosts productivity considerably.
The ability to seamlessly share and update contact information electronically is fun-
damental to contact management. However, the paper business card with all its non-
standard formats and fonts is not going away soon. Sales calls, business meetings, and
introductions typically start with an exchange of business cards, and protocol for each
exchange may be rigidly prescribed by custom and tradition. Japanese businesspeople,
for example, use both hands to offer their cards as a show of respect, and they always
make certain the card is oriented so that the recipient can immediately read it.
Scanners with optical character recognition (OCR) software can decipher details
on most business cards. Another strategy is to exchange electronic files with your contacts
that software can easily read. The “vCard,” for instance, is a file format used to exchange
business card information elec-
tronically. A more recent and
versatile approach uses micro-
formats, which rely on the XML
family of standards to represent
metadata. This approach is also
used for exchanging contact
management data. The “hCard”
is an example.
Standardized file formats with business card information can also be exchanged over
wireless networks or by means of Bluetooth or infrared connections. In some companies,
these electronic exchanges are quite common. However, the business card protocol lives
on in most organizations around the world, so it’s best to keep some handy.
SMTP server
Mail server using the simple mail transfer
protocol; handles outgoing email.
PRODUCTIVITY TIP
When you delete email, remember that copies are stored elsewhere, such
as on the server’s backup media. Legal authorities can retrieve it, and so can
employers if it is company email.
PRODUCTIVITY TIP
Start building your contacts database in a structured format early. In some
email systems, you can add a contact by right clicking or scrolling over the
person’s email address. Most email clients also include tools to create your
own vCard, which will help friends and colleagues add you as a contact. Free
websites help you build your own vCard or hCard, such as http://microformats
.org/code/hcard/creator.

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Calendaring and Time managemenT Adding calendars and appointment sched-
uling capabilities to email clients is a major breakthrough for time management.
Although the paper appointment book served well, it could not trigger a “ding” as
an alert for an upcoming event. Nor could it send an email, synch with a smart-
phone, or flag recurring events that stretch out over months or years.
Like contacts, calendar events can be transmitted and exchanged using stan-
dardized file formats. For instance, the iCalendar format is widely used to trans-
mit calendar data. The .ics extension indicates that the plain text file contains
iCalendar code so the programs can recognize it (Figure 8-3).
The calendar’s collaborative features eliminate much frustration for event
managers. Consider, for example, the struggle to schedule a team meeting, even
with the help of email. Asking people for the times and dates they have available
can be fruitless and time-consuming, with many false starts and delayed responses. But
if everyone is sharing calendars, “free” time for all is easier to identify. Personal prefer-
ences, cultural factors, and corporate norms all affect the use of calendaring software
and how much it adds to overall
productivity. Some corporations
require its use to streamline
meeting arrangements and also
to show everyone’s whereabouts.
Discussion Forums
The asynchronous discussion forum evolved from the earlier bulletin board as an online
site in which people could post text messages, reply to others at any time, and discuss a
topic of interest. Employee discussion forums are often used to share company infor-
mation and coordinate activities or to serve as an online suggestion box. Forums may
be moderated, with someone nurturing the discussion, deleting unacceptable posts, and
blocking users who violate the rules. The forum rules may allow people to post under a
pseudonym, so members feel more anonymous and less identifiable during discussions.
That changes how they behave, as we discuss later in this chapter.
Consumer-oriented discussion forums are especially important to electronic word-of-
mouth communication. The forums on sites such as OpenTable, Yelp, and TripAdvisor
contain valuable tips and reviews that shape customer behavior and attitudes.1
Employee discussion forums can be unpredictable. Most are used productively, but
occasional posts can tip in a negative direction. At a large European petroleum com-
pany, for example, the forum was initially
used to post helpful tips about new technol-
ogy; however, some employees used it to criti-
cize the leadership (Figure 8-4). Discussion
forums can be quite valuable when managed
properly, with an understanding of how the
human element unfolds in online collabora-
tion discussed later in this chapter.
Instant Messaging and Texting
Instant messaging (IM), also called “chat,” consists of real-time text-based interactions
over a network. For quick answers in the workplace, it can be very useful. IM can save
you a walk down the hall to a colleague’s office, or a costly phone call to someone in
another country.
IM grew dramatically with the net and the launch of free IM software clients, such
as AOL Instant Messenger, Google Talk, Yahoo! Messenger, Skype, and other products
targeted to internal business communications or B2B interactions. Some universities pro-
vide the service for their students, faculty, and staff so they can chat with one another.
PRODUCTIVITY TIP
Enter monthly reports, bills, birthdays, and any other recurring events into
your calendar software so you’ll always get reminders of them in advance.
BEGIN:VCALENDAR
VERSION:2.0
PRODID://HongKongCorp//NONSGML//EN
BEGIN:VEVENT
DTSTART:20130709T170000Z
DTEND:20130709T190000Z
SUMMARY:Tiger Team Meeting
END:VEVENT
END:VCALENDAR
FIGURE 8-3
Example of plain text iCalendar event.
What happened at Epsilon was almost a Manual of How Not to do Change in
Companies . . . People were ill-treated in the face of a restructuring and a merger
with another company. They were then left without knowing anything about what to
expect [. . .] and ending up learning that there was a “confi dential” (!) plan for the
restructuring through reading the newspapers.
FIGURE 8-4
Sample post from an employee discussion forum.
Source: da Cunha, J. V., & Orlikowski, W. J. (2008). Performing catharsis: The use of online
discussion forums in orga-nizational change. Information and Organization, 18(2), 132–156.

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war room
A large area in which team members on
the same project work closely together,
surrounded by whiteboards, large digital
displays, and other tools to facilitate
impromptu meetings and smooth
collaboration.
presence awareness
IM software feature that allows users to
display their current status to their contacts,
colleagues, or buddy list.
instant messaging (IM)
Also called “chat.” IM consists of real-time
text-based interactions over a network.
iM And inTeroperABiliTy Unlike email, which was designed to be fully open so that
anyone can send messages to anyone else regardless of which email software they used,
the IM world tends toward proprietary islands. Each product uses different protocols
that the others may not understand without special conversion software. Although some
major players develop agreements to allow interaction, the nature of the underlying
technology continues to hamper interoperability. In addition, IM providers’ competitive
strategies do not favor a more open architecture, since these firms are not eager to reduce
consumers’ switching costs.
presenCe AwAreness IM software introduced a critically important collaborative feature
called presence awareness, which allows users to display their current status to their contacts,
colleagues, or buddy list. The software shows whether the person is logged in and the user can
elaborate, adding “working on the team project,” “out to lunch,” or “pretending to work. . . .”
Arguably, this feature is the killer app of IM, since it shows whether the person is available to
answer a question, pick up the phone, or stop by for a brief meeting.
Presence awareness is one of the subtle advantages that co-located teams have over
virtual teams. For example, companies grasp the value of a war room, the large area in
which team members on the same project work closely together, surrounded by white-
boards, large digital displays, and other tools to facilitate impromptu meetings and
smooth collaboration. Working on fast-moving, intense projects, team members in the
war room are constantly aware of one another’s presence so they can get an immedi-
ate response, rather than sending out emails, leaving voice messages, and delaying work.
Although not quite as reliable, presence awareness indicators add an important human
element to online collaboration, and they are a key reason people adopt the tool within
organizations.2
IM is a common collabora-
tive tool even for people in the
same building, who may keep
the IM client active all day long
to receive brief text messages.
An IM is much faster than a
phone call for short questions,
and the social courtesies are not needed (Figure 8-5). People can also multitask during
IM exchanges.
TexT MessAging or “TexTing” Texting can blend seamlessly into any collaborative set-
ting, alerting coworkers you’ll be a few minutes late, for instance. Interconnections between
cellular networks and the Internet now blur the distinction between IM and texting, but the
origins of texting were in mobile communications. Texting transforms a cell phone from
a single-purpose mobile device into one that can send brief text messages to other mobile
devices, transmit photos and videos, and broadcast messages to large groups, as with Twitter.
The sender may assume that most people will notice the buzz or vibration on their mobile
device that signals an incoming text and, if the situation permits, will take a moment to view
it immediately.
Text messaging first gained momentum in Europe and Asia, where it goes by names
such as SMS or Short Mail. It now outpaces voice phone calls, with heavy users sending and
receiving hundreds of text messages daily. Although texting can be a substitute for a phone
call, its characteristics make it a different kind of collaborative tool with its own advan-
tages and limitations. Because people usually carry their cell phones, texting can assist in
emergency situations and disaster recovery. In the aftermath of the 2013 Boston Marathon
PRODUCTIVITY TIP
Use proper spelling and grammar in your communications at work, at least
until you’re sure you have a clear understanding of the corporate culture.
Also, avoid “textisms,” such as “cul8tr” (see you later).

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bombing, for instance, phone lines went down and cell phone calls could not get through.
However, many could send text messages to let family and friends know they were safe.3
Text messages also multiply the power of informal networks by allowing users to
broadcast information not yet available through traditional means. The first report of
the plane that ditched on the Hudson River in New York City in 2009 came from a wit-
ness who sent a text message to his Twitter followers: “There’s a plane in the Hudson. I’m
on the ferry to pick up the people. Crazy.”4 The message spread virally as the followers
re-sent it to all their networks.
Texting is also extremely valuable for real-time micro-coordination, letting people
know where and when activities are to be held and coordinating fast-moving crowds. The
online simulation for Chapter 9, called “Criminal Investigations Division,” shows how
texting can be used to coordinate flash mobs.
Group Decision Support Systems (GDSS)
A collaborative technology that helps groups brainstorm and make decisions is called a
group decision support system (GDSS). These systems are used for face-to-face group meet-
ings in which each individual is equipped with a computer connected to a shared server,
and the group facilitator structures the tasks during the session. The software allows
each member to type his or her contributions anonymously as the group moves through
the stages of identifying the problem to be solved, brainstorming possible solutions,
Phone Call IM
Look up number .
Dial number . Allen clicks on Tamara’s icon and types into the
chat box:
Voicemail responds. Allen decides to try again in a few
minutes rather than leave a message, not knowing how
often Tamara checks her voicemail.
Allen: Tam, can you send me your copy of the
August report?
Wait 10 minutes . Tamara is on the phone, but can easily
multitask.
Dial number . Tamara: Sure.
Ring … ring … Wait 10 seconds.
Tamara: Hello? Tamara: AugustReport.xlsx
Allen: Hi, this is Allen, is this Tamara? Allen: Got it, thanks.
Tamara: Hi, Allen. Yes, this is Tamara. How are you doing? Allen clicks on the fi le and opens the report.
Allen: Good, and you?
Tamara: Not too bad, though I’m glad it’s Friday!
Allen: I just had a quick question .
Tamara: Shoot.
Allen: I can’t fi nd my copy of the August report. Do you
have one?
Tamara: Yes, I’ll email it to you.
Allen: Thanks!
Tamara: No problem. I’ll do that now.
Allen: That’s great. OK, I’ll see you later at the meeting.
Tamara: Talk to you soon.
Allen: Bye .
Tamara composes a brief email message to Allen,
attaches the report, and clicks send.
Allen waits for the message to arrive, saves the
attachment on his hard drive, and opens the report .
Time elapsed: ~15 minutes Time elapsed: ~15 seconds
FIGURE 8-5
Comparison of time elapsed for a
query handled by phone call or IM.

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web conferencing
Technology that supports online meetings or
“webinars” via the Internet. Participants join
the meeting from their own computers or
smartphones.
group decision support system (GDSS)
Collaborative technology that helps groups
brainstorm and make decisions in face-to-
face meetings, led by facilitators. Participants
can contribute anonymously via their
computers.
rating the alternatives, and coming to some consensus about the best course of action.
As the contributions, comments, and votes unfold, they appear on the screen—with no
names attached.
GDSS was designed to promote novel ideas and high-quality, rational decisions,
especially by altering some of the group dynamics that can cause groups to function
poorly. High-status members, for instance, have a strong influence even when they are
wrong. Group pressure can also squash expression of independent viewpoints that differ
from the majority. The anonymity of GDSS helps reduce these effects.
Web Conferencing
Another synchronous collaboration technology is web conferencing, which supports
online meetings, sometimes called “webinars,” via the Internet. Participants join the
meeting from their own computers or smartphones and use headsets with microphones
or phone conferencing to speak to one another. Browser-based conferencing software,
such as WebEx or Go To Meeting, have enriched their offerings to include features such
as the following:
▶ Real-time audio and video support
▶ Support for PowerPoint or other slide presentations
▶ Interactive whiteboards, with drawing tools and color coding for each participant
▶ Text-based chat
▶ Polling software
▶ Web-based clients for both desktop computers and mobile phones
▶ Desktop application sharing, in which the meeting participants or audience can see
whatever application the host is running on the desktop
▶ Archiving recordings so participants who missed the event can play it back
▶ Registration systems for fee-based enrollments
Web-conferencing applications take advantage of mashups to support shared web
browsing, chat windows, video, news feeds, and other modules the meeting participants
might need. At Reuters, for example, stock traders in the United States send market data
to Asia-based traders as U.S. markets close. The traders can put a webcam image in one
corner, a rolling feed of stock prices in another, and an application that calls up news
about a particular stock when one of the traders, either in the United States or in Asia,
clicks on that ticker symbol.5
Web-conferencing tools can make a dramatic dent in travel budgets, and the services
see particularly fast growth during economic downturns. They are widely used for corpo-
rate training, global project teams, product announcements, virtual sales calls, and other
events.
Interactive Video
Interactive video for collaboration is freely available via webcams and software such
as Skype. This capability fundamentally changes an online collaboration by allowing
participants to see facial expressions and other nonverbal aspects of communication.
The free and lower-end systems often have transmission delays that make it dif-
ficult to synchronize the speaker’s voice with lip movements, so they may not work
well for delicate negotiations. Higher-end interactive video systems can dramatically
improve the interaction with crystal-clear images and audio. Many systems rely on

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leased communications lines to ensure high definition; broadcast-quality images
and sound are transmitted to produce the “you are there” feeling of a face-to-face
meeting.
The most powerful systems create a sense of telepresence, in which the remote partic-
ipants are almost life-sized and images are vividly clear. Eye contact is more natural, and
voices are well synched to lip movements. An executive can turn on the desktop camera
and interact with someone across the planet almost as though the person were sitting on
the other side of the desk (Figure 8-6). For meeting rooms, larger screens can add remote
participants so they seem to be sitting at the same table.
Telepresence is also critical for telemedicine. Doctors are in short supply in Switzer-
land, so a company called Medgate installs high-end interactive video consulting rooms
at pharmacies. The patient can consult “face-to-face” with a Medgate physician, who will
prescribe medication as needed.6 Multinational corporations find the technology espe-
cially useful to bridge barriers between managers in different cultures. These can be diffi-
cult to overcome on voice conference calls, without the benefit of seeing facial expressions
and gestures.
With increasing bandwidth available for cellular networks, the transmission of clear
video signals to smartphones with powerful processors is much more feasible. Multisite
conference calls with interactive video are possible on these tiny devices. You will experi-
ence how that can work in the online simulation for this chapter.
Shared Workspaces
Organizing all the information resources and communications for a team of people takes
another kind of collaborative technology. The shared workspace is an area on a server in
which team members can post documents, maintain membership lists, feature news and
announcements, and collaborate on edits and updates.
FIGURE 8-6
High-end interactive video systems
create a sense of telepresence.
Source: Exactostock/Superstock.

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blog
Short for “web log,” and used to facilitate
collaboration and knowledge sharing. Posts
are displayed in reverse chronological order
so that the most recent appears on top.
shared workspace
An area on a server in which team members
can post documents, maintain membership
lists, feature news and announcements, and
collaborate on edits and updates.
telepresence
The impression created when remote
participants in an interactive video meeting
are almost life-sized and vividly clear; useful
for sensitive negotiations.
The core of a shared workspace is the document
library, where members can store important information
assets and keep track of all the edits. Some software for
shared workspaces, such as Microsoft’s Sharepoint, offers
features for version control to ensure that older copies
are maintained and no changes are lost. This centralized
document library goes a long way toward eliminating the
confusion and duplication that arise when team members
are constantly sending revised versions back and forth
over email.
Shared workspace software continues to add many
new features to help teams collaborate. Some examples
are listed in Figure 8-7.
Web 2.0 Collaborative
teChnologies
Web 2.0 and related advancements introduce powerful tools that encourage widespread
participation and end-user contribution to the web. Many of these tools have found their
way into corporations to facilitate collaboration and promote information sharing.
Blogs
A blog, short for “web log,” is one example. The blogger maintains a website composed
mainly of ongoing commentary, images, and links to other online resources. The posts
are displayed in reverse chronological order so that the most recent appears on top. Blog-
ging software, such as the free versions available through WordPress and Blogger, simpli-
fies the task of creating your own website to express opinions, review products, discuss
hobbies, or just rant. Readers can add their own comments to the blogger’s posts, joining
in the asynchronous discussion.
For organizations, blogs can help create a more intimate connection with customers,
employees, or suppliers. For example, the owner of a seafood restaurant might want to
blog about favorite fish recipes, or add videos of the dock where the owner buys fresh
fish.7 Sometimes blogs are used for sincere apologies. Embarrassed by a long series of car
recalls, the president of Toyota posted this: “Good evening everyone . . . I’m deeply sorry
to have caused inconvenience and concern to so many of our customers, to so many of
you.”8 Figure 8-8 lists some top company blogs that do far more than offer announce-
ments and promotions.9
2 Identify and describe Web 2.0 technologies that facilitate
collaboration.
Patagonia Outdoor clothing “The Cleanest Line” has the feel of a travel guide, with
off-beat stories such as “Skateboarding in Tibet”
Zillow Real estate
infomediary
This site offers useful tips and advice for prospective
home buyers.
GE Reports Electric appliances General Electric’s no frills blog features storytelling to inform
the public.
IBM Software Blog Computer services Discussions are provided about how software is changing
people’s lives.
Disney Parks Blog Amusement parks The site takes visitors behind the scenes to share what
makes the parks successful.
FIGURE 8-8
Examples of top corporate blogs.
▶ Discussion forums
▶ Team calendars
▶ Team announcements
▶ Shared task lists with task status, due dates, priorities, and assignments
▶ Email alerts to inform team members of updates to the shared
workspace
▶ Member lists with contact information
▶ Search functionality
▶ Content management capabilities with checkout and version control
▶ Collaborative document editing
▶ Workfl ow management
FIGURE 8-7
Shared workspace capabilities for teams.

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The blogosphere, as pundits call it, also benefits from blogger networks and cross-
linking. A post on one blog may intrigue other bloggers and tweeters, creating a viral
spread of the item and a rapid increase in page views. When a popular blog links to a
post on a relatively unknown site, traffic to that site suddenly skyrockets.
Some blogs are labors of love for friends or hobbyists, with bloggers earning a little
revenue when visitors click on ads or contribute to a “tip jar.” Other blogs belong to con-
ventional media organizations and employ teams of contributors to update frequently.
AOL, for instance, continues to expand its blog empire devoted to finance, politics,
music, and other topics, all staffed by freelancers and journalists. These blogs are more
like online, interactive magazines, earning revenue from display ads.
A key reason people return again and again to favorite blogs is to check for updates,
so frequent posting is essential. The sheer volume can lead to quite a lot of junk. One
blog reader commented,
“Give an infinite number of monkeys typewriters and they’ll produce the works
of Shakespeare. Unfortunately, I feel like I’m reading all the books where they
didn’t.”10
Others see it quite differently, noting that user-friendly blogging software gives voice
to millions of people outside the mainstream media. Whether you see the blogosphere as
a blessing or calamity depends on your point of view, but there is no question that this
relatively simple collaborative technology has an immense impact.
Wikis
Another significant Web 2.0 technology that facilitates end-user contributions and col-
laborative editing is the wiki, a website that allows users to add and edit interlinked web
pages. Wiki software usually offers simple text editing tools so users need not know
HTML. It keeps track of versions and lets users view the history of changes to each
page, along with discussions about the page’s content. Users navigate within a wiki by
doing a keyword search or by clicking on the many embedded links to related wiki pages.
Wikis have also emerged as extremely valuable tools within organizations, especially
to centralize documents and create knowledge storehouses that employees can edit as
needed. The wiki makes it easy for people in any unit or any level of the organization
to make contributions from their own personal experience or to update existing articles
with current information. Such wikis can become a substantial base of knowledge for
an organization, useful for training new employees and organizing all the how-to guides.
The online encyclopedia called “Wikipedia” is the best-known publicly accessi-
ble wiki. With millions of articles contributed by volunteers around the world, the
nonprofit Wikipedia is the most popu-
lar general-purpose reference work on
the net. Critics point to problems with
accuracy and bias, exacerbated by the
site’s open structure that allows anyone
promoting an agenda to edit articles.
Corporations and government agen-
cies are known to quietly edit entries
about themselves to put out the best
spin wherever possible. Occasionally
the site blocks people from changing an article, especially when it deals with controver-
sial current events.
Can innovative technology deal with the human issues of trust and bias? Perhaps.
A team of developers found a way to help readers judge reliability and also to prevent
vandalism by gangs of new users who repeatedly edit pages they want written a certain
way. A Firefox add-in called Wikitrust inserts color coding to the text to indicate each
phrase’s level of trustworthiness, based partly on the phrase’s change history. Black font
means no one has changed the text in some time, presumably because no one disagrees.
Bright orange indicates frequent changes, suggesting that editors are battling over a con-
troversial passage and readers should be wary (Figure 8-9).
Did You Know?
More than 85% of Wikipedia’s contributors are men, and the lopsided gender ratio
appears to lead to some bias in coverage. For instance, articles on baseball cards
and videogames are longer and more detailed compared to articles that might
have more appeal for women. The site is actively encouraging more women to
participate.11

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wiki
Web software frequently used to build
knowledge bases that allows users to add
and edit interlinked web pages.
Social Networking
More than three out of four
millennials, members of the
generation born from about
1980 to 1995, have created
profiles on one or more of the
social networking sites, such as
Facebook, LinkedIn, Pinterest,
or Orkut. People outside that age group, particularly the over-50 crowd, are one of these
sites’ fastest-growing demographics. Social networks have become the de facto platform
for collaboration and online asynchronous interaction.
The core element of these sites is the individual or organizational profile, with pho-
tos, hobbies, education, and other details. The sites usually include a “wall” on which the
user can post updates, adding commentary, links, or images about current happenings.
The value of these social network sites, though, is that the profiles are nodes in a vast,
interdependent network of links to other nodes created by other people or organizations
(Figure 8-10). The users build this network themselves, as they link to friends or col-
leagues. Some connections may be suggested by the software itself, perhaps because the
other person attended the same college or worked for the same company.
For users, the value of social networking sites can be quite high, offering a plat-
form to nurture or renew connections that might otherwise fade away. Network effects,
described in Chapter 2, increase the value of these services, simply because more people
use them. Social network developers ensure that finding friends is easy, since their goal is
to increase membership and internal links.
For companies, these sites offer a means to support knowledge sharing in the com-
pany and to reach people who may be interested in their products or services. Network
interconnections help messages leap from one network of friends to the next. Ads can be
tailored to reach precise target groups based on their members’ profiles. Beyond advertis-
ing, organizations create their own profiles as a means to connect with their customers,
recruit new employees, announce new products, and generally promote their brands.
FIGURE 8-9
WikiTrust color-codes segments of text
in Wikipedia articles that have been
recently edited, suggesting they may
not be as reliable as uncolored text.
Angry Birds is a puzzle video game developed by Finland-based Rovio Mobile.
Inspired primarily by a sketch of stylized wingless birds, the game was fi rst
released for Apples’s iOS in December 2009. Since that time, over 12 million copies
of the game have been purchased from Apple’s App Store, which has prompted
the company to design versions for other touchscreen-based smartphones,
such as those using the Android operating system, among others.
Source: http://en.wikipedia.org/wiki/Angry_Birds?trust, accessed March 24, 2011.
PRODUCTIVITY TIP
You can download an add-on for Firefox that adds a link to Wikipedia pages
called “WikiTrust.” Clicking on the link displays the color coding, with orange
highlights to indicate which sentences were recently changed.
Isabel
Stella
Joshua
Emiko
FIGURE 8-10
Interconnected nodes in a social net-
working site. Emiko’s connection to
Isabel leads to four more connections,
but her link to Stella does not expand
Emiko’s network yet.

http://en.wikipedia.org/wiki/Angry_Birds?trust

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Traditional brick-and-mortar corporations take good advantage of
social media to build awareness in creative ways. Moe’s Southwest Grill,
for instance, attracted millions of viewers with its wacky YouTube video
featuring tomatoes, watermelons, and eggs exploding in a microwave
oven. The message was that “Microwaves Ruin Everything,” and Moe’s
restaurant doesn’t use them to reheat food.12
A recent survey of American adults suggests that Facebook “fatigue”
may be settling in, at least for some users. About 61% of current users
said they have taken “Facebook breaks” for several weeks, and 20%
stopped using the site altogether. Figure 8-11 lists some of the main rea-
sons users chose to take a break.13 Even so, more than two-thirds of
Americans use a social network site of some kind, and 41% of them
check in several times a day.
Microblogging
Lady Gaga and Justin Bieber top the Twitter charts with
many millions of followers each. They tweet very frequently,
with impromptu and intimate 140 character messages that
create a constant connection with youthful fans in a way that
surpasses the one-way websites that other celebrities build
( Figure 8-12).
Microblogging is a form of blogging in which the posts are
quite short, containing a brief sentence fragment and per-
haps a link to another web resource or video. As in a blog,
the entries appear in reverse chronological order. The top-
ics range widely, from simple personal updates to headlines
from the New York Times or announcements from General
Motors. The social media aspect exists because users are able
to “follow” other users, whose posts constantly appear on followers’ computer screens or
mobile devices. Followers can reply to posts or repeat them for the benefit of their own
followers.
TwiTTer Twitter dominates microblogging and the terms tweet and re-tweet are widely used
to describe the basic elements of this collaborative technology. As simple as it sounds, the
real-time updates enrich online group dynamics with a level of connectedness that many con-
sider a significant leap for social media, especially since they extend the advantages of text
messaging to interconnected social networks. Microblogging offers features that few thought
would be valuable when the service was first launched. The news that a distant friend had
pancakes for breakfast turned out to be more interesting than expected, at least for some.
Even what seems to be pointless babble can serve a role in human interaction.
TwiTTer And MArkeTing Advertisers promote products on Twitter by relying on the
social networks. For example, SponsoredTweets.com is a marketplace that brings together
people with large followings and advertisers who want them to tweet something nice about
their products. Reality TV star Khloé Kardashian charges $13,000 per tweet to reach her
8 million + followers.14
Companies also use Twitter in creative ways to build stronger ties to customers. For
example, Old Spice and Taco Bell engaged and amused their followers by poking fun at
one another. @OldSpice tweeted “Why is it that ‘fire sauce’ isn’t made with any real fire?
Seems like false advertising.” @TacoBell tweeted back, “Is your deodorant made with
really old spices?”
Twitter also offers Vine, in which users can share 6-second videos that loop continu-
ously. This format opens up new possibilities for building customer relationships.15 For
example, CNN posts Vines that feature “behind the scenes” clips of reporters en route
to a breaking news event. Home improvement store Lowe’s posts brief “how to” vid-
eos, such as one on how to use a magnet to find a stud behind a wall so you can hang a
picture. The short format demands a new kind of storytelling, much like Twitter’s text
limit required people to communicate in new ways.
Was too busy/Didn’t have time for it 21%
Just wasn’t interested/Just didn’t like it 10%
Waste of time/Content was not relevant 10%
Too much drama/gossip/negativity/
confl ict
9%
FIGURE 8-11
Top reasons for taking a break from Facebook.
Source: Rainie, L., Smith, A., & Duggan, M. (2013).
Coming and going on Facebook. Pew Research Center’s
Internet & American Live Project, http://www.pewinternet
.org/~/media//Files/Reports/2013/PIP_Coming_and_going_
on_facebook , accessed February 20, 2013.
Lady Gaga REPLY
Going in for surgery now. Thank you so much for sending me
love and support. I will be dreaming of you.
Lady Gaga REPLY
since im living nowhere right now and live on the road with
my props+wigs.(which is everything I own) i suppose my
fans, in a way, livewithme
FIGURE 8-12
Sample tweets from Lady Gaga.

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hashtag
Microblogging tool invented by web users in
which posts on a similar topic all include a
keyword prefixed by a #.
microblogging
A form of blogging in which the posts are
quite short, and especially suitable for mobile
devices. As in a blog, the entries appear in
reverse chronological order.
HasHTags The users themselves added their own conventions to make microblogging more
useful. They began using the hashtag in which posts on a similar topic all include a keyword
prefixed by a #. The practice caught on, especially because it made it easier to search for
posts about particular subjects. For example, the tags #Sandy and #HurricaneSandy were
included on millions of tweets in 2012. Lowe’s tweets about the “how to” Vines with the
hashtag #LowesFixInSix. Twitter encouraged the practice by hyperlinking the hashtags so
that a single click would bring up a list of matches. Hashtags have become popular on other
social networks as well, such as Facebook and YouTube.
Hashtags are also used to identify trending topics in geographical areas. As users
repeat a hashtag and retweet posts containing them, Twitter’s information systems tally
the results in real time. The ones with the most posts become “Trending Topics” on the
front page, and a topic can rise to the top very quickly. Organizations watch this closely
in case a public relations storm is brewing that involves them. 16
Virtual Worlds
The virtual world is a graphical, often
3D environment in which users can
immerse themselves, interacting with
virtual objects and with one another
using avatars. Sitting at a computer
screen with a keyboard, mouse, joy-
sticks, console controls, steering
wheels, or foot pedals, users can explore
digitally constructed worlds or pilot
vehicles through realistic terrain. They can also change the camera perspective to
see their own avatar, a virtual representation of themselves that could be fantastical
or quite lifelike.
These simulated environments create virtual reality, a term that describes what people
experience when some of their sensory input is not from the real world, but from a
computer-generated one. Advanced virtual reality systems enhance the illusion of physi-
cal immersion in a virtual world even further by adding other technologies. Stereoscopic
goggles, for instance, can present aspects of the virtual world that match the user’s actual
body posture, movements, or head turns. Specially wired gloves can reproduce the sensa-
tions of actually touching and manipulating virtual objects.
Virtual-world inhabitants can often tailor their avatar’s appearance and control its
movements, facial expressions, and body postures. They type into text chat boxes to com-
municate or use microphones to speak with other characters in the world, who may be
automated bots or avatars controlled by other users.
These engaging online spaces are widely used for multiuser games such as World of
Warcraft, as well as for training simulations. The U.S. Air Force, for instance, launched
its own virtual world called “MyBase” on Second Life. Visitors can take a virtual tour
of an Air Force base, fly a P-51 Mustang, and learn more about job possibilities. Virtual
worlds are extremely useful for simulating dangerous situations such as combat or urban
warfare. They also offer safe ways to train people who work in environments such as off-
shore drilling platforms and chemical manufacturing plants (Figure 8-13).
Virtual worlds have not caught on as expected for business, partly because the soft-
ware can be buggy and the interfaces too complicated for a quick customer visit. These
worlds have also been mainly used as social venues, so some inhabitants don’t welcome
virtual world
A graphical, often 3D environment in which
users can immerse themselves, interacting
with virtual objects and one another using
avatars.
Did You Know?
Doritos launched a very successful “name that tune” ad campaign with 6-second
Vines featuring their Mariachi band and prizes for people who correctly tweeted
the song’s name. Marketers find that Twitter Vines offer a very promising
advertising strategy for company brands. People share company branded Vines four
times more often than branded Internet videos.17
virtual reality
Describes what people experience when
some of their sensory input is not from the
real world, but from a computer-generated
one. Technologies such as stereoscopic
goggles and specially wired gloves enhance
the illusion of physical immersion.

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commercial activity. Businesses can be hesitant to invest in any case, because most
virtual-world products and the servers that host them are privately owned by software
vendors. If they go out of business, the digital properties vanish, wasting the effort that
went into building them.
Despite rocky starts, virtual worlds hold much promise for collaboration. Busi-
ness users who want to hold meetings are attracted to them as a way to simulate a live
conference with speakers, breakout rooms, and small-group sessions. ProtonMedia,
for example, uses Microsoft’s Lync platform to offer immersive, business-oriented
worlds that also integrate other Microsoft products, such as Sharepoint and MS
Office (Figure 8-14).
FIGURE 8-13
Virtual worlds can be used to train workers who fight fires or tackle other problems in dangerous environments.
Source: Courtesy of Ambient Performance.
FIGURE 8-14
Business meeting in a virtual world.
Source: Courtesy of Designing
Digitally, Inc. http://www
.designingdigitally.com/

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unified communications (UC)
Technology that integrates multiple
communications channels and applications
into a single interface, which is accessible
from many different devices.
Beyond 3D business meetings, virtual worlds can recreate any environment for
humans to explore, from a tiny blood cell to the vast emptiness of space. For engineers,
the ability to collaborate on the design of component parts, regardless of how small or
large, offers exciting possibilities. The opportunities for educators to simulate live class-
rooms are equally intriguing.
unIfIEd CommunICATIons
A major recent advance in collaboration is less about the technologies themselves
and more about how they are integrated with one another, and how people use them.
Unified communications (UC) integrates multiple applications and communications chan-
nels into a single interface, accessible from many different devices. Although the technolo-
gies are not new, a unified approach can bring together real-time communication.18
Capabilities for Unified Communications
To succeed at unifying the fragmented communication world most of us now live in, the
technology should offer a number of different and seamlessly integrated features:
▶ Voice calls
▶ Conferencing (audio, video, web)
▶ Messaging (email, voicemail)
▶ Instant messaging
▶ Presence awareness
A unified communications approach should also work well on many different types
of clients, from mobile smartphones and tablets, to regular desktops and laptops.
Ideally, the interfaces should be as similar as possible so people don’t struggle with
new learning curves. The system should also integrate well with the company’s enter-
prise databases, so that contact information for customers, suppliers, and coworkers are
not duplicated.
The system should also adjust to communication preferences, and adapt to the user’s
current context. For instance, it might let people who want to reach you know whether
you’re on a long road trip; if so, you might be available for hands-free cell-phone con-
versations, but not IM or videoconferencing. The driver could direct email to the cell
phone’s text-to-speech application to have it read aloud.
Universal Dashboards
Universal dashboards are emerging that help people manage their unified communica-
tions, providing quick access to context indicators, email, secure instant messaging, voice
and video calling, conference calling, corporate RSS feeds, and more. The Mitel Uni-
fied Communicator Advanced, for instance, is a software client that integrates those fea-
tures and allows employees to choose the best method of communicating with coworkers
based on their context indicator. When a colleague is talking on the phone, the person’s
status will automatically switch to “in a call” so coworkers know that phoning the person
at that moment would be a waste of time. The software can also integrate with the com-
pany’s ERP and customer relationship management system to launch detailed contact
information on the screen, based on the incoming caller ID. That could help eliminate
long pauses when a caller says “Hi, this is Bill,” and you can’t quite place the voice.
3 Explain how unified communications contribute to collaboration.

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Accessible from desktops or smartphones, the dashboard creates a constant link between
the individual and his or her contacts and information resources, one that can be config-
ured based on personal preferences and current status.
The market for unified communications technologies is growing rapidly with fierce
competition among vendors such as Cisco, IBM, Microsoft, and others. Collaborative
technologies are constantly improving, not just because bandwidth is increasing, but
because developers adapt the technologies to human needs and add features that accom-
modate human behavior, as we see in the next section.
THE HumAn ElEmEnT And
CollAboRATIvE TECHnologIEs
Human beings have had thousands of years to refine their strategies for productive inter-
actions in face-to-face settings, but only a couple of decades to figure out how best to
collaborate virtually. Much communication is through typed text, and without the non-
verbal cues that add richness and meaning to any communication, the unexpected can
happen. Missteps lead to miscommunication, hurt feelings, flame wars, dysfunctional
teams, lost jobs, and even lawsuits. A key reason for these problems is that online com-
munication is not the same as face-to-face conversation. We also underestimate how
much the online environment can affect behavior, just as any environment—from the
beach to the office—affects how we behave.
Psychological Characteristics of Online Environments
Online environments vary a great deal, but some common themes that affect behavior
appear in many of them (Figure 8-15).
Describe features of online
environments that can affect human
behavior and group dynamics,
and identify strategies to make
virtual teams more productive and
successful.
4
• QWERTY keyboards, controls, mice, cameras, and
microphones are more complicated to use to communicate,
often interfering with smooth interactions.
• Text-based online interactions are particularly lacking in
media richness, with no nonverbal cues to refine and clarify
messages.
• Online interactions occur between people who are both
physically separate, and also alone with their computers or
other devices.
• Many online environments heighten the perception of
anonymity, making participants feel as though they are not
identifiable to others.
• Since electronic communications can be archived and
easily transmitted to others, the size and composition of
the audience is not clear.
Unfamiliar
Communication Tools
Reduced Media
Richness
Greater Physical
Distance
Heightened
Anonymity
Unclear Audience
FIGURE 8-15
Characteristics of online environments
that distinguish them from face-to-
face settings.

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media richness
A measure of how well a communication
medium can reproduce all the nuances and
subtleties of the messages it transmits.
Instant
Messaging
Virtual
World
Web
Conferencing
Microblogging
Text
Messaging
BlogsDiscussion
Forums
Postal
Letter
Video
Mail
Media Richness
In
te
ra
ct
iv
it
y
Social
Networks
Email
Interactive
Video
Tele-
presence
Face to
Face
GDSS
FIGURE 8-16
Interactivity and media richness in different collaborative technologies.
unfAMiliAr Tools We use unfamiliar tools to interact online, often stumbling over them
in the effort to make our interactions productive. The QWERTY keyboard is one example,
particularly on a smartphone screen. Typing is not the same as speaking, though people
often try to use the keyboard to simulate spoken conversations rather than more formal writ-
ten correspondence. As collaborative technologies add new capabilities, people struggle with
complex controls and settings that can cause frustration.
MediA riChness Media richness measures how well a communication medium can repro-
duce all the nuances and subtleties of the message it transmits. Media richness is usu-
ally starkly lower online than face-to-face. Many communications are text only, leaving
out facial expression, eye contact, voice pitch and tempo, gestures, and body posture.
Although words carry meaning, most of what people communicate is actually nonverbal.
Imagine your boss texting, “you won’t be late??” You might interpret that as a simple
question, or a criticism about tardiness. It’s difficult to know if the second question mark
was just a keyboard slip.
Figure 8-16 compares various technologies with respect to their support for media
richness and interactivity.
physiCAl disTAnCe Another important variable is the combination of physical distance
and lack of physical presence. Online interactions typically take place between people who
are geographically separate, not just from one another, but from other people as well. There

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is no human face looking straight at you as you type, no smile, arched brow, or puzzled
expression to signal with immediate nonverbal cues how the other person is reacting. There
is only the screen and the keyboard. Distance also contributes to a sense of physical safety, so
people take more risks with their words.
AnonyMiTy A feature common to online games and public discussion forums is anonym-
ity. When people have a sense that others don’t know who they are, their behavior can change
considerably. In some settings, this is helpful. GDSS, for instance, relies on moderate ano-
nymity in a small workgroup to encourage people to contribute freely. Many very success-
ful online support groups for people with HIV/AIDS or other disorders ensure privacy by
making all contributions anonymous. But in other settings, anonymity can lead to problems
because people feel less accountable for their actions.
AudienCe Online interactions are always somewhat blurry in terms of who is in the audi-
ence. When you receive an email with a large distribution list, you might easily click “reply to
all” by mistake when you intended to just reply to the sender. This common blunder might be
just a minor embarrassment or it could wreck a career. People often treat online interactions
as casual chats, forgetting that email is archived on company servers where it can be resur-
rected years later.
Electronic communications can also be forwarded to others or publicly released. For
instance, an impatient CEO fired off an abrupt email to his 400+ managers, saying, “The
parking lot is sparsely used at 8 a.m. Likewise at 5 p.m. . . . NEVER in my career have I
allowed a team which worked for me to think they had a 40-hour job.” After more rants,
the CEO threatened firings if employees didn’t shape up.. Someone posted the email on a
Yahoo! financial forum, and alarmed investors reacted by selling their shares. The stock
plummeted almost 30%.
How do these characteris-
tics of electronic communica-
tion influence human behavior,
social interactions, and virtual
teamwork? These technolo-
gies are enormously valuable
in allowing communication to
occur anytime, anywhere, but
they also introduce new twists
Flash mobs, whether they erupt for a celebration or riot, are difficult to stop.
Concerns about the violent variety are mounting, particularly when the riot-
ers smash store windows, loot shops, and attack bystanders. Government
officials are struggling to find ways to counter these spontaneous eruptions.
In certain cases, the participants use mobile group messaging services
such as Twitter to organize. The nature of text-based communications pro-
motes a certain amount of disinhibition, and people feel less accountable for
their actions.
Some authorities advocate cutting off mobile services in danger zones.
Addressing the problem of violent flash mobs in London, British Prime Minister
David Cameron once proposed imposing limits on communications channels
that the rioters were thought to be using to organize—in this case, Blackberry
Messenger services. In San Francisco, the Bay Area Rapid Transit system shut
off cellular signals at some stations, hoping to block riders from using group
messaging to organize a protest. Cleveland’s City Council voted unanimously
to criminalize the use of social media tools to organize unruly flash mobs.
The ethical implications of such measures, and their constitutionality
with respect to free speech, are under scrutiny. Cutting off mobile service to
certain areas is a drastic move that would also hinder normal communica-
tions and 911 emergency calls.. Shutting down the Blackberry service in
parts of London, for instance, would prevent innocent people from warn-
ing their families to stay away. Cleveland mayor Frank Jackson vetoed his
Council’s proposal, saying, “To make a criminal activity of just having a con-
versation, whether some acts of criminal activity are associated with it or not,
it goes beyond reason.” When the Council voted again, most took a second
look and agreed with the mayor.
Police departments are learning how to monitor group messaging and
other social media for signs of criminal activity, and these strategies may be
more effective than trying to block the services when the flash mob appears.
Philadelphia’s Police Commissioner stressed that, “Social networking is
not the issue. It’s how people are misusing it to gather and then commit a
crime.”19,20
THE ETHICAL FACTOR Flash Mobs and Free Speech: Should Police
Block Mobile Messaging Services?
PRODUCTIVITY TIP
Choose your communication channel wisely. If the discussion is sensitive, or
when it must be completely confidential, text-based communication is a poor
choice. Also, quickly switch to the phone, interactive video, or face-to-face if
text is confusing or tense.

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that may cause uncomfortable bumps in the relationship-
building process.
Managing Online Impressions
People form impressions quickly using social categories,
particularly age, gender, ethnicity, and physical attractive-
ness. When many of those cues are not obvious, as they
are not in the introductory email in Figure 8-17, they use
whatever they can to form some kind of impression, and so
miscalculations are common online. In the email to Allen
Barron, Jun’s formal, businesslike approach with its British
tilt conveys the impression of someone quite different from the impression he’d make in
a face-to-face setting.
Social media with photos and videos add physical appearance back into the mix,
and Jun’s profile page shows him as a hip, twentyish motorcyclist. Social networking
adds an unusual feature to online impression management that has no parallel in face-
to-face settings. Visiting Jun’s Orkut site reveals his friendship network, which includes
dozens of college-age buddies, one with pink hair and another with tattoos. People will
form an impression of Jun
based not just on his own pro-
file, but also on his friends. The
contrast between Jun’s pro-
fessional email and his Orkut
profile is stark, and managing
online impressions is a chal-
lenge for everyone.
Group Dynamics in Virtual Teams
Organizations are eager to leverage collaborative technologies to create virtual teams,
drawing on people’s expertise regardless of their physical locations and reducing travel
expenses in the bargain. But how do these groups fare compared to the face-to-face vari-
ety? How does the online environment affect group dynamics, and the success of the
group’s efforts?
developing group norMs Within organizations, people usually learn norms from one
another as they watch what others do and experience subtle praise or rebuke, often non-
verbal. At a face-to-face meeting, for instance, a stony silence from group members when
a latecomer arrives will forcefully communicate a “let’s always start on time” norm. Online,
though, group members can’t perceive the nonverbal cues, so group norms can be more
difficult to establish. For example,
virtual team members often com-
plain that one or two members
are free riding and failing to do
their share of the work. Norms
about how workload should be
shared are more difficult to trans-
mit and enforce online.
Successful virtual team leaders compensate for weak norms by making the expecta-
tions much more explicit. They may prepare a written team agreement or team charter
with very precise language, because it helps clarify exactly what is expected from team
members without having to rely on nonverbal communication to convey norms.
PRODUCTIVITY TIP
Employers often visit a candidate’s social networking site as a screening tool
before making a hiring decision. To manage your online persona, take into
account the impression it makes on different audiences and carefully review
your privacy settings.
PRODUCTIVITY TIP
Student project teams usually conduct a great deal of their work online,
through email, text messages, and shared workspaces, for instance. A team
charter that includes elements such as those listed in Figure 8-18 will help
establish norms that build productive and trusting relationships and avoid
misunderstandings.
1 February 2014
Dear Mr. Allen Barron,
It is with great honour that we join you in this important project to
develop a marketing campaign for clients. Please be kindly aware of
the large difference in time zones so we hope to agree on acceptable
meeting times to create the programme.
Yours faithfully,
Jun Chang
FIGURE 8-17
Managing impressions with introductory emails.

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disinhiBiTion Online environments often lead to disinhibition, in which people express
themselves more bluntly, abruptly, or aggressively than they would in face-to-face settings.
Their messages lack the verbal softeners and nonverbal nuances that make consensus easier
to reach. Allen might type, “I disagree with Jun,” rather than the less assertive, “I am not
quite sure I can agree completely with what Jun said.” But Allen can’t see Jun wince or roll
his eyes, so he doesn’t know his remark’s impact. A smiley face icon may soften the message a
little, but that same icon might also be interpreted as sarcasm. And accidentally pressing the
CAPS LOCK key so that the communication is sent in all capital letters equates to shouting.
The other aspect of disinhibition is heightened self-disclosure, and this, too, appears
more often in online interactions. On blogs, for example, endless streams of highly
personal updates are common, partly because the writer can’t see his or her followers
yawning.
Disinhibition is more extreme in relatively anonymous text-based environments,
which is why outrageous flame wars break out in open online forums. Virtual teams are
less affected, but distance and lack of media richness contribute to this phenomenon, so
misunderstandings can occur even in long-standing teams.
sTATus equAlizATion The online world tends to flatten out hierarchies and equalize sta-
tus, partly because many of the cues used to establish status are less apparent. A text mes-
sage, for example, doesn’t draw attention to the sender’s top-floor corner office or CFO title.
Collaborative technologies also empower people to communicate with others and participate
on virtual teams regardless of hierarchical boundaries.
Status doesn’t go away, of course; even so, virtual team leaders know they do not
have the same power as they might in a face-to-face setting. For example, team leaders
can bring a face-to-face meeting to closure and end the discussion of a controversial
topic more easily than they can terminate a testy email exchange.
Status is partly conveyed through physical appearance, and even variables such
as height matter. Other things being equal, taller people tend to have a slight advan-
tage over shorter ones in group discussions because height conveys a sense of power
and status. Online, status can
sometimes be manipulated in
subtle ways by altering how
tall the person appears to be.
For a video conference, plac-
ing the webcam a little too high
can make you look shorter, but
Elements of a Team
Charter Sample Questions to Answer
Leadership What role does the leader play? How is the leader chosen? What happens
when the leader is unavailable?
Meeting Protocols How often will the group meet using synchronous technologies, and how
will meeting times be decided? Will meetings start on time?
Communication How will the group interact, and what collaborative technologies will it
use? How often should each member check email or team workspaces?
How quickly are members expected to respond to email?
Is it OK for team members to IM each other during meetings? What
information is considered confi dential, for team members only?
Confl ict Resolution How will the team members resolve disagreements among members?
How will members communicate dissatisfaction with the performance
of other team members?
Decision Making How will the team members come to decisions?
Task Defi nition, Work
Allocations, and Deadlines
How will the team defi ne the task, and what constitutes a successful
outcome? How will the team allocate work and determine deadlines?
Team Member Evaluation How will team leaders and members evaluate the performance of each
team member? What signifi cance will evaluations have in terms of grade
or other outcome?
FIGURE 8-18
Tips for developing a team charter.
PRODUCTIVITY TIP
When you use a webcam or smartphone camcorder for interactive video
sessions, consider the position of the lens. A little below eye level will enhance
height without creating an eerie, threatening look. You should also look
directly into the lens to simulate eye contact.

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placing the camera a little lower enhances height, improves your status, and adds to
your power to persuade.21
The use of avatars adds another fascinating element to perceptions of status in
online group dynamics. When people negotiate as avatars, researchers can change their
heights far more than a shift in camera angles. People who are given a taller avatar to
control tend to negotiate aggressively and win against people assigned to shorter ones,
regardless of their actual heights. Interestingly, the effect spills over to subsequent face-
to-face interactions, so that the person manipulating the tall avatar continues to negoti-
ate more forcefully after resuming his or her own physical stature, at least for a short
period.22
TrusT Trust develops over time, and it is not easy for virtual teams to create it. Working
in the same building, coworkers see each other often—at lunch, in the elevator, at nearby
shopping centers. They have considerable “face time,” even when they are not working
on the same project. They learn they can count on one another for a ride home or a
small loan.
For virtual teams, especially newly created ones containing members who have never
met, trust is fragile.. The team can develop a less robust form of swift trust, based on the
members’ strong task orientation and their frequent communications. But it can break
down when people have little knowledge of their teammates’ context. Jun’s American
teammates might not know about a monsoon in Hong Kong that knocked out com-
munications. Instead, they might assume he was slacking off or partying if he misses an
important meeting.
Technology glitches are not uncommon, and they also can weaken trust. In one
case, a team at an organization’s California headquarters planned an interactive vid-
eoconference with a remote team in Oregon and began by playing a videotape for
both teams to see. Due to a glitch, the screen in Oregon was blank. The Oregon team
assumed they were being intentionally excluded. Miffed, they got up and left. When
the tape ended, the California participants saw only the empty couch in Oregon on
their screen, which made it look as if the Oregon teammates didn’t think the meeting
was important.23
Research shows that an initial face-to-face meeting can enhance trust in virtual teams,
often dramatically. Meeting the people you are about to work with, even through inter-
active video, makes a difference. Instead of having only typed words in an email, your
teammates can match a name with a face and a smile.
Making Virtual Teams Work
The challenges of virtual teamwork have led some companies, such as Yahoo, to termi-
nate telecommuting altogether, arguing that people need to interact face-to-face to gen-
erate those sparks of innovation.24 Other companies are creating regional hubs, where
remote workers can collaborate without having to commute every day.25
But even for people who come to a physical workplace every day, virtual teamwork
is still critical because so much work is accomplished that way. Knowing how group
dynamics unfold online, and how collaborative technologies can best support team-
work, will help improve the chances for success. Figure 8-19 lists some tips for virtual
team members, and also for team leaders. Whether the team is composed of students
working on a class project, or employees from far-flung corners of a multinational
company, these principles can greatly facilitate a team’s productivity. They can also
make virtual teamwork more satisfying, and more resistant to the pitfalls of online
collaboration.

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Tips for Virtual
Team Members
▶ Appoint a leader (if one has not already been appointed) and clarify the leader’s
role.
▶ Develop a written team charter to ensure team members agree on goals,
expectations for work styles, confl ict resolution, and team member evaluation
strategies.
▶ Agree on a decision-making strategy.
▶ Practice with the technologies before they are needed for intense tasks with upcoming
deadlines.
▶ Proactively volunteer for assignments, focusing especially on how your own skill
sets can best contribute to the team’s success.
▶ Use a high-tech, high-touch approach. Hold an in-person meeting or interactive
video session at the start of the project to build trust.
▶ Communicate and share information frequently, even more than required by the
team agreement.
▶ Review your communications for any effects of disinhibition that may
inadvertently offend.
▶ Let team members know about any change in your context, such as a family
emergency, blizzard, or illness.
Tips for Virtual
Team Leaders
▶ Get to know each team member, both to build trust and to understand how each
person can best contribute.
▶ Arrange a synchronous session and invite members to introduce themselves to
kick off the project, using interactive video, in-person meetings, conference call,
or chat.
▶ Use the kick-off meeting to raise awareness of any differences in culture or
working styles.
▶ Use a relatively structured leadership style, with clearly documented assignments,
deadlines, and expectations.
▶ Enhance group cohesiveness and team identity through team-building exercises,
team charter, and other means.
▶ Choose collaborative technologies wisely and arrange training to ensure team
members know how to use them. Use synchronous collaborative tools, preferably
with video, to discuss sensitive topics.
▶ Encourage participation by all members, contacting any who have contributed little to
learn why .
▶ Send out frequent reminders about upcoming events and deadlines.
▶ Use encouragement and praise publicly, but convey constructive criticism
privately.
FIGURE 8-19
Tips for making virtual teams work.
E veryone at the Department of Social Services in Newton is really tired of wasting time in traffic and paying high
gas prices. They want to convince management to allow
them to use virtual teamwork part of the time. They have
to travel enough as it is, visiting homes, hospitals, shel-
ters, and the county jail. Why do they have to drive to the
office every day when they could be meeting virtually to
review case files, or submitting their paperwork electroni-
cally? That would also give them more time to be out in the
community. They think the benefits far outweigh the draw-
backs, and virtual teamwork would save the department
money, too. But it’s important to start off right.
As someone who knows something about collabora-
tive technologies, your coworkers asked you to join a task
force to discuss how to proceed. Log in when you’re ready
to start brainstorming. . . .
MyMISLab Online Simulation
Department of Social Services
A Role-Playing Simulation on Collaborative Technologies and Virtual Teamwork

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Learning Objectives
Collaborative technologies have evolved rapidly, beginning with email and its enhanced features
that support contact management with address books, and time management with calendaring.
Discussion forums, instant messaging, and texting provide support for text-based collaboration,
and each technology adds slightly different features to support human interaction. IM, for
instance, adds presence awareness, so colleagues can see one another’s current status. Texting
is widely used for mobile communications and emergency alerts. Collaborative technologies
designed for groups include group decision support systems (GDSS), web conferencing, and
shared workspaces. GDSS is usually used for face-to-face group meetings, in an attempt to
promote brainstorming by allowing members to make contributions anonymously via their
computers. Web conferencing supports synchronous online meetings for people at different
locations using webcams, audio, interactive whiteboards, desktop application sharing, and
other features. Shared workspaces provide teams with server space to support information
resource libraries and asynchronous interactions. Interactive video is included in many of these
technologies. High-end systems can create a sense of telepresence.
Web 2.0 and more advanced technologies provide extensive collaborative support, with blogs,
wikis, social networking, microblogging, and virtual worlds. Organizations are using these tools
to support their own collaborative efforts, but also to reach out to customers and suppliers.
Social networking sites, for example, offer endless possibilities for targeted marketing based on
users’ profiles.
Unified communications bring together multiple collaborative technologies and applications,
simplifying the interfaces and making them accessible through many different devices. With
context indicators, users can signal the best way to communicate with them at particular times.
Universal dashboards aggregate the collaborative services into a single customizable interface.
Key characteristics of online environments that affect human behavior include the unfamiliar
tools used to communicate, reduced media richness, greater physical distance, heightened
perceptions of anonymity, and unclear audience. Managing impressions can be challenging
because of these characteristics. Virtual teams may experience more difficulty developing
group norms and building trust, and their members may show more disinhibition. However,
online groups tend to show more status equalization. Strategies for making virtual teams work
more effectively stress the need to take into account the way online environments affect human
behavior.
1
4
2
3
C H A P T E R
8 chapter summary
Key terms and concepts
SMTP server
IMAP (Internet mail access
protocol)
microformats
instant messaging (IM)
presence awareness
war room
group decision support
system (GDSS)
web conferencing
telepresence
shared workspace
blog
wiki
microblogging
hashtag
virtual world
virtual reality
unified communications (UC)
media richness
8-1. What are the seven major collaborative technologies?
What feature or features does each technology offer
for communication and productivity?
8-2. What are the five Web 2.0 technologies that facilitate
collaboration? What features does each technology
provide?
chapter review Questions
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8-3. What is presence awareness? How does it add value
to instant messaging? What are examples of ways
that presence awareness facilitates collaboration?
8-4. What are unified communications? What are exam-
ples of integrated features of unified communica-
tions? How do unified communications contribute to
collaboration?
8-5. What are the five distinguishing features of online
environments? How does each affect human behavior?
8-6. What are group norms? How does the online envi-
ronment affect group norms? What is disinhibition?
What are other ways in which the online environment
influences group dynamics?
8-7. How can virtual team members make their teams
more successful? What are some of the things vir-
tual team leaders can do to make their teams more
successful?
8-8. Email: Do you love it or hate it? How much time do you
spend processing your email every day—deciding what
it is, deleting it, filing it, answering it, or deferring it for
later action? Are there occasions when you would prefer
to use instant messaging? Describe the basic functional-
ity of email and instant messaging and discuss the pri-
mary uses/purposes of each. What are the advantages
of email? Of instant messaging? What are the disadvan-
tages of each? Prepare a 5-minute presentation of your
findings.
8-9. The first GDSS was developed in the early 1980s, but
not by a business; the first GDSS was developed by
a university. What is a GDSS? What are the advan-
tages of using a GDSS? Are there disadvantages of
using a GDSS? Can you think of specific problems
with meetings that cause groups to function poorly
that may be overcome by using a GDSS?
8-10. Draw a square and divide it into four equal sections.
Label the horizontal axis “Interactivity” and the vertical
axis “Media Richness.” Label the first column “Low”
and the second column “High.” Label the first row
“Low” and the second row “High.” Use this 2 by 2 grid
to group the different collaborative technologies into
four categories: (1) low interactivity, low media richness;
(2) high interactivity, low media richness; (3) low inter-
activity, high media richness; (4) high interactivity, high
media richness. Can you think of a specific organiza-
tional communication task that is best suited to the type
of technology in each category?
8-11. Social networking sites are fast becoming corporate
resources. Consider how Facebook may be used by an
organization. Can you think of different ways in which
organizations such as Coca-Cola, KFC, or Bank of
America can use social networking? What are network
effects? Search your favorite social networking site to
learn how organizations are using the site and prepare
a 5-minute presentation of your findings.
8-12. Visit YouTube.com and search for “What is
Sharepoint?” View one or more of the videos you
find and prepare a summary that describes how
Microsoft® SharePoint is used by organizations.
What are the key features of SharePoint? What are
“tags” and how are they used? What is version con-
trol? What are the advantages of using SharePoint
rather than a shared network drive?
8-13. Sorority meetings. Basketball practice. Your part-
time job. Your social life. Is it challenging to find time
in your schedule for a group project meeting? Work
in a small group with classmates to implement shared
calendars. Visit calendar.google.com and click on
“Sign Up” to get started, or sign in with your Google
account. Add your classmates’ calendars by enter-
ing their contact email addresses. Create a calendar
for one full month by adding events for future dates
(i.e., classes, work schedule, social events) by using the
various options for adding events, and then schedule
a group study meeting at a time that is convenient for
everyone in your group. Prepare a 5-minute presenta-
tion of your group’s experience with Google Calendar
that includes a list of specific features that are avail-
able. What are the advantages of shared calendars?
How do they facilitate collaboration?
8-14. Online communication has evolved from newsgroups
and listservs to the discussion boards of today where
people post and reply to posted messages. Consider the
many discussion boards that are available. Search the
Internet for “music discussion board” or “movie discus-
sion board” to locate sites such as musicboards.com, a
site for musicians and music fans, and chasingthefrog
.com, a site with movie games as well as discussion
boards. Or visit www.big-boards.com to see a list of the
most active discussion boards on the web today. Work in
a small group with classmates to consider the use of dis-
cussion boards and how they may be used effectively by
businesses, nonprofits, and governments. Discuss differ-
ent ways in which discussion forums may be used inter-
nally and externally. Does your university use online
discussion boards? If so, how are they used?
projects and discussion Questions
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application exercises
8-15. ExcEl ApplicAtion:
Going Green!
Everybody talks Green . . . but some really do it. Marie
Chong is a Green home designer and builder who is pro-
ducing a webinar to share her knowledge of Green build-
ing. She learned that web conferencing requires only a PC
and an Internet connection; however, audio conferencing
capability is required if she wants to chat with attendees by
telephone. Marie is working with a webinar hosting com-
pany that charges 10 cents per participant/per minute (ppm)
for web conferencing, 15 cents ppm for audio conferencing,
and $175 for online registration support. Although Marie
will present some content herself, she will hire a professional
speaker who is an expert on wind turbines for home use,
and she will include audio conferencing so that attendees
can interact with the speakers. The registration fee for a
60-minute webinar is $159. Create the Excel spreadsheet
shown in Figure 8-20 to determine the number of attendees
required for Marie to make a profit. How does that number
change if Marie reduces the registration fee to $149? Use
formulas for all calculations and Goal Seek to set profit to
$1 by changing the number of attendees. If the registration
fee is $159, how many attendees are required for Marie to
make a profit of $10,000?
8-16. AccEss ApplicAtion:
cloud 9
The ad campaign that Tamara and her team developed for
the Cloud 9 chain of nightclubs was a smashing success!
Club owners Sally and John Gilbert report membership has
doubled and event bookings are sold out months in advance.
The Gilberts have implemented an Access database to track
membership and events at four nightclubs. Download the
Cloud 9 database Ch08Ex02 and use the Report Wizard
to create reports that identify which location has the most
members and which has the most bookings. Review the
structure of the Cloud 9 database. Can you suggest other
reports that may be useful to Sally and John?
FIGURE 8-20
Going Green spreadsheet.
case study #1
When a robot resembling a vacuum cleaner topped with a computer monitor rolls by you at work, you might first think it is cleaning carpets. But if
it stops to say hello, and you see a coworker’s smiling face on the
screen, the device is probably a “telepresence robot.” Many organiza-
tions are experimenting with ways to improve collaboration for remote
workers, and these robots are making a very positive contribution.
The remote worker can log in to one of several wifi-connected ro-
bots the company might own and control its movements and cameras
with a laptop. At meetings, the pilot can swivel the camera around to
see everyone present, and the other attendees can see and hear the
remote worker’s face on screen.
Several telepresence robots have entered the market, and more
versions are expected from companies such as Vgo, Anybots, and
MantaroBot. Prices are dropping, and basic models run less than
$2,000. They typically have motorized wheels, a microphone, speak-
ers, a camera that faces forward, and another camera that tilts down-
ward so the pilot can avoid obstacles on the floor.
The key ingredient for success is to make the robots easy to drive
and manipulate, and also ensure they have sufficient battery power
so they don’t strand the remote worker in a hallway just before an
important meeting. The building layout is another consideration. The
robot’s wheels would get stuck if there are steps, and the robot would
need assistance to unlock and open doors.
“Telepresence Robots” Support Remote Collaboration
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Reactions to Telepresence Robots
The telepresence robot is a significant improvement over the speak-
erphone and even over stationary videoconferencing facilities. One
remote worker who tried out an experimental version recalled that at
first, “The general response was that it was kind of creepy.” But very
soon colleagues were asking him to roll by their cubicles for a chat.
He insists it is far better for collaboration than prearranged video calls.
When he is rolling his robot through the halls, people can approach
him to start a spontaneous conversation or ask a quick question. He
could also move from floor to floor . . . if someone pressed the eleva-
tor buttons for him.
Scott Hassan, CEO of Suitable Technologies, a company that of-
fers a telepresence robot called “Beam,” thinks the devices should be
simple to operate with a minimum of bells and whistles that might
interfere with natural interactions. The goal is for them to lose their
novelty quickly in the workplace, so coworkers can get back to work
collaborating with one another.
Some workers raise concerns about privacy when they imagine
camera-equipped devices creeping up behind them. The robot’s de-
sign, however, can help mitigate such concerns. A large screen that
clearly displays the remote operator’s face will probably be perceived
as telepresence, but a mobile device with just a tiny camera lens
would be interpreted as surveillance. You would wonder who was
viewing you, and why.
Human Resources Issues
Telepresence robots raise numerous questions that don’t fit neatly
into existing labor policies or laws. For example, if a remote worker
lives in Texas but pilots a robot every day in California, where should
the person pay taxes? If the remote worker is in another country, does
the person need a visa to work? What happens if a poor driver sends
his robot down the stairs, or causes an accident?
These issues become even more challenging when the robots
do actual physical labor. Employees at Willow Garage were tired of
doing the dishes, but the company manufactures a robot that could
handle that task—if it had a driver. They advertised online through
Amazon Mechanical Turk, and found an anonymous Internet worker
who learned how to pilot the device. However, employees became un-
comfortable with some unknown person rolling about the company’s
kitchen, listening to their conversations. They decided to wash their
own dishes.
Telepresence robots are already making a major contribution in
medicine, where specialists can conduct live, virtual consultations
with patients. School children who can’t get to school are also using
the devices to “sit” in class, ask questions, and participate in discus-
sions. As the technology improves and prices drop, expect to see these
robots in many other places.
discussion Questions
8-17. What are the benefits of telepresence robots for a company?
8-18. What are the limitations of telepresence robots?
8-19. How does the use of telepresence robots compare with
traditional video conferencing?
8-20. In what other settings might telepresence robots be
applicable?
Sources: Leber, J. (April 11, 2013). Does a tele-robot operator need a visa and W-2?
MIT Technology Review, http://www.technologyreview.com/view/513571/does-a-tele-robot-
operator-need-a-visa-and-w-2/, accessed April 15, 2013.
Lehrbaum, R. (January 11, 2013). Attack of the telepresence robots. InformationWeek,
http://www.informationweek.com/byte/personal-tech/mobile-applications/attack-of-the-
telepresence-robots/240146106, accessed April 15, 2013.
Markoff, J. (September 4, 2010). The boss is robotic, and rolling up behind you. New York
Times, http://www.nytimes.com/2010/09/05/science/05robots.html, accessed September 9,
2010.
Warner, C. (2013). Telepresence robots: Always on call. ECN: Electronic Component News,
57(2), 12–28. Willow Garageswebsite, http://www.willowgarage.com, accessed May 23,
2011.
252 introduCtion to information SyStemS

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http://www.informationweek.com/byte/personal-tech/mobile-applications/attack-of-the-telepresence-robots/240146106

http://www.nytimes.com/2010/09/05/science/05robots.html

http://www.willowgarage.com

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discussion Questions
8-21. What are the collaborative technologies that a company like
Yahoo! would have to provide to create an effective telecom-
muting program? How would Yahoo! increase media richness
using these technologies?
8-22. In spite of the controversy about CEO Mayer’s decision to
ban telecommuting, she raises valid points that might affect
Yahoo!’s profitability. How could each of her concerns be
overcome by providing improved collaborative technologies?
Which of Mayer’s issues would be insurmountable, if any?
8-23. Describe at least three human behavior challenges with tele-
commuting, and explain what a company like Yahoo! would
have to do to overcome each of them.
8-24. Suppose that you become highly skilled with collaboration
technologies and are a seasoned telecommuter, how would
this impact your career? How would you represent these
competencies and experiences to Yahoo!?
Sources: Chaey, C. (2013). Marissa Mayer, Yahoo, and the pros and cons of working
from home. Fast Company, http://www.fastcompany.com/3006538/creative-conversations/
marissa-mayer-yahoo-and-pros-and-cons-working-home, accessed April 13, 2013.
Colao, J. J. (2013). Marissa Mayer is wrong: Freedom for workers means productivity for
companies. Forbes.Com, 20.
Suddath, C. (2013). Work-from-home truths, half-truths, and myths. Bloomberg
Businessweek, (4319), 75.
Sullivan, J. (2013). Should companies make employees work on site? U.S. News Digital
Weekly, 5(10), 15.
Wright, A. D. (2013). Yahoo retrenches on telecommuting. HR Magazine, 58(4), 11.
chapter 8 Collaborating with Technology 253
case study #2
With gas prices soaring and traffic congestion steal-ing hours from every commuter’s day, many com-panies around the world have eagerly embraced
collaborative technologies and the virtual workplace. Researchers
estimate that from 20 to 30 million people in the United States work
at home at least one day a week, and the number continues to climb.
Bucking this trend, Yahoo! decided in 2013 that employees could
no longer work from home, even if they had to wait for a repairman
or care for sick children. Yahoo! CEO Marissa Mayer’s decision was
accidentally leaked out through a memo signed by Yahoo’s human
resources director. The memo stated, “Speed and quality are often sac-
rificed when we work from home. We need to be one Yahoo!, and that
starts with physically being together.. . .To become the absolute best
place to work, communication and collaboration will be important, so
we need to be working side-by-side.”
The policy change triggered howls of protest from employees, and
a firestorm erupted on social media. Twitter lit up with comments such
as, “Hey Marissa, 1980 just called, they want their work environment
back!” and “#Yahoo kills work flexibility and #telework options for em-
ployees. CEO is convinced it is still 1994.”
As the youngest woman to head a major company, and someone who
was pregnant when she was appointed, Mayer became a role model to
many working mothers. They found her ban on telecommuting especially
irritating because she herself brought her baby to work, and installed a
nursery for the infant. That perk would not be available to them, of course.
Telecommuting “Pros”
Employees overwhelming support telework for its flexibility, and studies
often find that workers are more productive when they are allowed to
work from home. The virtual workplace benefits the employee, com-
pany, and community as well. For example, employees save as much as
$1,700 per year in gasoline and other car expenses, and they add many
hours to their days by eliminating commutes. Expenses for clothing, res-
taurant lunches, parking fees, and tolls also drop. Virtual workers enjoy
greater flexibility to balance work and personal lives, which appears to
reduce both stress and health problems. Dealing with child and elder
care responsibilities is simplified, and disabled workers also benefit.
The company benefits by reducing real estate costs. And with
less traffic on the roads, communities benefit by reducing congestion,
pollution, accidents, and highway maintenance expenses. Among
Fortune magazine’s best companies to work for, several in the top 10
feature generous telework policies, including Cisco and Intel. Telework
is also a helpful policy to recruit and retain top talent.
Telecommuting “Cons”
Despite the many benefits, Mayer is not alone in believing that tele-
commuting brings along some serious disadvantages, particularly for
high tech companies that rely on innovation and collaboration. Twitter
and Google, for instance, have no specific policy about it, but senior
administrators encourage people to work at the office as much as
possible to promote face-to-face collaboration. Casual, unscheduled
meetings take place more freely, involving people from different de-
partments, and that can break down barriers and spur innovation.
More face-to-face contact can also increase the speed of decision
making. When a drug company switched to an “open office” layout,
many decisions were made much more quickly. Workers could just meet
to work out the details, rather than waste time with voice mail or email.
Employees who telecommute may also suffer setbacks in their ca-
reers compared to those who work on-site. Some studies have found that
telecommuters are less likely to be promoted, even if their productivity is
high. Just being seen at work makes people think you’re a hard worker.
Will Yahoo!’s telecommuting ban be a positive move for the com-
pany? Time will tell, but the decision certainly triggered heated de-
bates about what it means to collaborate in a 21st century workplace.
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In this e-project, you will use a spreadsheet and goal seeking to estimate
at what price telepresence robots will become affordable, meaning they
generate enough savings to pay for themselves in 1 year. Download the
Excel file called Ch08_Robots, which includes variables that affect how
much in savings will be generated, including the number of employees
who will use the systems, how many trips will be saved, and average
travel expenses per trip. For costs, the spreadsheet shows the cur-
rent cost for a robot, which is about $40,000 each. The spreadsheet
also estimates that the organization will need one robot for every two
employees who will be using them.
8-25. Use goal seeking (under Data/What If Analysis) to determine how
much the company can pay for each robot and break even, so
that savings minus costs = 0. You will set the cell containing the
(Savings – Cost) as the Set Cell, and enter 0 in the To Value input
box. The cell that can be changed is the one that represents the
unit cost of a telepresence robot. How much can the company
pay for each robot, using the assumptions in the spreadsheet?
8-26. If travel expenses increase to $4,000 per trip, what should the
company be willing to pay for each robot and still break even?
You can change the average travel expenses, and redo the goal
seeking analysis.
8-27. To be conservative, the CEO insists that any project to implement
robots should have a return on investment of at least $100,000.
Assuming $4,000 per trip, 100 employees, and 10 trips per year
per employee, how much should the company be willing to pay
for each robot?
8-28. It is possible the robots will be so useful that the company needs to
assign one for every employee, instead of sharing them. Change
the number of robots required so that all 100 employees get their
own robot. Then recompute the cost the company can pay per
robot, still assuming $100,000 return on investment and $4,000
travel costs. Under these assumptions, how much should the
company be willing to pay per robot?
Estimating Breakeven Pricing for Telepresence Robots
Using a Spreadsheet
e-project 1
e-project 2
Calculating the effects of a virtual work program requires making many
assumptions about gas prices, commuting distances, productivity gains
or losses, and other factors. For this e-project, you will create an Excel
spreadsheet that models the effects of implementing virtual work for a
hypothetical organization.
Download the Excel file called Ch08_VirtualWorkSavings Model.
8-29. How does the model calculate the gasoline savings per virtual
worker per year? Click on cell B21 and press F2 to display the
variables used in the calculations.
8-30. Using the assumptions in the model, how much would each
virtual worker save in gasoline each year?
8-31. If the leadership decides to implement a smaller pilot program
in which those eligible work at home just 1 day every 2 weeks
(0.5 day per week), what would be an employee’s average
savings on gas per year?
8-32. Add more variables to the model, to show:
a. Average cost per square foot per year ($200)
b. Average square foot per person in an office (80 square feet)
8-33. Add a conclusion, “Average cost per office per year,” and enter
the formula to compute this. What is the average cost per office
per year?
8-34. Assume that the company can eliminate an office for every
200 virtual workdays per year (regardless of who is not there).
Add another conclusion, “Savings in real estate costs per
year,” and enter the formula that will compute it.
a. How much could this organization save in real estate per year
if they stick with one virtual workday per eligible employee
per week?
b. How much could this organization save in real estate costs
per year if the average number of days per week employees
will work from home goes up to 3?
Estimating Savings for Virtual Work Using an Excel Model
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chapter notes
1. Shih, H., Lai, K., & Cheng, T. E. (2013). Informational
and relational influences on electronic word of mouth:
An empirical study of an online consumer discussion
forum. International Journal Of Electronic Commerce,
17(4), 137-166. doi:10.2753/JEC1086-4415170405.
2. To, P.-L., et al. (2008). An empirical investigation of the
factors affecting the adoption of instant messaging in
organizations. Computer Standards & Interfaces, 30(3),
148–156.
3. Ngak, C. (April 15, 2013). Boston Marathon: With
no phones, text and social media help get out updates.
CBSNews.com, http://www.cbsnews.com/8301-205_
162-57579692/boston-marathon-with-no-phones-
text-and-social-media-help-get-out-updates/, accessed
May 11, 2013.
4. Deards, H. (January 19, 2009). Twitter first off the mark
with Hudson plane crash coverage. Editorsweblog.org,
http://www.editorsweblog.org/multimedia/2009/01/twit-
ter_first_off_the_mark_with_hudson_p.php, accessed
May 13, 2013.
5. Fletcher, O. (2010). New markets: Mash it up your-
self: Global teams could benefit from evolving
web conferencing tools that allow individuals to
jointly use browser-based apps. CIO Insight, 23(10).
doi:1973263621. Retrieved January 14, 2011, from ABI/
INFORM Global.
6. Curtis, S. (February 2, 2013). Cisco telepresence allows
doctors to conduct virtual consultations. CIO, http://
www.cio.com/article/728194/Cisco_Telepresence_
Allows_Doctors_to_Conduct_Virtual_Consultations,
accessed February 19, 2013.
7. Handley, A. (2013). What’s your marketing malfunc-
tion? Entrepreneur, 41(2), 56–57.
8. Tabuchi, H. (March 17, 2010). Toyota’s chief returns to
his blog. New York Times, p. x.
9. Davis, J. (November 15, 2012). Top 5 corporate blogs
that makes us all look bad. Godotmedia, http://www
.godotmedia.com/blog/best-company-blogs-we-should-
all-learn, accessed February 18, 2013.
10. Rosenberg, S. (2009). Say everything: How blogging
began, what it’s becoming, and why it matters. New York:
Crown Publishers.
11. Cohen, N. (January 30, 2011). Define gender gap? Look
up Wikipedia’s contributor list. New York Times, http://
www.nytimes.com/2011/01/31/business/media/31link
.html?_r=0, accessed June 29, 2013.
12. Daley, J. (2013). The social score. Entrepreneur, 41(1),
132–138.
13. Rainie, L., Smith, A., & Duggan, M. (2013). Coming and
going on Facebook. Pew Research Center’s Internet &
American Live Project, http://www.pewinternet.org/~/
media//Files/Reports/2013/PIP_Coming_and_going_
on_facebook , accessed February 20, 2013.
14. SponsoredTweets.com, KhloéKardashianOdom (nd),
https://app.sponsoredtweets.com/tweeters/420561-
khloekardashian, accessed May 11, 2013.
15. Morabito, A. (2013). Vine gains early followers at TV
news networks. Broadcasting & Cable, 143(6), 19.
16. Ma, Z., Sun, A., & Cong, G. (2013). On predicting
the popularity of newly emerging hashtags in Twitter.
Journal Of The American Society For Information
Science & Technology, 64(7), 1399-1410. doi:10.1002/
asi.22844.
17. Johnson, J. (May 9, 2013). Unruly unveils top Vine met-
rics, reveals 100 most tweeted Vines. Social News Daily,
http://socialnewsdaily.com/13860/unruly-unveils-top-
vine-metrics-reveals-100-most-tweeted-vines/, accessed
May 11, 2013.
18. Blood, S., & Elliot, B. (September 19, 2012). Critical
capabilities for unified communications. Gartner
Research, ID:G00233423.
19. Sarker, S., et al. (2010). Media effects on group collabo-
ration: An empirical examination in an ethical decision-
making context. Decision Sciences, 41(4), 887–931.
20. Millian, M. (August 19, 2011). Little evidence links mob
violence to social media. CNNTech, http://www.cnn
.com/2011/TECH/social.media/08/19/flash.mob
. violence/, accessed August 20, 2011.
21. Huang, W., Olson, J. S., & Olson, G. M. (2002). Camera
angle affects dominated in video-mediated communi-
cation. Proceedings of CHI 2002, Short Papers. New
York: ACM Press. Retrieved January 11, 2011, from
ACM Digital Library.
22. Yee, N., Bailenson, J. N., & Ducheneaut, N. (2009).
The Proteus effect: Implications of transformed digi-
tal self-representation on online and offline behavior.
Communication Research, 36(2), 285–312.
23. Wallace, P. (2004). The Internet in the workplace: How
new technologies transform work. Cambridge, UK:
Cambridge University Press.
24. Weise, E., & Swartz, J. (February 26, 2013).
As Yahoo ends telecommuting, others say it has ben-
efits. USAToday, http://www.usatoday.com/story/
money/business/2013/02/25/working-at-home-popular/
1946575/, accessed March 10, 2013.
25. Johns, T., & Gratton, L. (2013). The third wave of
virtual work. Harvard Business Review, 91(1), 66–73.
chapter 8 Collaborating with Technology 255

http://www.cbsnews.com/8301-205_162-57579692/boston-marathon-with-no-phones-text-and-social-media-help-get-out-updates/

http://www.editorsweblog.org/multimedia/2009/01/twitter_first_off_the_mark_with_hudson_p.php

http://www.cio.com/article/728194/Cisco_Telepresence_Allows_Doctors_to_Conduct_Virtual_Consultations

Top 5 Corporate Blogs That Make Us All Look Bad

http://www.nytimes.com/2011/01/31/business/media/31link.html?_r=0

http://www.pewinternet.org/~/media//Files/Reports/2013/PIP_Coming_and_going_on_facebook

http://socialnewsdaily.com/13860/unruly-unveils-top-vine-metrics-reveals-100-most-tweeted-vines/

http://www.cnn.com/2011/TECH/social.media/08/19/flash.mob.violence/

http://www.usatoday.com/story/money/business/2013/02/25/working-at-home-popular/1946575/

http://www.cnn.com/2011/TECH/social.media/08/19/flash.mob.violence/

https://app.sponsoredtweets.com/tweeters/420561-khloekardashian

Learning Objectives
Describe the three types of intellectual capital and show how both explicit and tacit knowledge contribute
to intellectual capital.
Describe the steps in launching a knowledge management program, providing examples of the applicable
technologies.
Explain how the human element can pose challenges for knowledge management projects, and how
managers can overcome them.
Describe three different approaches to e-learning.
Explain how to create an e-learning program and the kinds of technologies that can be applied, including
the learning management system.
Compare and contrast corporate and educational e-learning, and e-learning and classroom-based learning.
1
4
2
5
3
C H A P T E R
9 Knowledge Management and E-Learning
INFORMATION SYSTEMS DO A SUPERB JOB OF TURNING
DATA INTO INFORMATION, but the processes of creating,
organizing, sharing, and acting on meaningful knowledge
are more challenging. How that can be accomplished, using
knowledge management and e-learning, is the subject of
this chapter.
One obstacle organizations face is that much intellec-
tual capital is semi-structured or unstructured, and is also
difficult to pin down. A skilled web designer’s hard-earned
insights about a customer interface might be found in emails,
drawings, videoconferences, blackboard scribbles, presenta-
tion slides, or hallway conversations. A salesperson’s strat-
egies for using social networks to engage clients might be
equally difficult to hand over to others. Yet this kind of knowl-
edge is much too valuable to lose.
In the online role-playing simulation for this chapter, called “Criminal Investigations Division,” a police department is facing the loss of vital intellectual capital. Veteran detec-
tives are retiring, and all their knowledge and experience
about how to interview witnesses at a crime scene, what
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.
6
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chapter 9 Knowledge ManageMent and E-LEarning 257
information to record, how to secure the chain of evidence,
and much more, could be lost. The incoming rookies just
don’t have the experience to manage these investigations
on their own, and mistakes keep mounting. The department
needs ways to capture this priceless intellectual capital and
pass it along, and the detectives want your help to design a
knowledge management program that draws on the power
of information systems.
In the simulation, you will share the police department’s
enthusiasm for knowledge management, and begin to
appreciate how valuable intellectual capital can be. You will
also experience first-hand some of the challenges involved,
and you will join the detectives at a “live” crime scene to help
them capture some of that knowledge about interviewing a
witness.
An organization’s assets—land, inventory, cash on
hand—are all listed on its balance sheet and are relatively
easy to valuate. Its intellectual capital isn’t listed, even
though it might be the most valuable asset of all. But what
exactly is intellectual capital?
MyMISLab Online Simulation
Criminal Investigations Division
A Role-Playing Simulation on Knowledge Management
for Crime Scene Police Work
©
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a
nd
M
ik
e
W
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ne
r/
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la
m
y.
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258 IntroductIon to InforMatIon SySteMS
THE nATuRE of InTEllECTuAl CAPITAl
Intellectual capital (IC) includes all the intangible assets and resources of an enterprise
that are not captured by conventional accounting reports, but that still contribute to its
value and help it achieve competitive advantage. Apple, for instance, might show $112
million in net tangible assets on its balance sheet, even though the firm’s estimated mar-
ket value is over $400 billion.1 The term intellectual capital highlights the notion that
intangible factors, such as the knowledge and expertise of employees, are assets just like
other kinds of capital that a firm can apply to the production of goods and services, and
that help determine its market value. In many cases, it is the one asset that truly distin-
guishes a successful company from its competitors.
Types of Intellectual Capital
Sally H. is looking forward to her retirement after 22 years with a midsized employment
services firm. She gave 60 days’ notice, but her swamped coworkers do not have much
time to go over all her accounts. They haven’t learned her secrets for keeping clients
happy or recruiting the best temporary staffer for every position. Sally entered notes
about each client into the company’s customer relationship management (CRM) sys-
tem, but the notes are just a pale shadow of her knowledge. She is also concerned that
she can’t pass on the strong relationships she developed with her contacts, especially in
regional business schools where she recruits so much talent.
Sally possesses all three of the main types of intellectual capital, shown in Figure 9-1.
They reflect the ways human beings contribute intellectual power to an organization.
Human Capital Human capital includes the competencies and knowledge possessed by the
organization’s employees. Education plays a key role in building this capital, as do years of
experience working in the field and acquiring successful strategies from experiment or men-
tors. Sally’s vast knowledge of interview techniques, negotiating strategies, mentoring, and
coaching is all part of the human capital she adds to the company.
SoCial Capital Social capital describes the number and quality of all the relationships an
organization’s employees maintain, not just with one another but with clients, customers,
suppliers, and prospective employees. Sally has built valuable social capital through her
network of university contacts, working closely with the advisors who help students find
employment. They have learned to trust her to place students in career-enhancing intern
positions that build skills and often turn into full-time jobs after graduation. Sally knew
her success depended not just on her relationships with employers with hiring needs, but on
her long-term ability to find talented students to fill those needs. She invited the students to
be “friends” on her social networking site and her coaching helped them make outstanding
impressions from day one.
StruCtural Capital Structural capital includes the knowledge stored as documentation
about business processes, procedures, policies, contracts, transactions, patents, research,
trade secrets, and other aspects of the organization’s operations, often stored electronically.
Essentially the knowledge left behind when an employee goes home for the day, structural
capital is built up over years of operations, although it may not always be well organized.
Sally contributed in many ways to the company’s structural capital. For example, she is
developing a handbook that explains legal aspects of temporary employment, and she is
frequently updating it as laws changed.
Types of Knowledge
In Chapter 1, we discussed the continuum from data to information and finally to knowl-
edge. Knowledge is not just data. At each step along the continuum from data to infor-
mation and finally to knowledge, the bits and pieces are further refined, analyzed, and
combined to create something more valuable and meaningful: actionable knowledge.
Describe the three types of
intellectual capital and show how
both explicit and tacit knowledge
contribute to intellectual capital.
1
Social
Capital
Structural
Capital
Human
Capital
FIGURE 9-1
Types of intellectual capital.
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chapter 9 Knowledge ManageMent and E-LEarning 259
social capital
The number and quality of all the
relationships an organization’s employees
maintain, not just with one another, but with
clients, customers, suppliers, and prospective
employees.
human capital
The competencies and knowledge
possessed by the organization’s employees.
intellectual capital (IC)
All the intangible assets and resources
of an enterprise that are not captured by
conventional accounting reports, but still
contribute to its value and help it achieve
competitive advantage.
Much intellectual capital is knowledge of one kind or another, and it is helpful to clarify
the two major types of knowledge since they require different management approaches.
ExpliCit KnowlEdgE The notes Sally entered into the CRM, and the handbook she updated,
are examples of explicit knowledge, or knowledge that can be documented. It is often stored
in information systems, on websites, in spreadsheets, or in handbooks and manuals. This
kind of structural capital includes all the summarized data that information systems can
provide, along with documentation on business processes, procedures, and policies. It can
include both structured and unstructured information, as well as multimedia content. Sally’s
notes, for instance, summarized each client’s typical hiring needs. The information system
already contained each client’s pay scales and contract terms, so she didn’t need to add that.
taCit KnowlEdgE Employees like Sally and the detectives in “Criminal Investigations
Division” possess another kind of knowledge that is more elusive, called tacit knowledge. This
encompasses the insights, judgment, creative processes, and wisdom that come from learning
and long experience in the field, along with many trials and errors. Sally’s tacit knowledge,
which is so critical to the human capital she contributed to the company, includes her insights
about how to interview prospective recruits for different clients, drawing on years of experi-
ence in which some of her recruits did well for one client, but bombed at another work site.
Some tacit knowledge is so ingrained that the person may not even be consciously
aware he or she possesses it, or that other people don’t share it. A person who is very
familiar with the gentle sliding finger motions that control a heat-sensitive smartphone
screen might never think to mention that to a new user, who fruitlessly taps the screen
harder to no avail.
The distinction between explicit and tacit knowledge can be blurry, partly because
strategies to make tacit knowledge more explicit are improving dramatically. Organiza-
tions are eager to use technology to prevent so much tacit knowledge from “walking out
the door” at retirement or whenever a competitor lures away a talented professional.
Managing Intellectual Capital
The growing understanding that intellectual capital is a critical asset leads to strategies to
manage and use it more effectively. Collaborative technologies, in particular, offer excit-
ing possibilities to help coworkers share knowledge.
Knowledge management (KM) refers to a set of strategies and practices organi-
zations use to become more systematic about managing intellectual capital. It is
also a field of study in which research-
ers investigate all the roles these intan-
gible assets play, how they contribute
to competitive advantage and pro-
ductivity, and how human behavior
interacts with efforts to capture and
share knowledge. It’s a spirited field,
drawing people from many differ-
ent disciplines—computer science,
structural capital
The knowledge stored as documentation,
often electronically, about business
processes, procedures, policies, contracts,
transactions, patents, research, trade secrets,
and other aspects of the organization’s
operations.
explicit knowledge
Knowledge that can be documented and
codified, which is often stored in information
systems, on websites, in spreadsheets, or in
handbooks and manuals.
tacit knowledge
Knowledge that encompasses the insights,
judgment, creative processes, and wisdom
that come from learning and long experience
in the field, as well as from many trials
and errors.
knowledge management (KM)
A set of strategies and practices
organizations use to become more
systematic about managing intellectual
capital. It is also a field of study in which
researchers investigate all the roles these
intangible assets play, how they contribute to
competitive advantage and productivity, and
how human behavior interacts with efforts to
capture and share knowledge.
Did You Know?
Knowledge management is not just for organizations. The leaders of the United
Arab Emirates are attempting to transform the country into a knowledge-based
economy by nurturing innovation and creativity in all citizens. The Ministry of
Economy is building a knowledge repository of best practices for achieving these
aims, drawing on lessons from countries such as Sweden, Singapore, Denmark, and
South Korea.2
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260 IntroductIon to InforMatIon SySteMS
information systems, sociology, business administration, management, psychology,
and more. Some focus heavily on the role technology plays in capturing and managing
intellectual capital. Others stress the human and organizational elements, noting that
the success of knowledge management efforts depends as much on people as it does
on technology.
“Knowledge management” is also one of those buzzwords that can be overhyped
and oversold, leading to frustration and abandoned projects. Nevertheless, the failures
present key lessons, and the mismanagement of intellectual capital can be so damaging
that KM strategies will continue to flourish, although they might appear under different
names.
KnowlEdgE MAnAgEMEnT
STRATEgIES And TECHnologIES
Let’s take a look at the steps in a knowledge management project, pointing out how
different projects can take advantage of various technologies and what pitfalls can
spell trouble along the way. Figure 9-2 shows the major steps, beginning with the proj-
ect’s goal.
Identify the Goal
The first step is to identify the precise goal of the project, which can best be determined
by studying the organization’s specific needs. A project with a specific goal and clear aims
is more likely to achieve success.3 The nature of the intellectual capital the organization
hopes to capture also guides later steps in the process, such as the methods to capture it
and technologies used.
For instance, as car electronics, safety, and emissions systems become more complex,
Hyundai’s leadership recognized a need for a central call center that could help techni-
cians in all its dealerships diagnose and repair problems. To be effective, the call center
agents needed to be fully expert, supported by an extensive knowledge basis with quick
and reliable answers.4
Sally’s manager identifies a different goal, one that targets the priceless social capital
built up by employees who retire or leave the company. With social networking sites so
prevalent, employees create complex relationships that can make substantial contribu-
tions to the company’s success. These sites could help spread news about the company
through word of mouth to an employee’s social network ties, and they can extend con-
nections to new clients based on recommendations from happy customers.
The aging population is the driver for some KM projects, and is especially important
to the police department in “Criminal Investigations Division.” Demographic trends are
creating a workforce crisis for companies in many developed countries, especially Japan
and Australia.
Other KM goals, focused more on structural capital, might include documenting and
centralizing the organization’s policies and procedures, building a collection of presenta-
tion templates for salespeople, or creating an online repository for patent ideas.
Locate the Sources
Once the organization identifies its goal, it next locates the sources of relevant knowl-
edge. For projects focused on explicit knowledge and structural capital, much may
already be in electronic form, although scattered about in different formats and
media types. A common problem is redundancy, worsened by the ease of copying and
editing electronic files so that different versions contain inconsistent information.
Figure 9-3 shows some possible information sources inside most organizations. These
can become excellent starting points for a successful KM project.
Describe the steps in launching a
knowledge management program,
providing examples of the
applicable technologies.
2
Identify the Goal
Organize, Share, and
Value Knowledge
Locate the Sources
Capture the Knowledge
FIGURE 9-2
Knowledge management steps.
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chapter 9 Knowledge ManageMent and E-LEarning 261
expert location system
An information system that can find people
in an organization with specific types
of expertise based on their education,
experience, and activities.
The tacit knowledge that employees may not even know they possess is more chal-
lenging to locate. Much of it is in the minds of the company’s experts, those people
everyone else has learned to turn to when they have a stubborn question in the expert’s
domain. Locating these sources means finding the experts, wherever they may be work-
ing in the organization, and at whatever level.
ExpErt loCation SyStEmS Expert location systems offer one way to apply technology to
finding people in an organization with specific types of expertise, based on their educa-
tion, experience, and activities. Many expert locator tools draw on directories, in which each
employee maintains an online profile that includes details about projects, publications, or
other hints of expertise. A researcher struggling with a problem on solar panels, for instance,
can enter some keywords to retrieve a list of contacts in the company who might have
answers. These systems often include workflow tools so that if the first expert doesn’t answer,
the query is routed to the next. Some include means to control volume, so the experts aren’t
drowned with repetitive questions.
Expert location systems can crawl through databases, websites, email, project
summaries, and other electronic documents to refine their expertise ratings. What
makes an expert helpful, however, turns out to be more than knowledge about the
subject. Trustworthiness, communication skills, and willingness to help are all very
important according to user surveys (Figure 9-4). No matter how knowledgeable,
a grouch who rejects newcomers’ questions will be dropped by the expert locator
system.5
Social media, in particular, can be helpful to flush out desirable traits. Employees
who maintain blogs in a specialty area, and who respond to comments and questions,
demonstrate not only their expertise, but their communication skill and willingness to
help as well. Wikis are another powerful means to identify experts. As entries evolve over
Sources of Structural Capital
Information system Employee directories
Intranet Annual reports
Employee manuals Calendars
Employee handbooks Presentation slides and videos
Operating manuals Department bulletin boards
Strategic plan Marketing materials
Policies and procedures documents Vendor lists
Lists of frequently asked questions Human resource forms
FIGURE 9-3
Potential sources of explicit
knowledge from structural capital.
Expert’s Characteristic Average Relative Importance to Users Seeking an Expert
Extent of knowledge 25%
Trustworthiness 19%
Communications skills 14%
Willingness to help 12%
Experience 12%
Currency of knowledge 9%
Awareness of other resources 9%
FIGURE 9-4
Characteristics people look for when
they seek out an expert
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262 IntroductIon to InforMatIon SySteMS
time, users can see who makes the most substantive contributions, along with the con-
tributor’s tact and writing abilities.
SoCial nEtworK analySiS Tracking down those key individuals who are tightly inte-
grated into the informal networks through which information flows is a challenge, but
social network analysis (SNA) can be very useful. This technique maps and measures the
strength of relationships between individuals and groups, represented as nodes in the
network. The measures provide insights into network clusters and the roles different
people play as leaders or connecting bridges to other networks. They also pinpoint the
loners who interact with very few others. These connections are apart from any individ-
ual’s actual position on the formal organizational chart. Experts who earn respect and
recognition, and who are also
willing to provide assistance,
will show dense connections in
such maps. The technique also
uncovers those who play pivotal
roles as bridges to other groups,
both inside and outside the
organization.
Figure 9-5 shows an example of how this kind of network analysis reveals underlying
communication patterns. Though Rudy is not a VP, his connections suggest he is a key
hub for his unit, and also a bridge to Finance that bypasses the normal reporting lines.
The raw material of a social network analysis is usually data from surveys that ask
people who they contact most often for advice. Data drawn from social networking sites
is useful as well. The food-packaging giant Mars, for instance, used SNA to trace its
scientists’ informal networks. They found that some kind souls were overburdened with
repetitive questions from advice-seekers, and also that the scientists were becoming too
PRODUCTIVITY TIP
If you maintain a profile on a social networking site, consider how you would
modify it if the site were used as an expert location system. How would you
feature your expertise so software could easily find you?
Rudy,
Sales Mgr,
South
Taylor,
Budget
Analyst
Jeremy,
VP Finance
Arnaud,
Account Clerk
Ariel,
Asst to CEO
Twila, CEO
Tarq,
Sales Mgr,
East
Jarod,
Sales Mgr,
West
Carla,
Sales Mgr,
North
Consuela,
VP Sales
Twila, CEO
Jeremy,
VP Finance
Consuela,
VP Sales
Jarod,
Sales Mgr, West
Tarq,
Sales Mgr, East
Rudy,
Sales Mgr, South
Carla,
Sales Mgr, North
Ariel,
Asst to CEO
Sharon,
Account Clerk
Arnaud,
Account Clerk
Taylor,
Budget Analyst
FIGURE 9-5
Social network mapping shows
relationships within a network, which
can differ from the organizational
chart.
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chapter 9 Knowledge ManageMent and E-LEarning 263
social network analysis (SNA)
A technique that maps and measures the
strength of relationships between individuals
and groups, represented as nodes in the
network. The measures provide insights
into network clusters and the roles different
people play as leaders or connecting
bridges to other networks.
insulated—perhaps too comfortable with their small cliques. Research shows that having
many network connections, even weak ones, contributes to innovation since connec-
tions expose people to a wider range of diverse viewpoints.6 To persuade them to meet
new people, Mars launched an unusual convention where attendees wore RFID badges
that lit up whenever the wearer approached someone he or she hadn’t yet met. Giant
screens in the ballroom dynami-
cally graphed new connections
on people’s growing social net-
works as they introduced them-
selves to new people.7
Capture the Knowledge
Before people can take advantage of intellectual capital, it must be captured. The best
strategies for doing this depend on the kind of knowledge we seek and how we can
store it.
Building a KnowlEdgE BaSE for StruCtural Capital Hyundai’s technical knowledge
base shows how an organization can gather its structural knowledge assets, organize
them electronically, and make them productive for the company. The system started with
legacy information from technical bulletins and repair manuals. However, it grew rapidly
as technicians found the best ways to resolve problems and then added that knowledge
to the system.
The National Oceanographic and Atmospheric Agency (NOAA) created an immense
knowledge base of its information about hurricanes and other extreme weather events at
answers.noaa.gov. The site is an easily searchable database, built from existing data and
frequently asked questions, but it is continually expanded as new information becomes
available. Visitors who can’t find their answers can also email a question to NOAA scien-
tists from the site and receive a reply within a few days. However, the expanding knowl-
edge base is becoming so extensive that 99% of visitors find what they need through the
search engine (Figure 9-6).
StratEgiES for Capturing taCit KnowlEdgE Attempts to capture tacit knowledge ben-
efit from less structured approaches that encourage people to describe their knowledge
in their own words or through their own actions. The goal is to uncover knowledge the
person may not even know he or she has and then find ways to organize, tag, and catego-
rize it so others can access it.
Figure 9-7 describes strategies to capture tacit knowledge. Some strategies in the
table, such as after-action reviews, best-practice sessions, narratives, and shadowing, use
little technology at this stage, except perhaps to video some of the action. The tech-
niques are powerful, though, because they help shed light on bits of knowledge people
may not have considered important and so would not have brought up in a more formal
setting.
Collaborative technologies capture and share both explicit and tacit knowledge. For
instance, communities of practice, which are groups of individuals who come together
to learn from one another and share knowledge about their professions, typically rely
on online discussion forums, shared workspaces, wikis, blogs, and other social media.
Cadbury, a candy manufacturer in the U.K., creates dozens of such communities for
colleagues around the world to share ideas about product development. CHOCNET,
PRODUCTIVITY TIP
Build a social network that includes a wide variety of people, not just those
in your own area of interest. Even weak ties contribute to your innovative
capacity as you hear different viewpoints.
communities of practice
Groups of individuals who come together to
learn from one another and share knowledge
about their professions; they typically rely on
online discussion forums, shared workspaces,
wikis, blogs, and other social media.
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Knowledge Capture Strategy Description
After-action review A meeting held after a project has been completed to document
what worked well and what did not.
Best-practice session A meeting of people in the same fi eld, or who contribute to the
same business process. They share and document their tips for best
practices in accomplishing the goal.
Wiki A website in which users add and edit articles about specifi c
topics and discuss the contents of each article with other editors.
Shadowing A mentoring strategy in which a new employee works side-by-
side for weeks or months with one who is leaving, allowing the
veteran to impart knowledge in the context of the actual work.
Community of practice A group of individuals with common interests who share
knowledge because they are in the same profession or job role,
often using online tools.
Blog In the context of knowledge management, a blog can serve to
keep coworkers up-to-date about recent developments, new
initiatives, and new ideas.
Narrative An oral history or commentary, often presented as a video
interview.
Team workspaces A collection of online tools that organize and collect a variety
of activities for a team, such as team calendars, document
and multimedia repositories, blogs, announcements, chat, and
discussion boards.
FIGURE 9-7
Strategies for capturing tacit
knowledge.
FIGURE 9-6
NOAA’s Answer website is a massive,
easily searchable knowledge base
containing information about oceans
and weather.
Source: answers.noaa.gov, accessed February 20, 2013.
for example, engages people in a community of practice working on chocolate products
across 36 countries.
Wikis are gaining popularity in corporate settings as a means to capture and share
knowledge as well.8 IBM managers launched wikis for employees as an experiment, just
to see how they would be used. The growth rates were extremely high as people flocked to
the easy-to-use interface to build document repositories, share information about proj-
ects, and manage events. Nokia has also had good success with a homegrown wiki, one
that caught on very quickly with employees around the world who used it to collaborate
on mobile phone designs.
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chapter 9 Knowledge ManageMent and E-LEarning 265
intelligent character recognition (ICR)
Software that can interpret handprinted text
written on paper forms.
document management systems
Systems that manage electronic documents,
often converted from paper sources, making
them searchable and easily transmitted.
intranet
An organization’s private web space. It
relies on TCP/IP and web browsers, but
it is password-protected and accessible
only to authorized individuals through the
organization’s portal.
Organize, Share, and Value Knowledge
The bits and pieces of knowledge that emerge from all these meeting notes, interviews,
documents, and videos will be like a chaotic library with no searchable catalog until
they are organized into some kind of repository. The technologies vary, though many
companies establish their intranet as the gateway to their knowledge management efforts.
Contrasted with the open Internet, an intranet is an organization’s private web space.
It relies on TCP/IP and web browsers, but it is password-protected and accessible only
to authorized individuals through the organization portal. Intranets started as a way to
organize and distribute employee forms and announcements, but they have grown con-
siderably with knowledge-management initiatives.
organizing and SHaring StratEgiES Within the intranet an organization might use
a variety of technologies as an organizing framework for their knowledge reposito-
ries. Many so-called knowledge management systems are actually powerful document
management systems, which manage electronic documents, often converted from paper
sources, making them searchable and easily transmitted. In the financial industry, for
instance, document management systems are essential, not just because they save so
much in printing and storage costs, but because they help institutions more easily meet
and comply with regulations. For example, a small bank in Alabama saves thousands
each year simply because auditors can review electronic files rather than visit the bank to
dig into filing cabinets.9
Users can add tags and metadata to the contents of a document management system,
track document versions, assign roles, and establish security rules. The systems include
extensive search capabilities and also offer workflow tools so the content can be reviewed
and approved before publication. Figure 9-8 shows examples of document properties
that are tracked.
Using optical character recognition (OCR), which reads typed text, the systems
can quickly do much of their own indexing and tagging to process paper forms. The
software reads specific zones to decipher document identifiers, and shows the scanned
form along with the fields the software has read, so human beings can verify the
results. Figure 9-9 shows an example in which the software is programmed to capture
text in zones where key information appears, such as PO number, date, zip code, and
vendor name.
Some systems also incorporate intelligent character recognition (ICR), provided by
software that can interpret handprinted text written on paper forms (Figure 9-10). The
digital version of the document is displayed on a screen, with question marks in the
boxes that need human review because the software can’t read the letter. OCR and ICR
help bridge the gap between paper and electronic record-keeping.
Document management systems may also include tools to manage the content and
convert paper-based records into well-organized electronic libraries. Less formally orga-
nized repositories, such as those that might emerge in wikis, blogs, social networks, and
other social media, can use other methods that make it easy to search and share the
contents. Wikis use keywords and metadata, and Web 2.0 conventions are also in wide
use. For instance, people can add tags to photos to indicate names, locations, and other
characteristics, making the images much more valuable from the standpoint of corporate
knowledge and history.
Image recognition technology is advancing rapidly as well. The software that scans
facial features and returns possible matches from a database is widely used in law enforce-
ment, for example. For consumers, Google draws on its unrivaled access to data to offer
an image-matching service called “Google Goggles.” The user uploads an image taken
with a cell-phone camera, and the service searches for possible matches. A photo of a
barcode is easy to decipher and will immediately return an image of the product along
▶ Date created
▶ Date last modifi ed
▶ Author(s)
▶ Title
▶ Document status
▶ File size
▶ Keywords
▶ Latest version
▶ Date last accessed
▶ Date last printed
▶ Security level
FIGURE 9-8
Examples of properties tracked by
document management systems.
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FIGURE 9-9
Document management systems include forms-processing software that reads the text in specified zones on a scanned form so they
can be indexed properly.
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chapter 9 Knowledge ManageMent and E-LEarning 267
FIGURE 9-10
Intelligent character recognition inter-
prets handprinted text on documents
such as this application for additional
passport pages.
Source: United States Department of State.
FIGURE 9-11
Google Goggles uses image recognition software to analyze an uploaded snapshot of the Washington Monu-
ment and then returns relevant web pages from the National Park Service about the familiar landmark.
Source: MosamMoments/Shutterstock.
with web links about it. Popular monuments also hit correct matches, such as the easily
recognizable Washington Monument (Figure 9-11).
dECiding wHat to KEEp: Valuation StratEgiES Documents are not always valuable or use-
ful, and much that is captured should be edited or just tossed out. Even as storage costs
plummet, the cost, in terms of time wasted, for employees to sift through piles of electronic
junk is high. Figure 9-12 breaks down different ways of handling content, based on its
potential value.
Some organizations engage users to judge the value of entries in a knowledge base,
using rating systems. Over time, as the ratings accumulate, the system chooses which
entries to promote to the top and which might be deleted.
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KnowlEdgE MAnAgEMEnT:
PITfAllS And PRoMISES
Success stories in which companies reap immense benefits from their knowledge man-
agement efforts abound, and their metrics show glowing results (Figure 9-13). Yet many
projects do fail. These cases add to lessons learned, however, and they can help others
avoid the same mistakes. Let’s start with the role of the human element, which is often
underestimated for these projects.10
The Human Element: Why Share Knowledge?
From a senior manager’s perspective, capturing critical intellectual capital and sharing it
with other employees seems obvious. But the employee may feel differently. A person’s
knowledge is a large part of what makes that individual valuable to any organization,
and it helps determine salary and promotions. Sally H. spent decades building up her
expertise about how to make every temporary employment contract succeed, and she
was rewarded for it. Would she think twice about sharing all her secrets on a blog, or
contributing tips to the company’s knowledge base? She would, at least until she is ready
to retire. And unlike all the formal documents and contracts she generates, her tacit
knowledge is difficult to impart to others. It would take a lot of her time, and she’d prefer
to spend that time gaining new clients to earn another bonus.
Some employees will actively hoard knowledge, perceiving that their value to the
organization drops as they share expertise with others. A software developer who knows
the code inside a specialized financial application may be the only person who can repair
bugs and add features. This creates a very risky situation for the organization, but it can
certainly translate to job security for the programmer.
Employees may also judge that time spent adding to any knowledge base means time
away from their other productive activities. They calculate that it’s wiser to contribute as
little as possible and instead make that extra call to a client or polish their latest proposal.
They may become free riders and actively use the knowledge base to achieve their own goals,
but they don’t add to it. The free riding may miff the contributors, so they drop out, too.
People may also be reluctant to share their time-saving tips because
employers might then require higher workloads. For instance, an accoun-
tant developed a nifty what-if spreadsheet that dramatically cut down the
time to produce cost estimates for clients. Sharing this innovation might
make requests for last-minute estimates skyrocket, raising the accountant’s
workload. Figure 9-14 shows another example of this kind of dilemma.
Finally, enthusiastic early contributors may get turned off as their
content is critiqued by others. A wave of comments that point out
faults in a contributor’s carefully crafted entry is embarrassing. As we
discussed in the chapter on collaboration, online discussions can seem
more abrupt and harsh, compounding the problem.
Type of Content
Strategically Valuable
Information
Operational
Information
In
fo
rm
at
io
n
v
al
u
e
Compliance
Information
Low-Value, Nuisance,
Redundant Information
Develop strategies to experiment with and invest
in this information
Systematically collect and organize, ensuring wide
availability throughout organization
Automate collection and archiving to achieve
cost-effectiveness
Delete
Knowledge Management Strategy
FIGURE 9-12
Strategies for determining the value of
captured knowledge.
Explain how the human element
can pose challenges for knowledge
management projects, and how
managers can overcome them.
3
Knowledge Management Project Metrics
Growth in resources attached to the project
Growth in the volume of content
Growth in usage by employees
Survival even after the loss of particular champions who
started the project
Evidence of return on investment
FIGURE 9-13
Metrics to assess the success of
knowledge management projects.
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chapter 9 Knowledge ManageMent and E-LEarning 269
Incentives for Knowledge Sharing
How does an organization encourage people to share their precious knowledge,
especially the tacit knowledge that makes them valuable and earns them promotions?
Praise and recognition are key ingredients. When employees know that the work they put
into knowledge sharing is valued, they are more likely to participate. Their contributions
also help build their own social capital within the company. If one employee selflessly
contributes, others tend to reciprocate.11
Moderate monetary rewards can be helpful, and can show management support for
sharing knowledge. But large cash rewards can have unintended consequences. Big indi-
vidual bonuses for contributions to a knowledge base can lead to a situation in which
employees don’t share at all unless they earn what they think is a fair payment. Some
will start gaming the system by adding trivial contributions, or splitting their content
into smaller bites so they get paid more for it. If people earn different amounts based on
managers’ subjective judgments of knowledge value, protests about fairness erupt.
The annual performance review that rewards people with raises and promotions for
sharing also can offer incentives, and it shows management support for a knowledge
sharing culture. Emphasizing the team’s overall performance can be another effective
FIGURE 9-14
A knowledge sharing dilemma. What would you do?
Source: © Alex Slobodkin/istockphoto.com.
Evan manages installations of videoconferencing systems for his clients and
after long experience has developed a detailed checklist that almost guarantees
the installation will go smoothly and will come in under budget. A coworker who
saw his checklist suggested he add it to the knowledge base, but Evan is reluctant.
He thinks the company will use this checklist to tighten its future cost proposals
and win more contracts. Evan will lose his edge, his margin for error, and his 99%
rating for completing projects on time and within budget.
Evan should put the checklist in the knowledge base:
__Strongly agree
__Agree
__Not sure
__Disagree
__Strongly disagree
s
o
ant.
sals
%
In the brutally competitive Formula One racing industry, Ferrari, Mercedes,
Honda, and other top automakers vie to build the fastest car on the planet.
The engineering teams closely track every tiny change to their rivals’ cars,
taking photos and videos, chatting with drivers who race for other compa-
nies, or picking up tips about technology improvements from suppliers who
work with several automakers.
Each company relies heavily on its human capital. The companies value
sharing when the results lead to a faster car, even if the “sharing” came
from someone they just recruited from a competitor who slipped out carry-
ing the rival’s design documents. As one CEO put it, “Every time we take an
employee from BMW, or we lose one to Honda, or a Renault man goes to
so-and-so, there’s always some transfer in information . . . sometimes it’s
of tiny value, and sometimes it’s worth a tenth or two of a second per lap.”12
The leaks continue despite employment contracts that strictly forbid such
knowledge transfers.
Employees are under tremendous pressure to manage their own intel-
lectual capital, hoarding or sharing depending on how they judge the advan-
tages. They may hoard knowledge for job security, but freely offer what they
know about their former employer’s technology. In a fast-moving innovative
industry like Formula One, patents and other legal protections are not very
useful. By the time a lawsuit is resolved, the intellectual property that was
improperly transferred is worth little anyway, so claims of espionage or intel-
lectual property theft are uncommon. Questionable ethical decisions become
very tempting in this environment.
THE ETHICAL FACTOR Knowledge Sharing in Fast-Paced Industries:
The Case of Formula One Racing
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270 IntroductIon to InforMatIon SySteMS
way to balance competition and cooperation. But annual performance reviews can also
hinder knowledge sharing. Microsoft, for instance, once used “forced ranking,” in which
managers had to rate a fixed percentage of their team as “top performers,” “good,”
“average,” “below average,” or “poor.” This system encouraged competition rather than
cooperation, and Microsoft wisely dropped it.13
Technology Hurdles and Content Issues
Overly complicated technology with long learning curves and high price tags stalls
many KM projects. Especially given human concerns about knowledge sharing, sys-
tems with novel or awkward user interfaces can turn people away. An intuitive, user-
friendly interface encourages people to actually log in. If the technology is smoothly
integrated into the systems people use every day anyway, it is more likely to be used.
The quality of the content in the knowledge repository is another key element in
its success. If it is stale or inaccurate, people will quickly learn to distrust the entries.
Particularly for structural knowledge, a review process should ensure the contents are
up-to-date and accurate.
Too little content can also cause people to abandon the project. If they repeatedly
search the repository for answers that aren’t there, they will look elsewhere and the
knowledge base will eventually wither. A critical mass of content is needed from the out-
set so people see value right away. Hyundai, for instance, populated its knowledge base
with stacks of technical documentation that already existed, then rapidly expanded it to
incorporate real tips from actual repair jobs.
The Semantic Web
Managing knowledge on the web involves building the semantic web, which is a web with
meaning, in which online resources and their relationships can be read and understood
by computers. The web now offers links from one page to the next, and the meaning of
that link is clear to human beings who are reading the page. The semantic web, some-
times called “Web 3.0,” will make that relationship clear for software agents as well, so
they can be far more effective at more complex tasks.
The semantic web relies on the resource description framework (RDF) to describe
resources and their properties. RDF is written in XML and was developed by the World
Wide Web Consortium. It describes a resource and its properties like a sentence, so that
the actual relationship between the parts of the sentence can be understood:
▶ Flipper is a dolphin.
▶ Homo sapiens is a member of mammalia.
▶ Shoes cost $25.99.
The semantic web will also make it possible for agents to integrate information from
many different databases and collections with different structures, terms, and entity
names. Although not widely adopted yet, futuristic scenarios about the semantic web
show how it might transform the way consumers and businesses interact. If you’re
hungry, for example, you could send out your agent to check which restaurants are open,
which have special deals, and which friends are nearby who might want to join you.
It could also check where you ate last night and assume you don’t want the same type of
food. If you like your agent’s choices, it will reserve the table. Your agent will be immune
to TV and online advertising so marketers will have to alter their promotion strategies.
Practical Tips for Launching a Knowledge Management Project
Although the challenges are great, the value organizations can reap by better manag-
ing intellectual capital are far greater. The competitive advantages companies strive to
maintain are tied up with the knowledge their employees possess, and also with the
capacity of those employees to leverage collective knowledge for innovation. Every orga-
nization is different, and knowledge management efforts will not be the same. In the
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e-learning
A varied set of instructional approaches that
all depend on ICT, especially the Internet, to
connect trainees with learning materials, and
also with their instructors and other trainees.
resource description framework (RDF)
Part of the XML family of standards, RDF is
used to describe online resources and their
properties for the semantic web.
semantic web
A web with meaning, in which online
resources and their relationships can be read
and understood by computers as well as
human beings.
online simulation “Criminal Investigations Division,” for example, the top priority is to
capture the knowledge gained by the department’s veteran detectives before they retire.
Drawn from years of lessons learned, the practical tips in Figure 9-15 will help you
get projects off to a good start and avoid common missteps.
E-lEARnIng
Carlos, human resources manager at Sally’s employment services firm, is eager to expand
the company’s training program. Thinking about Sally’s skills, he asks her to develop
a short course on work visas for noncitizens. Most employees already see her as the
resident expert and email her their questions, so Carlos wants to capture this intellectual
capital and turn it into a short online course to train new employees. Since Sally had been
a trainer earlier in her career, she is happy to give it a try. She taught face-to-face classes,
but e-learning will be something new. She also realizes it could help many more people
learn the basics compared to her classroom version.
Learning is central to an organization’s capacity to build intellectual capital, and
e-learning plays an important role. The constraints of time and space that come with a
face-to-face classroom session vanish, but new challenges emerge. Technological glitches
are not uncommon, with connections breaking down or microphones failing. But
organizations can reap huge benefits if they take advantage of the online medium for
learning and not just try to replicate a class session.
Comparing E-Learning Approaches
E-learning refers to a varied set of instructional approaches that all depend on information
and communications technologies, especially the Internet, to connect trainees with learn-
ing materials, and also with their instructors and other trainees. E-learning approaches
can be quite different, and the jargon used to describe them can be confusing. Let’s sort
out the major categories.
SElf-paCEd E-lEarning Instruction might be designed as self-paced e-learning, in which
students use online materials independently, with little or no instructor involvement. They
might read texts, watch narrated presentations, play videos, and then take quizzes. Their
successful completion of the course demonstrates mastery of the material and readiness to
move on to more advanced topics.
These self-paced learning programs are especially useful for gaining structural knowl-
edge about company policies or information systems. Rather than waiting for HR to schedule
a face-to-face class, new employees can log in to take a self-paced course whenever it suits
them. SAP, for instance, maintains a vast inventory of online, self-paced courses in several
languages that teach how to use the ERP software. Self-paced learning is also widely used
for technical training. At nuclear power plants, employees who work long shifts in remote
areas can log in to take self-paced courses on nuclear physics or other subjects.
▶ Identify a clear and specifi c goal, and start small.
▶ Get management buy-in for the project.
▶ Find the assets and human experts in the organization that can help start up the knowledge base,
and populate it with valuable, accurate, and up-to-date information.
▶ Choose technology that is simple and user-friendly, and that integrates easily with existing systems.
▶ Introduce the project as a pilot, with a smaller subset of receptive employees.
▶ Develop knowledge-sharing incentive strategies appropriate for the organization.
▶ Actively encourage people to participate, suggest improvements, and add to the organization’s
collective intellectual capital.
FIGURE 9-15
Practical tips for launching a KM
project.
4 Describe three different approaches to e-learning.
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inStruCtor-lEd E-lEarning Instructor-led e-learning, as its name suggests, involves a
teacher who guides students through the course, often using virtual classrooms, email,
phone, discussion forums, and other collaborative technologies. The course can include syn-
chronous events in which students and instructors interact using online tools at the same
time, although from different geographic locations.
One of the early versions of e-learning was the interactive video network, in which
classrooms equipped with video cameras and TV monitors were constructed in different
locations, and proprietary network lines connected them to one another (Figure 9-16).
The instructor taught as usual from one classroom location, and could see the students
at the remote location in a large TV monitor. At the other location, the students could
see the instructor on their own TV monitor.
With increasing Internet bandwidth, synchronous e-learning events were no longer
limited to specially constructed interactive video classrooms and networks. Instead, they
could bring together instructors and students wherever they resided, using their own
computer screens, speakers, microphones, webcams, and Internet connections. Instead
of viewing the instructor speaking from a podium on a TV monitor, students might view
presentation slides while the instructor narrates, or they might share an online, interac-
tive whiteboard.
Instructor-led e-learning also incorporates asynchronous activities, in which students
can log in at any time to work through online course materials, submit assignments, take
FIGURE 9-16
Interactive video network linking
physically separated classes.
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chapter 9 Knowledge ManageMent and E-LEarning 273
instructional designer
The person on an e-learning development
team who brings the knowledge and
skills about what strategies work best for
e-learning.
subject matter expert
The person on an e-learning development
team who knows what content should be
included in the course and possesses the
content expertise.
assessments, or send messages. Some modules developed for self-paced learning might be
embedded in an instructor-led course. Also, synchronous activities might be recorded so
students can log in to review them later.
HyBrid programS Hybrid e-learning blends online activities with in-class sessions to
create a rich learning experience. Trainees might attend a day-long class at the corporation’s
national conference and then continue to advanced topics using e-learning after they go
home. Or they might enroll in an instructor-led e-learning course that includes a weekend at
the plant for hands-on activities and class sessions.
Face-to-face courses increasingly use online tools to communicate and store mate-
rials as well. An instructor might post the course’s PowerPoint slides, for instance, so
students do not need to take detailed notes during the class session.
CREATIng An E-lEARnIng PRogRAM
Almost any technology used to develop web resources, collaborate online, or organize
existing resources into a coherent course can add to e-learning programs. The array of
tools is mind-boggling. Carlos relies on a well-designed strategy that focuses first and
foremost on the content and how best to present it. He wants it to be clear, comprehen-
sive, lively, and easy to update as work visa policies change.
Course Development
Unlike a face-to-face class, where the learning experience relies so heavily on the instruc-
tor’s knowledge of the content and skill as a teacher, a successful e-learning course needs
a team.
Sally will fill the role of subject matter expert, the person who possesses the content
expertise and knows what should be covered. She has all the government checklists and
forms, and extensive knowledge about all kinds of visa scenarios and immigration issues.
Peyton from Carlos’s office will join the team as instructional designer, the person
who brings the knowledge and skills about what strategies work best for e-learning.
Peyton will help Sally clarify the goals of the course, develop an effective e-learning strat-
egy based on the needs of the trainees, and design assessments that will confirm the
trainees have mastered the material (Figure 9-17). The designer helps bring the content
to life, and also ensures people with disabilities can access it.
The project’s sponsor is typically the manager who defines the project’s goals and
pays the bills. In this case, Carlos fills that role, as head of the HR office where the corpo-
rate training budget resides. Depending on the project, skills might also be needed from
writers, programmers, technicians, videographers, and graphic artists. Finally, a project
manager coordinates all these activities, tracking progress from kickoff to completion.
Peyton, the instructional designer, will handle that role.
The team strives to create a course that will effectively accomplish its goals and that
students and instructors will find easy to use—and also to update. Figure 9-18 shows
some items often used to judge whether an online course is properly designed.
5 Explain how to create an e-learning program and the kinds of
technologies that can be applied,
including the learning management
system.
Job Opening: Instructional Designer
As instructional designer, you will join the Human Capital Development Offi ce to help create engaging
e-learning courses for corporate training. You will work with subject matter experts and corporate
sponsors to assess learner needs, develop learning content, create assessments, and evaluate e-learning
programs. Knowledge of content authoring tools, web-based application development, and learning
management systems required. Bachelor’s degree in instructional design or related fi eld required.
FIGURE 9-17
Job description for an instructional
designer.
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274 IntroductIon to InforMatIon SySteMS
Learning Objects
Sally brings her PowerPoint slides and a collection of documents to the kickoff meet-
ing with Peyton and Carlos, and they can see she has already started to flesh out the
substance. As they go through the material, Sally’s outline is falling into place, with six
major units and four or five topics under each one. She estimates people will need about
eight hours to go through all the material.
The goal is to take each topic and create a learning object, a digital resource that
can be embedded in Sally’s course in its proper place, and that can be edited and reused
for other purposes if needed. Unlike a lengthy classroom lecture, the learning object is
smaller, more self-contained, and more reusable. Each learning object will have metadata
to describe its contents, author, date created, and other features, making it easy to locate
later and reuse. An employee who just needs to brush up on the requirements for the
H2B visa program, for instance, will not have to trudge through long texts, videos, or
slide presentations. The learning object in Sally’s course that deals just with that topic
will be easily found and updated as rules change.
Content Authoring Tools
A learning object might be as simple as a text document converted to a web page or
a PowerPoint presentation, or as complicated as a custom-built multiplayer interactive
game. A common theme in e-learning is that “content is king,” so the substance should
always drive the technologies, not the other way around.
narratEd prESEntationS Presentations with a live or recorded audio soundtrack are
popular for e-learning, especially because many people are familiar with PowerPoint.
Narrating the presentation is essentially what instructors would do during a face-to-face
class session, so this type of learning object can be easy to develop. The presentation can
include text, images, diagrams, videos, animations, and other features.
intEraCtiVE prESEntationS A number of content-authoring tools support interactivity
beyond just moving slides forward or turning the audio on or off. For instance, some soft-
ware helps developers create interactive diagrams that students can explore with the mouse,
pop-up text boxes, or narration that explains each component (Figure 9-19). Other varieties
Strongly Strongly
Agree Agree Disagree Disagree
▶ The introduction to the course provides
a clear orientation for the student.
▶ Course layout is easy to navigate
and understand.
▶ Course policies, such as grading standards,
plagiarism, attendance, and late penalties,
are clear.
▶ Guidelines for contributing to group
discussions are clearly stated.
▶ Self-introductions are encouraged to help
build the learning community.
▶ Instructions for obtaining technical support
are readily available.
▶ The learning objectives for the course
are clearly stated.
▶ Course resources are easily accessed.
▶ Course resources and activities are relevant
and closely tied to learning objectives.
▶ All instructional resources are appropriate
for the online environment.
▶ Technologies used support
the learning objectives.
▶ Course technologies support and encourage
interaction.
FIGURE 9-18
Sample items from online course
assessments.
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chapter 9 Knowledge ManageMent and E-LEarning 275
learning object
A self-contained digital resource embedded
in an e-learning course that can be edited
and reused for other purposes.
might include online flash cards, crossword puzzles, drag-and-drop matching exercises, and
guided tours through a series of images, with a question to answer at the end of each series.
Computer programmers were once essential to develop interactive learning objects,
but with advances in content-authoring tools, people with no programming knowledge
can create engaging resources. For instance, present-
ers can create animated flash cards just by entering
the content for both sides.
SCrEEn CapturES The computer screen itself can
be an important element in any e-learning program,
especially if the topic is about software or program-
ming. A trainer might want to walk students through
the process of adding a record to a database, for
example, or show them how to download files from
a website. Screen-capture software, such as Camtasia
or Adobe Captivate, is used to make a video of such
sessions, complete with audio soundtrack for the nar-
ration and special effects that highlight mouse clicks.
For one of her learning objects, Sally creates
a 10-minute virtual tour of the resources avail-
able online from the Department of State. As she
is explaining how to access the site and navigate
through the materials, she will capture the tour in a
video file to post in her class.
SimulationS Online activities that simulate a scenario and invite the learner to make
choices that lead to different consequences help encourage active, experiential learning.
Figure 9-20 shows the start of a simulation that will be part of Sally’s course.
In the online role-playing simulations that accompany this text, you enter different sit-
uations that call for smart decisions and quick action as you interact with the characters
through simulated smartphones, web conferencing, email, and other methods. Your deci-
sions affect the outcome, and all the situations relate to the
content of each chapter. The simulations also include key
terms so you hear how they are used in context and can more
easily remember them.
Sun Microsystems developed “Rise of the Shadow Spec-
ters,” a 3D simulation set in an alternate universe that helps
new hires learn the company’s structure, values, and innova-
tive culture. Wandering colonists settle one of the worlds,
and their goal is to create an information network with a
knowledge base to make sure colonists don’t get lost again.
In the game world, Sun is the groundbreaking company that
founds the network.14
A great advantage of simulations is that they offer people
a chance to practice skills without risk to themselves or their
organizations. Business students can practice budgeting with-
out risk of bankruptcy. Medical simulations allow physicians
to diagnose and prescribe for simulated patients, and military
simulations let officers try out battle tactics in different settings.
Collaboration Tools
E-learning, especially when it is instructor-led, takes advan-
tage of most of the many collaboration tools described in
Chapter 8. Discussion forums, shared workspaces, blogs, and
FIGURE 9-19
Interactive diagram as a learning
object. Clicking on each segment of
the visa triggers a pop-up and audio,
explaining what that segment means.
“M” means that you can
seek entry into the U.S.
multiple times. If there
is a number here, you
may apply for entry that
many times.
Source: http://travel.state.gov/images/HowtoRead_clip_image002.gif.
FIGURE 9-20
For each choice the student makes in
a simulation, the program proceeds
down that path and provides feedback
at the end.
Q Visa
L Visa
H1–C Visa
H–1B Visa
Jeanne is a citizen of the Philippines and a highly qualified nurse.
City Hospital would like her to join their staff, and is relying on
you and your team to help her obtain the visa she needs.
Select an appropriate visa type to proceed.
Source: Image 100/Alamy.
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276 IntroductIon to InforMatIon SySteMS
FIGURE 9-21
Virtual classroom session.
Arnie: Professor, could you go over what you mean by
social capital again?
Knowledge management
Types of intellectual capital
Darnell: Good idea. I didn’t get it either.
Takia: I had the same question.
Darnell
Takia
Arnie
Joseph
Belinda
Bindee
Host Screen Area
Chat Notes
“Types of Intellectual Capital”
G
oG
o
Im
ag
es
/G
lo
w
I
m
ag
es
Types of Intellectual Capital
Social
Capital
Structural
Capital
Human
Capital
Source: GoGo Images/Glow Images.
wikis offer useful ways for instructors and students to interact asynchronously. Virtual
worlds, web conferences, and interactive video systems support synchronous interaction.
Web-conferencing systems are widely used for virtual business meetings, but they
have features that make them ideal for e-learning as well (Figure 9-21). Participants all
see what the meeting host selects to show—presentation slides, a software application, a
website, or an interactive whiteboard, for example. They can interact using webcams and
microphones or submit comments and questions using text chat. The host might want
to walk them through an Excel worksheet, show some websites, or write on the shared
whiteboard. Other features include file sharing, polling, and “breakout rooms” so small
groups can work together privately and then come together to report back.
Students can express themselves with a few of those nonverbal nuances that help
teachers gauge how the class is going. Even if they aren’t using their own webcams, stu-
dents can indicate status by clicking icons to signal they are laughing, clapping, raising
their hand, or nodding their heads in agreement. They can also pass private “notes” to
one another. Simulated web conferencing is widely used in the online decision-making
simulations for this text.
Strategies to Prevent Cheating
A thorny problem for online learning is cheating, particularly when higher stakes such as a
promotion or academic credit are involved. Was it really the student who took the final exam?
If it was, did he or she break the rules by opening the textbook or doing a Google search?
Most e-learning programs require users to log in with a password, and some use
fingerprints or other biometric identification. For tests, course authors might require
the student to agree to an honor code before starting, or take the test in a proctored
setting. Some organizations require the
student to turn on a webcam, pan the
room so the remote proctor can confirm
the student is alone, and then leave the
camera on while the student takes the
test. New technologies are also under
development, such as software that rec-
ognizes each student’s typing patterns.15
Did You Know?
“Telepresence robots” help students who can’t join a face-to-face class, but really
want to. A second grader with severe allergies in New York, for example, logs into
a motorized robot at school equipped with a video monitor, microphone, speakers,
and wheels. The boy can attend classes, pilot the robot to lunch with classmates,
and chat with fellow students in the halls.16
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chapter 9 Knowledge ManageMent and E-LEarning 277
learning management system (LMS)
An information system used to deliver
e-learning courses, track student progress,
and manage educational records. Such
systems also support features such as online
registration, assessments, collaborative
technologies, payment processing, and
content authoring.
Learning Management Systems
Carlos manages the company’s whole e-learning program with a corporate learning
management system (LMS). The LMS is an information system used to deliver the
e-learning courses, track student progress, and manage educational records. Many offer
other features, such as online registration, assessment tools, collaborative technologies,
and payment processing. They also offer tools for creating or importing content.
Once considered niche software, the LMS has grown in importance as organiza-
tions focus on knowledge management and talent development, striving to nurture their
employees and build intellectual capital. It also has become a crucial feature in industries
such as hazardous materials or financial services, where compliance with regulations
requires many specialized training programs and certifications.
lEarning oBjECtS, aSSESSmEntS, and StandardS The LMS hosts the e-learning
content and assessments and provides a range of tools to create learning objects, quizzes,
and tests. For a lesson, the instructor might insert text, images, or video into a sequence of
pages through which the student will progress. To assess learning, the instructor can create
tests with instant feedback and many options for grading, timing, and retaking.
Learning objects created with content authoring tools in the LMS work nicely in that
environment, but they may not be usable in another LMS. A student’s score on a quiz,
for example, might not be captured correctly. As LMS vendors strove to raise switching
costs by adding proprietary features that made it difficult for clients to move their con-
tent to a rival LMS, the need for interoperability and industry standards for e-learning
content became clear.
Several standards for learning objects emerged, and the LMS vendors added tools
so clients could export and import learning objects. A widely used set of standards is
called the Sharable Content Object Reference Model (SCORM). These guidelines govern how
e-learning objects communicate with the LMS on a technical level, so a user can import
a SCORM-compliant object to any LMS that supports the standard.
SoCial lEarning platformS The long history of knowledge management efforts makes it
clear that people learn at least as much from their peers and mentors on the job as they do
from formal learning programs and instructors. People are so accustomed to social network-
ing and other Web 2.0 applications that it is an easy step to build these tools into e-learning
environments. Many LMS vendors are doing this by adding support for wikis, blogs, per-
sonal profiles, discussion forums, and virtual classrooms.17 Organizations that already have
social software in place for knowledge sharing can tie the activities that happen in those
venues to their e-learning programs. For example, an instructor leading a course on web ana-
lytics can start a blog accessible to the whole organization to highlight key points from the
course and how they apply to current events in the company. Using social software to blend
the e-learning programs with what happens day-to-day is a powerful way to make learning
timely, relevant, and just-in-time.
E-lEARnIng In EduCATIon
Sally is no stranger to e-learning. When she and her husband decided to retire, she
enrolled in an online course on nonprofit management. She registered online and then
received her login name and password to the college’s LMS. Her course hadn’t started,
but she could click on links to view the syllabus, assignments, textbooks, and also an
introductory video. Professor Altman encouraged all the students to complete their
profiles and upload a photo so classmates could get to know one another.
6 Compare and contrast corporate and educational e-learning, and
e-learning and classroom-based
learning.
Sharable Content Object Reference
Model (SCORM)
A set of standards that govern how e-learning
objects communicate with the LMS on
a technical level, so a user can import a
SCORM-compliant object to any LMS that
supports the standard.
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278 IntroductIon to InforMatIon SySteMS
On the first night of class, Sally logged into the virtual classroom and was immedi-
ately welcomed by the professor using a webcam: “Welcome, Sally, I’m glad you could
make it tonight. Can you hear me OK? Try using your mike to make sure it works.”
Several other students were already there, conversing in the scrolling chat window.
As the small class progressed, Sally and her classmates read the textbook, visited
websites, watched videos, completed assignments, sent endless emails and text messages,
and contributed to discussions in the forum. They added comments to the professor’s
blog, worked on team projects, and shared personal news in the virtual lounge.
For each assignment, the professor sent detailed feedback and talked with Sally by
phone as well. They held virtual classes weekly, but the classes were all recorded so Sally
could skip a few when she was busy at work and watch them later.
Sally’s experience with e-learning featured frequent attention from the professor.
Another model gaining momentum in higher education is the massive open online course
(MOOC). A MOOC is usually offered by a college or university through a third party, and
anyone can enroll for free or very low cost. Coursera, for instance, hosts courses contrib-
uted by many universities, such as Introductory Human Physiology (Duke University).
Millions have enrolled in MOOCS, although most never actually finish a course.
MOOCs rely on computer-based testing and feedback, rather than feedback from
instructors, and some also ask participants to evaluate one another’s work. Most
MOOCs do not carry any aca-
demic credit, although some uni-
versities are considering it by
adding proctored tests or other
requirements.18 How MOOCs
will affect traditional educa-
tion is a hot topic, given their
potential to reach anyone with a
desire to learn.19
Differences Between Corporate and Education E-Learning
Initially, universities and corporations took different approaches to e-learning. Corpora-
tions built many self-paced e-learning modules that employees could take on their own time
to improve their skills or achieve certifications. Many modules were professionally developed
with excellent production values or licensed from providers who developed specialized com-
mercial software. Instructor-led training was conducted mainly in classrooms, not online.
In contrast, colleges and universities leaned toward simulating the learning
experience of a face-to-face class led by a faculty member. The faculty pioneers who
experimented with e-learning created their own courses.
One consequence was that LMS developers targeted either the corporate market or
the educational market, and the products were different for each. The LMS for business
emphasized integration with human resources, compliance training, and professional devel-
opment tracking. The educational products followed a course model, with syllabus, library
access, gradebooks, test banks, and many collaborative tools—wikis, blogs, forums, profiles,
and more. While business software developers focused on corporate needs, the educational
market became dominated by companies such as Blackboard and Desire2Learn, as well as
open source products such as Moodle. Over time, however, the requirements are converg-
ing, especially as corporations seek to build social software into their e-learning programs
and a growing number of LMS vendors respond with competitive products.
Comparing E-Learning and Classroom Learning
E-learning is one of those disruptive innovations with the potential to overturn exist-
ing industries in waves of creative destruction, not just in corporations, but in colleges
and schools as well. Fiery debates about it are not uncommon. Educators and corpo-
rate trainers worry that they could suffer the same fate as travel agents, whose numbers
diminished as people migrated to online services to plan trips and buy tickets.
PRODUCTIVITY TIP
Before you start an online course, navigate around the site to get comfortable
with the tools you can use. Check out all the links to make sure you know
where to find all the course content and assignments. Sometimes links are
deeply buried and easy to miss.
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chapter 9 Knowledge ManageMent and E-LEarning 279
massive open online course (MOOC)
An online course usually offered by a college
or university through a third party for free or
very low cost, with open enrollment and often
very large volume.
Many argued that e-learning is a poor substitute for a live classroom in which
students and teacher can interact face-to-face. The lecture method of teaching and
learning is more than 700 years old, first used in medieval universities in Paris. Perhaps
its resilience speaks to its effectiveness as a gold standard for learning. Indeed, a nag-
ging question for corporations and educational institutions alike is whether e-learning
“works.” Do students learn and retain as much from an e-learning course as from one
offered in a face-to-face classroom?
In general, research that compares student outcomes for e-learning and classroom-
based learning show few differences. In many studies, online students actually do better
in certain respects.20 However, the results are variable, and as we discussed, e-learning
comes in many forms, from Sally’s intimate online class to the gigantic MOOCs. Con-
ventional classrooms vary as well, due to the talent, expertise, and energy of the teacher.
As for technologies, Figure 9-22 shows which ones might be useful in different set-
tings, from the asynchronous e-learning conducted at “different times, different places,”
to the “same time, same place” classroom experience.
Finally, the nature of the student counts. Success in e-learning courses depends heav-
ily on the students’ ability to adapt to this learning format and especially to apply top-
notch time-management skills. Figure 9-23 offers some useful tips.
E-learning and classroom learning are complements to one another, and organiza-
tions can blend them in creative ways by offering online resources to students enrolled in
classroom-based programs, for instance. They can also tie in-person events into e-learning
or develop hybrid programs that leverage the best aspects of each.
Learning is an essential building block in any effort to manage intellectual capital in a
broader sense, and e-learning is a powerful tool for knowledge management. It supports
formal courses, and combined with social media tools, it promotes informal, just-in-
time learning among colleagues. To speed learning for a new CRM system, for instance,
the company might offer face-to-face classes, e-learning courses, and also an easy-to-
use wiki in which employees can ask each other questions about specific screens, post
their own solutions and tips, and access the training manuals and videos. When informa-
tion systems help integrate learning smoothly into day-to-day work, it does not feel like
“learning” at all. Instead, it adds to the organization’s culture of knowledge sharing and
cooperation and constitutes real progress toward effective knowledge management.
Synchronous Interaction
Interactive video
Virtual classrooms
Chat sessions
Webcams
Audioconferencing
Collaborative groupware
Whiteboards
Asynchronous Interaction
Online discussion forums
Email
Voicemail/Video mail
Wikis, Blogs
Video on demand
Webcasting
Collaborative document editing
Classroom/Lecture
Laptops at all stations
Presentation tools
Teaching theaters
Audience response system
Smartboards
Shared Use Class
Computer labs
Language labs
E-Learning
Classroom-
Based
Learning
Hybrid Programs
2
3
4
56
7
8
9
0
21
1
1
11
2
3
4
56
7
8
9
0
21
1
1
11
2
3
4
56
7
8
9
0
21
1
1
11
Different
Locations
Same
Location
Same Time Different Times
FIGURE 9-22
Comparing e-learning and classroom-
based instructional technologies based
on whether students and instructor
are in the same or different locations,
and whether their interactions occur at
the same time (synchronous) or differ-
ent times (asynchronous).
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280 IntroductIon to InforMatIon SySteMS
▶ Manage your time effectively. Create a calendar with to-do list and deadlines that match the
course requirements and your own schedule. (Time management mishaps are a major cause of
failure in e-learning.)
▶ Practice navigating the course and the learning management system before class starts. Be sure
you know how to turn in assignments and take online tests. Locate any FAQs or online help fi les
and keep them handy.
▶ Post a personal profi le that humanizes your presence in the class, adding hobbies and career
interests. Include any special expertise to help with expert location.
▶ Polish your skills with the collaborative technologies offered. Try practicing with one classmate fi rst
to avoid making a major blunder that all will see.
▶ Communicate often in the class discussions, wikis, blogs, virtual classroom, or whatever medium
is offered. This is your only way to show that you are “present” in the class.
▶ For group projects, build trust and develop agreement by creating a team charter, volunteering,
meeting deadlines, offering assistance, and documenting work a ssignments. (See Chapter 8 for
more tips on virtual teamwork.)
▶ Help build the learning community by asking questions and offering comments, not just to the
instructor, but to other students.
▶ After the course ends, invite classmates you worked well with to join your social network, continuing
to build your social capital.
FIGURE 9-23
Tips for succeeding in e-learning.
T he deputy police commissioner who heads the Criminal Investigations Division looks over the roster and sighs.
“So, another rookie just brought in a suspect’s computer
as evidence, but forgot to initial the sealing tape. With so
few experienced officers, we just can’t afford to put one
on every team to avoid mistakes like that. And we’re going
to lose them in a year or two, anyway, and that means an
awful lot of knowledge going out the door. We’ve got to do
something now, before that happens.”
The commissioner chimed in. “The recruits have some
savvy of their own that they could share. They’re right on
top of the way flash mobs are using Twitter and Facebook.
Our older officers don’t know much about that.”
Much of what those veteran detectives know about
solving cases comes from many years of investigating
crime scenes, interviewing witnesses, interrogating sus-
pects, gathering and processing forensic evidence, and
chasing down leads. The training the new recruits receive
helps, but there is so much to remember and little time to
look things up when officers are out in the field. For their
part, the recruits could really be helpful to show the other
officers how the flash mobs organize so quickly, and how
police could get to the scene more quickly.
The commissioner thinks you should be able to bring
in new ideas about how to capture this priceless intellec-
tual capital, and make it available to all the officers. The
leadership is open to suggestions, so log in when you’re
ready to learn more about the challenges they face and
how you can help . . .
MyMISLab Online Simulation
Criminal Investigations Division
A Role-Playing Simulation on Knowledge Management
for Crime Scene Police Work
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C H A P T E R
9 chapter summary
Learning Objectives
Intellectual capital includes all the intangible assets and resources of an enterprise that are
not captured by conventional accounting reports, but that still contribute to its value and help
it achieve competitive advantage. The three types are structural, human, and social capital.
Explicit knowledge can be documented and codified, but tacit knowledge is more difficult
to capture because it includes insights, judgment, creative processes, and even wisdom from
experience. Organizations launch knowledge management initiatives to better manage their
intellectual capital.
A knowledge management (KM) project begins with the identification of the goal; projects with
clear and focused objectives are more likely to succeed. The second step is locating the sources
of knowledge. Expert location systems assist in this area, along with social network analysis.
The third step is to capture the knowledge using a variety of techniques such as after-action
reviews, best-practice sessions, wikis, shadowing, and blogs. Communities of practice are also
widely used to capture knowledge. Knowledge must be organized, shared, and valuated to be
most useful to an organization, and the organization’s intranet often becomes the focal point
for these steps. Document management systems rely on optical character recognition (OCR)
and intelligent-character recognition (ICR) to convert paper-based information to searchable
electronic format. To determine value and decide what to keep, organizations consider
compliance requirements, operational effectiveness, and strategic value.
The human element’s role in KM efforts is critical, especially because many incentives exist to
hoard valuable knowledge rather than share it. The right incentives can encourage employees
to share. KM projects are also prone to fail when the technologies underlying them are too
complicated or the content is not useful. The semantic web offers considerable potential for
large-scale knowledge management across enterprises by describing relationships among entities
with the resource description framework (RDF).
E-learning is an important ingredient for building intellectual capital and developing talent.
Approaches include self-paced e-learning, instructor-led e-learning, and hybrid programs that
combine face-to-face classes with e-learning.
E-learning programs begin with clear objectives, and courses are created by teams that include
subject matter experts, instructional designers, a sponsor, and others. Learning objects are
digital resources that each cover one topic. Technology helps developers to create narrated
slide presentations, interactive presentations, screen captures, and simulations. E-learning
courses also may include collaborative technologies to support synchronous and asynchronous
interactions between instructors and students. Learning management systems (LMS) support
e-learning programs with features such as online registration, content-authoring tools, tools to
create tests and assessments, progress tracking, gradebooks, social networking, and other Web
2.0 technologies. Standards such as SCORM help ensure compatibility with multiple learning
management systems. Strategies to prevent cheating include proctored tests, webcams, and
biometric authentication.
Corporate e-learning emerged with an emphasis on self-paced modules, while e-learning in
higher education tended to replicate a classroom experience. The two are growing more similar
as corporations add more collaboration. Although there are many varieties of both e-learning
and classroom-based learning, research generally confirms that outcomes for e-learning are
equal to or slightly better than face-to-face classes.
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Key terms and concepts
intellectual capital (IC)
human capital
social capital
structural capital
explicit knowledge
tacit knowledge
knowledge management
(KM)
expert location systems
social network analysis (SNA)
communities of practice
intranet
document management
systems
intelligent character
recognition (ICR)
semantic web
resource description
framework (RDF)
e-learning
subject matter expert
instructional designer
learning object
learning management
system (LMS)
Sharable Content Object
Reference Model (SCORM)
massive open online course
(MOOC)
9-1. What is intellectual capital? What are the three main
types of intellectual capital? How is each type of
intellectual capital acquired?
9-2. What is explicit knowledge? What is tacit knowledge?
How does each contribute to intellectual capital? Why
do they require different management approaches?
9-3. What are the steps in launching a knowledge man-
agement program? What types of information tech-
nology can be used in a KM program?
9-4. How can human behavior pose challenges for a KM
project?
9-5. What is the semantic web?
9-6. What are three approaches to e-learning? How are
these approaches similar? How are they different?
9-7. How are e-learning programs created? What types of
technology are used to create e-learning programs?
What is a learning management system? What role
does it serve?
9-8. How are corporate learning and educational learning
similar? How are they different?
9-9. How are e-learning and classroom-based learning
similar? How are they different?
chapter review Questions
9-10. In 1998, Buckman Labs was recognized for its leader-
ship in building knowledge communities. In 2000, Bob
Buckman was named one of the 10 Most Admired
Knowledge Leaders for world-class knowledge lead-
ership. Buckman Labs has received the Most Admired
Knowledge Enterprise (MAKE) Award eight times,
and Buckman’s book, Building a Knowledge Driven
Organization (2004), is regarded as one of the semi-
nal books on knowledge management. Search the
Internet (search “Fast Company Buckman knowledge
management”) to learn how Buckman created a cul-
ture of knowledge sharing. Why did he develop a KM
system? How did he motivate employees to share their
knowledge? Prepare a 5-minute presentation of your
findings.
9-11. Are you one of the over one billion users of
Facebook? Consider your Facebook page and what it
may look like in the future when you have completed
your degree program and become an expert in your
field. Log on to Facebook, select “Profile,” and then
select “Edit Profile.” How would you change your
basic information, profile picture, featured people,
and philosophy to reflect your future professional
status? Would you change the information in other
categories such as activities and interests or contact
information? Describe how your profile could be part
of an expert location system. Prepare a 5-minute pre-
sentation of your new profile to share with the class.
9-12. Microsoft maintains a vast searchable knowledge
base containing information about its various prod-
ucts and services. Visit support.microsoft.com. Note
the different product categories including Windows,
Internet Explorer, Office, and Xbox. Select a prod-
uct such as “Windows Phone” and then search the
top solutions to see various support topics. Return to
the product categories and select a Microsoft product
you use. Search the solutions to find a topic relevant
to your use of the product. What are the advan-
tages of using this site? What are the disadvantages?
Prepare a brief summary in which you recommend
(or don’t recommend) this knowledge base to your
coworkers.
9-13. How can collaborative technologies facilitate knowledge
management? Recall the types of collaborative technol-
ogy discussed in Chapter 8. Work in a small group with
classmates to create a list of suggestions for your univer-
sity, outlining how it could use different types of collab-
orative technology to manage knowledge.
projects and discussion Questions
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9-14. Work in a small group with classmates to explore the
kinds of graduate programs in business that are avail-
able online. Are e-learning programs offered online, or
in hybrid formats? Choose three programs and prepare
a brief summary to compare and contrast the way each
one uses e-learning that you can share with the class.
application exercises
9-15. ExcEl ApplicAtion:
top talent
Top Talent Employment Services provides both tempo-
rary and permanent employees to clients in a tri-state area.
Top Talent uses an online customer satisfaction survey that
makes it easy for clients to provide feedback about the ser-
vices and the employees provided by Top Talent. Jill Simons,
sales and marketing manager at Top Talent, has asked you to
analyze the survey data from the last three months to identify
areas of company performance that may need improvement.
Download the Top Talent Survey Excel file Ch09Ex01 and
provide descriptive statistics (mean, mode, minimum, maxi-
mum, standard deviation) for each survey item. Use formu-
las to calculate statistics. Create a line chart to display the
survey results (the means of all survey items). Which areas
have shown the greatest improvement in customer satisfac-
tion? Which have shown a decline in customer satisfaction?
9-16. AccEss ApplicAtion:
top talent
Recall the e-learning course that Sally was asked to develop
at the beginning of this chapter and assume it was a success.
Now her firm has decided to create a simplified version of
an expert location system in order to capture the experience
of its professional staff. Carlos plans to launch the system
using an Access database. His goal is to identify members
of the staff who have specialized expertise and to provide
access to that knowledge in a searchable format. Download
the TopTalent Excel file Ch09Ex02 and import the work-
sheets to create the database shown in Figure 9-24. Create
a report that lists each expert by name within each category
of expertise.
FIGURE 9-24
Access database for Top Talent.
case study #1
Lynda Weinman, cofounder of the online learning com-pany called Lynda.com, says, “The first time I ever used a computer, I went to the manual to try to teach myself
how to do it, and I was mortified by how it was written.” Like many
others, she struggled to teach herself, and decided there had to be a
better way.
Weinman first decided to write a book on web design, one that
became a widely used textbook at universities and colleges around
the world. She and her husband Bruce Heavin moved to California
and began offering face-to-face classes on web design, and many
of their eager students were trying to start high tech businesses of
their own—the so-called “dot-coms.” Business was booming, and
the couple began exploring new instructional strategies—recorded
videos, in particular.
But in the spring of 2000, the dot-com bubble started unravel-
ing. Most of those high tech online companies took huge hits in their
Lynda.com: How an E-Learning Entrepreneur Rides Waves of Change
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stock prices; Amazon.com, for example, went from $107 per share
to $7. Many companies—like Pets.com, which sold pet supplies on
the Internet and was becoming a household name with ads airing
during the Super Bowl—failed completely, and investors lost over
$300 million. (The URL pets.com now belongs to retailer PetSmart.)
As their funding dried up, the dot-coms stopped sending students to
Weinman, and business plummeted.
Changing the Business Model
The 9/11 terrorist attack in 2001 hit the U.S. economy even harder,
and CEOs slashed spending on travel and training. Weinman, how-
ever, saw an opportunity to fill a need, and decided to try a new busi-
ness model. They had a growing library of training videos, but rather
than sell them individually as DVDs, they decided to offer them as an
online library, with paid subscriptions. Subscribers could watch any
video in the growing library for a flat monthly rate.
The switch was risky, especially because most of their revenue
was coming from DVD sales. Weinman and Heavin frankly admit that
marketing was never their strength, but they stuck to their decision.
Unlike most of the dot-com entrepreneurs who wanted to build a busi-
ness quickly and then sell it, the pair wanted to stay with this adven-
ture. Because the subscription price includes the whole library, Lynda
.com encourages browsing and developing new computer skills.
Those who took one course were tempted to try others.
Their strategy worked, and subscriptions began to soar. Com-
panies that could not afford travel bills and instructor-led train-
ing purchased volume subscriptions for their whole organization.
Government agencies and universities began buying campus-wide
subscriptions, and the New York Public Library purchased access to
share with library visitors.
The company received $103 million in venture capital to ex-
pand worldwide. By 2013, sales topped $22 million and Lynda.com
employed 450 people—teachers, designers, content developers, and
support personnel.
Riding the Next Wave
Lynda.com began before the explosion of free online videos, and the
company will need to find new ways to compete if it maintains the sub-
scription model. YouTube, for instance, features thousands of free instruc-
tional videos—from pruning fruit trees to using Excel pivot tables. Many
are contributed by experts in the field. YouTube mainly earns revenue
through advertising. Khan Academy also offers thousands of free instruc-
tional videos, mostly in math and science. That site has no advertising,
but attracts funding from donors such as the Gates Foundation. The mas-
sive open online courses (MOOCs), which are also free, present another
challenge to Lynda.com’s subscription model. For-profit Coursera, for ex-
ample, offers over 300 free online courses contributed by 62 universities.
Lynda.com focuses on excellence in teaching, high production
values, and advanced training in software development; so far, that
strategy is succeeding. Recent releases, for example, feature Windows
8 app development, HTML 5 projects, and new features in AutoCad
2014–the 3D design tool. But competing against the growing volume
of free videos that help people acquire high tech skills will be one of
Lynda.com’s next challenges.
discussion Questions
9-17. When Lynda.com began offering subscriptions to a library of
e-learning courses, what new value did the company provide
to their customers? What advantages did e-learning from
Lynda.com have over traditional in person education?
9-18. What kind of changes to their information systems would be
needed to support this new business model?
9-19. What types of training would Lynda.com have difficulty pro-
viding customers? What kinds of education are less appropri-
ate for e-learning than traditional in-person courses?
9-20. What kind of challenges does Lynda.com face today? How
might the business be changed to address these?
Sources: Collins, A. (2013). Tech, media & telecom: Lynda.com acquires Video2brain.
Mergers & Acquisitions Report, 26(7), 24.
Lynda.com. (2013). Hoover’s Online, accessed April 25, 2013.
Lynda.com, NYPL explore librarywide access model. (2013). Library Journal, 138 (1), 24.
Lynda.com fuels growth and innovation with $103 million funding. (January 16, 2013).
Business Wire, http://search.proquest.com/docview/1269628604?accountid=11752,
accessed July 3, 2013.
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chapter 9 Knowledge ManageMent and E-LEarning 285
▶ If something is wrong, change it.
▶ If something is missing, add it.
▶ Use plain language.
▶ Use the Discussion tab to discuss an article.
▶ Use a neutral point of view.
FIGURE 9-25
Strategies for KM success for Diplopedia.
Diplopedia’s Guidelines.
discussion Questions
9-21. In 2010, the website WikiLeaks posted more than 250,000
U.S. diplomatic cables. What are some potential implications
of this posting for Diplopedia?
9-22. What key issues will need to be addressed for Diplopedia to
be more widely used by diplomatic personnel?
9-23. How can the State Department benefit from Diplopedia?
9-24. What types of knowledge are appropriate for Diplopedia?
Sources: About Diplopedia. (October 12, 2012). U.S. State Department Website, http://www
.state.gov/m/irm/ediplomacy/115847.htm, accessed April 23, 2013.
Bronk, C. (March 2010). Diplomacy rebooted: Making digital statecraft a reality. Foreign
Service Journal, 43–47.
Bronk, C. (2010). Diplopedia imagined: Building State’s diplomacy wiki. Proceedings of the
2010 International Symposium on Collaborative Technologies and Systems.
Pozen, D. (2013). The leaky leviathan: Why the government condemns and condones
unlawful disclosures of information. Columbia Public Law Research Paper No. 13-341.
case study #2
The U.S. State Department’s Diplopedia wiki started in 2006 with just a handful of articles. The project was driven partly by the need for improvements in collabo-
ration and knowledge management at the department that the 9/11
Commission recommended.
U.S. diplomats and other State Department employees move
frequently from country to country, and they needed a much better
way to capture and transmit knowledge. They might take six months to
a year to get up to speed when they were transferred to a new coun-
try. They could email or phone other department employees who had
lived there, but the wiki solution is far superior.
The wiki is a rapidly mounting collection of constantly updated
articles on subjects critical to diplomats. For instance, it contains the
desk officer manual that helps newcomers decipher departmental
jargon or tips on getting a newly nominated ambassador confirmed
by the Senate. As an internal wiki, Diplopedia is only accessible to
authorized employees.
The idea for the State Department’s wiki as a knowledge reposi-
tory came from Jimmy Wales, founder of Wikipedia. Diplopedia uses
the same open source software and also follows many of its guide-
lines, as shown in Figure 9-25. Unlike Wikipedia, however, the State
Department’s wiki requires strict governance, given that much of the
information in it may be sensitive. Wikipedians rely on people behav-
ing like adults, so their guidance to the department about governance
was basically to tell employees: “Don’t be a jerk.”
The Office of eDiplomacy at the State Department oversees
Diplopedia, and provides clear guidelines for contributors. A founding
principle of Diplopedia is to assume people’s good intentions. As a
check, however, Diplopedia does not permit anonymous contributions,
as Wikipedia does, and no “sock puppets” are allowed.
Disputes about content are also handled differently compared
to Wikipedia. At the public encyclopedia, editing battles can erupt in
which anonymous contributors keep changing one another’s posts,
often until the controversy just dies down on its own or the contributors
tire out. On rare occasions, Wikipedia’s administrators might freeze an
article to prevent further editing. At Diplopedia, however, the Office of
eDiplomacy might form a panel of experts to settle the dispute.
Diplopedia’s success surprised many observers because the
department was not known for any pioneering IT initiatives. Chris
Bronk, a professor at Rice University who studies the agency, remarked
that “science and technology have a somewhat tarnished history at
State.” Even though the department is fully wired, its communication
patterns have changed little since the days of the telegraph and cable,
although email is used instead.
Diplopedia is not open to the public, though its contents are
unclassified. The site’s disclaimer reminds users that the articles
may be informative, but they are not official government docu-
ments. Especially after WikiLeaks obtained and publicly released
thousands of classified diplomatic documents in 2010, the
security for online government documents received considerable
attention.
Diplopedia’s contributors must keep in mind that their contri-
butions are not confidential. Leaks are not uncommon, and leakers
are rarely prosecuted. Contributors must be careful what they post;
nonetheless, the site still provides a valuable platform for information
that helps diplomats adapt as they move from one country to another.
The State Department encourages them to make contributions of
enduring value, ones that will capture and document the richness of
their experiences and expertise about their country. Most important,
their knowledge will not be lost when their plane takes off for the next
assignment. And it won’t go out of date, either, as newly assigned
members of the diplomatic corps correct, expand, and enrich the wiki
knowledge base.
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E-PROJECT 1
Thousands of courses are available for free on the web, and in this
e-project you will explore some of them to learn what technologies they
use and how they compare to your own courses.
9-25. Visit the MIT Open Courseware project (http://ocw.mit.edu) and
review the many courses available. Note the icons at the top
of the course listings that explain what resources are included.
Find a course that you have already taken at your college or
university.
a. What resources are included in the online course?
b. What technologies does the course rely on for its learning
objects?
c. How does this course compare to the one you took at your
university?
9-26. Visit the Khan Academy (www.khanacademy.org) to learn
more about a growing list of online course materials posted on
YouTube. Salman Khan started this nonprofit organization with
the aim of making education freely available to anyone who
wants it, at any time. Courses are arranged as “playlists” and
students are encouraged to start from the beginning unless they
need a quick refresher on a specific topic. Choose a course that
you have already taken, look over the list of topics, and watch
the first video.
a. What technologies does the course rely on?
b. How does this approach to online courses compare with
MIT’s open courseware?
c. How does it compare to the course you took?
Exploring the World of Online Courses
E-PROJECT 2
In this e-project, you will explore Wikipedia’s strategies for managing the
largest online knowledge repository in the world, learning more about
how technology is used to manage the human element.
First, visit Wikipedia’s main page (http://en.wikipedia.org/wiki/
Main_Page) for an overview of the site. Next, go to the article titled
“Smartphone” (http://en.wikipedia.org/wiki/Smartphone).
9-27. Click on the Talk tab at the top.
a. What is the purpose of this section?
b. What issues and debates are underway regarding the con-
tent of the article on smartphones?
c. How does this technical support for discussion about the
contents of an article help manage the human element?
9-28. Go back to the article and click on the Edit tab.
a. What is Wikipedia’s policy regarding the disclosure of your IP
address if you are not logged into your account and choose
to edit the contents of an article?
b. Why would Wikipedia’s leadership allow account holders to
hide their IP addresses?
9-29. Wikipedia has special policies for controversial topics.
a. How does Wikipedia define “edit warring?”
b. What strategies does Wikipedia use to handle editors who
have disputes over content?
c. Overall, how do you evaluate Wikipedia’s strategies for man-
aging the human element?
Managing the Human Element on Wikipedia with Technology
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www.khanacademy.org

http://en.wikipedia.org/wiki/Main_Page

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chapter notes
1. Thompson, D. (January 24, 2013). Today, Apple stock
lost more than the market value of Nike or Starbucks.
The Atlantic, http://www.theatlantic.com/business/
archive/2013/01/today-apple-stock-lost-more-than-the-
market-value-of-nike-or-starbucks/272506/, accessed
February 20, 2013.
2. Kumar, H. M. (May 16, 2011). Knowledge-based
economy is UAE’s strategic objective. Gulfnews.com,
http://gulfnews.com/business/economy/knowledge-
based-economy-is-uae-s-strategic-objective-1.808295,
accessed May 29, 2011.
3. Rozwell, C., Drakos, N., & Mann, J. (June 13, 2012).
Knowledge management projects with focused
objectives deliver most value. Gartner Research,
ID:G00235797.
4. Call center case study. www.knowledgesys.com/solu-
tions/print-call-center-case , accessed April 25, 2010.
5. Nevo, D., Benbasat, I., & Wand, Y. (2009, October 26).
Who knows what?. Wall Street Journal – Eastern
Edition. p. R4.
6. Byosiere, P., et al. (2010). Diffusion of Organisational
Innovation: Knowledge Transfer Through Social
Networks. International Journal of Technology
Management, 49(4), 401–420.
7. Patton, S. (June 15, 2005). Who Knows Whom, and
Who Knows What? CIO, 18(17), 1.
8. Majchrzak, A., Wagner, C., & Yates, D. (2013). The
impact of shaping on knowledge reuse for organiza-
tional improvement with wikis. MIS Quarterly, 37(2),
455-A12.
9. Adams, J. (2010). Small banks take to document man-
agement. American Banker, 175(9), 11.
10. Jimenez-Jimenez, D., & Sanz-Valle, R. (2013). Studying
the effect of HRM practices on the knowledge man-
agement process. Personnel Review, 42(1), 28–49.
doi:10.1108/00483481311285219.
11. Yong, S. H., Byoungsoo, K., Heeseok, L., & Young-
Gul, K. (2013). The effects of individual motivations
and social capital on employees’ tacit and explicit
knowledge sharing intentions. International Journal of
Information Management, 33(2), 356–366.
12. Solitander, M., & Solitander, N. (2010). The sharing, pro-
tection and thievery of intellectual assets: The case of the
Formula 1 industry. Management Decision, 48(1), 37–57.
13. Mankins, M., Bird, A., & Root, J. (2013). Making star
teams out of star players. Harvard Business Review,
91(1), 74–78.
14. Rise of the Shadow Specters (n.d.). http://shemp65
.s3.amazonaws.com/elearningsamples/ROTSSFINAL/
ROTSS.html.
15. Belkin, D. (2013, Feb 15). U.S. news: Web classes grapple
with stopping cheats—as massive open online courses
surge in popularity, colleges look to build credibility;
honor codes and palm scans.Wall Street Journal, A3.
16. Anderson, S. (February 15, 2013). VGo Telepresence
robot gives highly allergic child a chance to attend
school. TechZone360, http://www.techzone360
.com/topics/techzone/articles/2013/02/15/327121-vgo-
telepresence-robot-gives-highly-allergic-child-chance
.htm, accessed February 23, 2013.
17. Otter, T., et al. (July 24, 2009). Hype cycle for human
capital management software, 2009. Gartner Research,
doi:G00169635.
18. Korn, M. (2013, Feb 07). Business education: Big
MOOC gets more acceptance.Wall Street Journal, B5.
19. Bencini, R. (2013). Educating the future: The end of
mediocrity. Futurist, 47(2), 40–44.
20. Means, B., et al. (2009). Evaluation of evidence-based
practices in online learning: A meta-analysis and review
of online learning studies. Office of Planning and
Policy Development. U.S. Department of Education:
Washington, DC.
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# 149079 Cust: Pearson Au: Wallace Pg. No. 287
Title: Introduction to Information Systems/ 2e Server:
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DESIGN SERVICES OF
S4carliSle
Publishing Services

http://www.theatlantic.com/business/archive/2013/01/today-apple-stock-lost-more-than-the-market-value-of-nike-or-starbucks/272506/

http://gulfnews.com/business/economy/knowledge-based-economy-is-uae-s-strategic-objective-1.808295

www.knowledgesys.com/solutions/print-call-center-case

http://shemp65.s3.amazonaws.com/elearningsamples/ROTSSFINAL/ROTSS.html

http://www.techzone360.com/topics/techzone/articles/2013/02/15/327121-vgo-telepresence-robot-gives-highly-allergic-child-chance.htm

Learning Objectives
Define ethics, describe two ethical frameworks, and explain the relationship between ethics and the law.
Explain how intellectual property and plagiarism pose challenges for information ethics, and describe
technologies that are used to deal with them.
Describe information privacy and strategies to protect it, and explain why organizations may implement
surveillance.
Explain the steps that organizations use to manage security risks, identify threats, assess vulnerabilities,
and develop administrative and technical controls.
Explain why human behavior is often the weakest link for ethics, privacy, and security, and provide examples
of strategies that can be used to counteract the weaknesses.
1
4
2
5
3
C H A P T E R
10 ethics, Privacy, and Security
In “VampIre Legends,” the onLIne decIsIon-makIng
sImuLatIon for thIs chapter, you join a fiercely com-
petitive company in the multiplayer game business. they are
about to launch a sequel to their wildly successful first game,
and the stakes are very high. they must roll it out on time,
stay within budget, and do a brilliant marketing campaign.
they also must be sure their It infrastructure can handle
whatever happens. With pressure so high, the team must
make tough decisions as they confront choices dealing with
ethics, privacy, and security.
this chapter and the simulation explore the responsi-
bilities organizations and individuals share to treat data with
care, make ethical decisions about its use, and protect it from
countless threats. game companies face intriguing problems
in these areas, with the vast amount of private information
they store and the endless hacking attempts. In addition,
their customers are often very devoted to their online games
and avatars.
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.

chapter 10 Ethics, Privacy, and Security 289
Ethics, privacy, and security issues underscore how the human element is so tightly interwoven with the other three components of information systems:
technology, processes, and data. People decide how to build
a system, manage it, secure it, and use the potentially price-
less information it contains. Let’s begin with ethics, and the
kinds of ethical dilemmas people and organizations face in
the digital world.
MyMISLab Online Simulation
Vampire Legends
A Role-Playing Simulation on Ethics, Privacy, and Security
in the Multiplayer Online Game Business
K
SP
ho
to
gr
ap
hy
/S
hu
tt
er
st
oc
k.

290 introduction to information systEms
ETHICs
How do people decide on the right course of action? What makes an action right or
wrong? Most people try to do the right thing, but it is not always easy to decide what
that is. Ethics refers to a system of moral principles that human beings use to judge right
and wrong and to develop rules of conduct.
Ethical Frameworks
Innumerable ethical frameworks have arisen throughout human history, but two are
especially widely adopted (Figure 10-1). One framework emphasizes natural laws and
rights. It judges the morality of an action based on how well it adheres to broadly
accepted rules, regardless of the action’s actual consequences. “Thou shalt not steal,”
for example, is one of Christianity’s Ten Commandments, and religious principles
form the basis for many underlying rules. Others, such as “Keep your promises,”
“Protect private property,” and “Defend free speech,” emerge from beliefs about
fundamental and natural rights that belong to human beings. The U.S. Declaration of
Independence, for instance, lists life, liberty, and the pursuit of happiness as inalien-
able human rights.
A second framework, called utilitarianism, considers the consequences of an action,
weighing its good effects against its harmful ones. “First, do no harm” is a precept of
medical ethics ensuring physicians will heavily weigh the possible harmful consequences
of each remedy. When you try to judge what action would create the greatest good for the
greatest number, you are using a utilitarian scheme.
In many situations, both ethical approaches will lead people to the same conclusion
about the proper action. But ethical dilemmas arise when they lead to different judg-
ments. For example, Wikipedia founder Jimmy Wales is committed to the principle of
free speech on the site. But when New York Times reporter David Rohde was kidnapped
by the Taliban, the newspaper begged Wales to suppress mention of it. At first Wales
asked his team to edit out any updates about the event, playing a deadly game of “whack
the mole.” When that failed, he blocked Rohde’s Wikipedia entry. Wales’ ethical frame-
work was sorely challenged when the consequences of sticking to those rules might cause
grave harm. Fortunately, Rohde escaped to safety.
Ethics and the Law
Laws are often grounded in ethical principles, such as the prohibition against murder and
theft, or the protection of private property and free speech. The U.S. Bill of Rights codi-
fies many ethical principles into the Constitution, such as freedom of religion, freedom
of the press, and the right to trial by jury. Its Fourth Amendment, about protection from
unreasonable search and seizure, helps shape expectations about privacy, as we discuss
later in this chapter.
However, some laws have less to do with ethics and instead result from the pushes
and pulls of lobbying efforts and political pressures. For example, when cable television
Ethical System Description Examples
Natural laws and rights Actions are judged to be ethical or
unethical according to how well they
adhere to broadly accepted rules
derived from natural law.
Thou shalt not kill .
Right to privacy.
Right to a free press.
Liberté, égalité, fraternité.
Utilitarianism Actions are ethical or unethical based
on their consequences and outcomes.
The greatest good for the greatest
number.
The needs of the many outweigh
the needs of the few.
FIGURE 10-1
Major ethical frameworks.
Define ethics, describe two ethical
frameworks, and explain
the relationship between ethics
and the law.
1

chapter 10 Ethics, Privacy, and Security 291
utilitarianism
An ethical system that judges whether an
act is right or wrong by considering the
consequences of the action, weighing its
positive effects against its harmful ones.
natural laws and rights
An ethical system that judges the morality
of an action based on how well it adheres
to broadly accepted rules, regardless of the
action’s actual consequences.
ethics
A system of moral principles that human
beings use to judge right and wrong and to
develop rules of conduct.
was first introduced, the TV networks lobbied hard for laws to slow cable’s growth. The
dairy industry fought for laws to limit how “yellow” margarine could look to protect
market share for real butter. Their goal is to erect legal barriers against newcomers,
and online services are a key target. An Oklahoma law once required casket sellers to
be state-licensed funeral directors, essentially cutting out Internet sales by independent
casket retailers.1
Laws don’t cover all ethical principles, so just because an action is legal does not
mean it is ethical. Depending on the circumstances, lying might be legal but, at the same
time, grossly unethical. A Missouri woman created a fake profile of a fictitious teen boy
on the social networking site MySpace and then used the account to torment a neigh-
bor’s daughter, who eventually committed suicide. Based on existing laws, the woman’s
only misbehavior was a violation of the MySpace terms of service.2
Ethical Issues and Information and Communications Technologies
Before reading this section, take the short survey in Figure 10-2.
For questions like number 1, both ethical frameworks would lead to the conclusion
that stealing a book is not right and warrants punishment. In a few areas, though, ques-
tions could lead to a debate that depends on the ethical framework. On number 5, for
instance, a natural law approach would lead people to say punishment is warranted,
similar to the punishment assigned to the theft in question 1. But a utilitarian approach

2
Completely
right, no
punishment
1 5
Completely
wrong,
severe
punishment
7
1. In a book store, accounting student K.F. slips an
expensive CPA Exam Prep book into a shopping bag,
then leaves the store without paying for the book.
2. Marketing manager L.D. posts some negative
reviews about a competitor on a review website,
pretending to be various dissatisfied customers.
3. Business student F.W., who asked to take the midterm
early due to travel, meets several friends for coffee
after the test, to tell them all the questions on it.
4. Late for work, Assistant Manager J.T. cuts and
pastes large segments from a website to finish
a report on time, without citing the source.
5. A sick friend asked M.B. for a special book on
alternative medicines, so M.B. downloads a pirated
copy without paying, and e-mails it to the friend.
6. Frustrated by incompetent managers who only promote
their relatives, scientist R.P. secretly takes photos of the
designs for the company’s groundbreaking new medical
device, then offers to bring them to the company’s rival
for a higher paying position there.
6

43
FIGURE 10-2
Take this short survey on ethical decision making. Do you judge these actions as completely right, completely
wrong, or somewhere in between?

292 introduction to information systEms
might argue that helping a sick friend is a greater good compared to the harm done to
the copyright owner.
Information and communications technologies (ICT) also add important new ele-
ments to ethical decision making. First, they change the scope of effects, especially for
the consequences of an action. Their worldwide, viral reach amplifies the extent of both
good and harm, turning what might be a minor blunder into something far greater.
Twitter’s spontaneous nature often leads to trouble, and sometimes unemployment.
For example, a congressman’s young staffers tweeted about partying in the office on the
taxpayer’s dime; they were all fired.3
Information technology also affects decision making, especially because of the
way the online world can affect human behavior. As we discussed in Chapter 8,
people often become disinhibited when they interact online and the psychological
distance between them is greater. People may underestimate the harm their actions
might inflict—out of sight, out of mind. For instance, research shows that college
students judge actions differently depending on whether technology is involved. They
consider cheating on tests, plagiarizing term papers, and illegal copying of intellectual
property to be somehow more acceptable if they use the computer and the Internet
to do it.4
For the survey in Figure 10-2, add up your points for questions 2, 4, and 5, and com-
pare that total to the sum of your points for 1, 3, and 6. If you tend to judge ethically
questionable actions as less serious when they involve technology, your total score for 2,
4, and 5 is lower.
InfoRmATIon ETHICs
The ethical issues most important for managing information systems touch especially on
the storage, transmission, and use of digitized data. As that mound of data grows, the
scope of information ethics grows with it, and so do the controversies.
Figure 10-3 lists many dilemmas involving information ethics. Intellectual property
(IP), which is now overwhelmingly digitized, is one example. Some consider IP protec-
tion to be a natural right. Others argue that the greater good is served when information
is as widely distributed as possible.
Intellectual Property and Digital Rights Management
Intellectual property (IP) includes intangible assets such as music, written works, software,
art, designs, movies, creative ideas, discoveries, inventions, and other expressions of the
human mind. Most societies have developed a maze of copyright laws, patents, and legal
statutes to protect intellectual property rights. These give the creator of the property the
right to its commercial value.
Explain how intellectual property
and plagiarism pose challenges for
information ethics, and describe
technologies that are used
to deal with them.
2
Information Ethics Issue Sample Dilemma
Intellectual property rights Is it more important to protect intellectual property (IP) rights or to make
information as widely available as possible? Will IP creators stop creating
if there are fewer incentives?
Hacking Is it ethical to break into the corporate network, not to do harm, but to
demonstrate that the company needs better security?
Plagiarism When a person gets an idea from reading another’s work and then
paraphrases it in a paper without crediting the source or even remembering
where it came from, is that plagiarism? Or is it just forgetfulness?
Parasitic computing Is it ethical to borrow a few CPU cycles from thousands of private
computers without the owners’ consent when they are not being used?
What if the purpose is to do medical research?
Spam Is it ethical to harvest millions of email addresses from websites and send
them unsolicited commercial messages?
FIGURE 10-3
Information ethics issues and the
dilemmas they present.

chapter 10 Ethics, Privacy, and Security 293
digital rights management (DRM)
Technologies that software developers,
publishers, media companies, and other
intellectual property owners use to control
access to their digital content.
intellectual property (IP)
Intangible assets such as music, written
works, software, art, designs, movies, creative
ideas, discoveries, inventions, and other
expressions of the human mind that may be
legally protected by means of copyrights or
patents.
Enforcing iP Laws Enforcing IP laws is extremely challenging, however, when the IP
is digitized. Media giant Viacom, for example, unsuccessfully tried to sue YouTube for
$1 billion for allowing its copyrighted movies to play on the video site. But when more
than 24 hours of video are uploaded to YouTube every minute, spotting one pirated clip
is a daunting task.5
Laws also vary by country, adding more hurdles. Google, YouTube’s owner, decided
to block viewers in Germany from seeing videos of a meteorite shower taken by a pass-
ing motorist in Russia, because the car’s radio was playing in the background. Google
was unsure whether German law would require payment for playing copyrighted songs.6
With its strong enforcement, Germany has relatively low music piracy rates compared to
other countries.7
Piracy The Business Software Alliance reports alarming financial losses
to businesses due to software piracy—more than $63 billion per year.
In a survey of 15,000 computer users worldwide, 57% admitted to stealing
software (Figure 10-4).8 In some countries with weak enforcement, very little
software used by consumers and businesses is purchased legally.
Yet efforts to fight piracy can lead to unfortunate results. The Record-
ing Industry Association of America (RIAA) initially battled the music
piracy problem by suing a few end users for up to $150,000 per down-
loaded song, targeting music lovers like Brianna, a 12-year-old child in
New York. The litigation strategy was so unpopular that RIAA finally
gave it up. Instead, the industry launched a “copyright alert system” in
which Internet service providers send warnings to suspected offenders,
and then slow down their connection speeds if they persist.9
Most people conform to laws because they agree with the underlying
ethical principle or fear punishment. Many think it is not a very serious
ethical violation to break IP laws when the material is digitized. They see
no victim and no harm to the IP owner—not even a lost sale if the viola-
tor had no intention of purchasing a legal copy. Unlike a DVD in a jewel
case, a digital copy costs next to nothing, and violators may believe they
are unlikely to get caught.
To complicate matters, not everyone agrees that strict legal protection for software is the
best ethical decision. The Free Software Foundation, for example, advocates for less restric-
tive software copyright laws, insisting that users should have the freedom to run, copy, dis-
tribute, and improve software products. The foundation argues that access to the source
code is essential, so independent developers can examine it, fix bugs, and add new features.
Nevertheless, intellectual property is a bedrock of an organization’s intellectual capi-
tal and competitive advantage. Trade secrets, software, patents, and copyrighted works
are all part of what creates that advantage, and many organizations use technology to
protect it themselves rather than relying on law enforcement.
ProtEcting iP with tEchnoLogy and nEw BusinEss ModELs Digital rights management
(DRM) refers to technologies that software developers, publishers, media companies,
and other intellectual property owners use to control access to their digital content. For
example, one scheme requires end users to first connect to a content service to request
the material; a request is then sent to another server to obtain the license for actually
viewing it (Figure 10-5).
Some cumbersome DRM schemes may be thwarting legitimate users more than
pirates, though. For example, e-book distributor Fictionwise angered its customers
when one of its publishers decided to stop supplying e-books.10 People whose computer
crashed couldn’t get another copy of a book they had already purchased. DRM often
Always
Mostly
Occasionally
Rarely
Never
Don’t know/refuse to answer
5%
9%
17%
26%
38%
5%
How often do you acquire pirated software
or software that is not fully licensed?
FIGURE 10-4
Survey of 15,000 computer users worldwide.
Source: Business Software Alliance, (2012). Shadow
Market: 2011 BSA Global Software Piracy Study,
9th edition, http://portal.bsa.org/globalpiracy2011/
downloads/study_pdf/2011_BSA_Piracy_Study-
Standard , accessed February 24, 2013.

http://portal.bsa.org/globalpiracy2011/downloads/study_pdf/2011_BSA_Piracy_Study-Standard

294 introduction to information systEms
interferes with screen readers as well, frustrating the visually impaired who use them to
turn on-screen text into speech.
Apple takes a unique approach to music piracy with its iTunes Match service. For an
annual fee, the service scans your hard drive for music files—pirated or not—and stores
them in iCloud so users can access their music from any Apple device. Apple turns over
70% of the revenue to the music industry, so copyright holders are compensated. Users
believe they are paying Apple for a useful service, but the business model is actually help-
ing pay for those pirated songs.
As new technologies and busi-
ness models develop, companies
will find ways to give IP hold-
ers protection for their prod-
ucts without inconveniencing
customers.11
Plagiarism
A type of intellectual property theft that mushroomed with online “cut-and-paste” is
plagiarism, which involves reproducing the words of another and passing them off as
your own original work, without crediting the source.
Plagiarism scandals have tarnished some prominent authors, but technologies are
also available to track this kind of activity. Ironically, just as the Internet made pla-
giarism easy, it also made it easy to track. Turnitin.com from iParadigms, for example,
offers an “originality checking” service that color codes documents submitted to it,
showing the sources of passages
that match existing written work
(Figure 10-6). The company’s
database includes the billions of
pages on the public Internet and
also term papers, journals, and
books. Its software even applies
FIGURE 10-5
Digital rights management scheme.
Photos/Illustrations: iofoto/Shutterstock.
PRODUCTIVITY TIP
When you purchase digital content, keep copies of online receipts, serial
numbers, and confirmation numbers, just in case you have to contact customer
support to reinstall it over DRM schemes.
PRODUCTIVITY TIP
Students can use free originality-checking software, such as www.writecheck
.com, to examine their own work for unintentional plagiarism. The output
will show which sections are not original and will need citations.

www.writecheck.com

chapter 10 Ethics, Privacy, and Security 295
automated translation technology to spot passages in foreign languages that appear to
be translated directly from samples of English text without crediting the source.
PRIvACy
“You have zero privacy anyway. Get over it.”
–Scott McNealy, cofounder, Sun Microsystems
“If you have something that you don’t want anyone to know, maybe you
shouldn’t be doing it in the first place.”
–Eric Schmidt, former CEO, Google
Stern warnings like these—from technology leaders who should know—are stark
reminders of how elusive privacy has become. On a typical day, you might visit hun-
dreds of websites, enter dozens of search terms, download a free screen saver, collect
dozens of cookies, upload a batch of photos, and click on some ads. Security cameras
snap your photo, and stores swipe your credit card. Your corporate ID badge, your
car’s EZ pass, your mobile phone, your passport, and your GPS device track your
whereabouts.
Your profiles on social media show your profession, hobbies, friends, and family
members. Information about many of your life events is publicly available online—
birth, marriage, home purchase, awards, criminal offenses, and death. And you never
know whose cell phone is silently capturing you in a video, then uploading it to
YouTube.
The power to weave all these tidbits into a rich portrait is a marketer’s dream, since
it might point to products you will buy, investments you might make, or charities you
choose to support. No wonder more than two-thirds of U.S. adults say they are seriously
concerned about identity theft. The ease with which information systems can collect and
interconnect data makes privacy a top ethical issue. But what exactly is privacy?
The United Nations identified privacy as a fundamental human right in 1999, but
its definition remains hazy. Governments, legal bodies, and privacy advocates identify a
number of features that might be included (Figure 10-7), though countries certainly vary
FIGURE 10-6
Checking written work for originality
and possible plagiarism.
Source: Courtesy of iParadigms LLC. Turnitin is a registered trademark
of iParadigms LLC in the United States and other countries.
3 Describe information privacy and strategies to protect it, and
explain why organizations may
implement surveillance.

296 introduction to information systEms
in the degree to which they respect these elements. Nevertheless, societies from ancient
history onward recognize the concept. The Qur’an, the Bible, and Jewish law all refer to
elements of privacy, and legal protections against privacy violators—such as peeping
toms and eavesdroppers—have existed for hundreds of years.
Information privacy, which refers to the protection of data about individuals, is a
special concern. When data was on paper or in separate systems with clumsy intercon-
nections, information privacy was easier to achieve. Now, it mainly rests on the
decisions people, organizations, and governments make about what to collect,
use, and distribute. Facial recognition
software, for example, is a valuable
tool for police officers, who can snap a
photo and check the image against the
department’s database of suspects.12
But the same kind of software can
crawl the web to start automatically
tagging faces.13 Some will object to
being publicly identified without their
consent.
Trading Privacy for Convenience and Freebies
People are surprisingly willing to disclose personal data to marketers for a little conve-
nience or a discount coupon. Allowing a site to leave cookies, for instance, means we
experience a more compelling site on our next visit, one that features promotions tailored
to our interests. Grocery chains have no difficulty persuading patrons to carry barcoded
loyalty cards, and drivers trade privacy for convenience when they purchase EZ passes so
they can zip through tollgates.
To earn trust, organizations should clearly state in their privacy policies what they
are collecting and why. They must also take great care to protect the data they do collect
and adhere to their own policies. But blunders abound. For instance, Google’s camera-
equipped cars were identifying wifi hot spots as they maneuvered around taking street
view images. But the equipment also picked up data traffic going through unsecured
wireless networks from people working in their homes. Google argued that it never meant
to harvest such data.15 Oops.
Privacy
Right to view
and correct
personal
information
Right to
control use of
personal
information
by third parties
Right to be
left alone
Protection
against
intrusion
Right to
anonymity
Protection
from
unwarranted
searches or
seizures
FIGURE 10-7
Elements of privacy.
Did You Know?
What happens to a person’s digital assets when he or she dies? Do the heirs inherit
all the iTunes songs and Kindle e-books? What about all the photos and videos
on social networking sites, or the level 99 warrior in an online game? While a few
states have passed laws attempting to clarify these issues, companies like Google
and Facebook are fighting them. The issue remains muddled, and will have to be
tested in the courts.14

chapter 10 Ethics, Privacy, and Security 297
proxy
An intermediary server that receives and
analyzes requests from clients and then
directs them to their destinations; sometimes
used to protect privacy.
information privacy
The protection of data about individuals.
Anonymity
At one time, the cartoon caption about no one knowing you are a dog when you surf the
web was mostly true.16 Now, however, with advanced technologies that collect, store, and
analyze big data, anonymity is far more difficult to achieve than people assume.
Not everyone agrees that online anonymity should be protected as a right. On the
positive side, anonymity is important for whistleblowers, police tipsters, news sources,
and political activists in oppressive regimes. It also protects people who participate in
online support groups where they reveal personal details without fear of disclosure. How-
ever, anonymity also protects terrorists, criminals, spammers, and even vengeful posters.
Online identity can be obscured by using fake names, nicknames, free email, and
public computers. Erasing digital tracks entirely, however, is far more challenging. Any
network connection requires a handshake between the device and the server, so that the
device’s IP address, along with its location, is exposed. Hiding that information usually
requires handing off the transmission to a proxy, an intermediary server that receives and
analyzes requests from clients and then directs them to their destinations. The transmis-
sion then appears to come from the proxy, not the actual sender (Figure 10-8).
A drawback to using the proxy server to ensure anonymity is the need to rely on
the company that operates the proxy and its promise to protect its customers’ iden-
tities. Another approach depends instead on a distributed network of servers. The
encrypted transmission is
relayed from one server to the
next, and no single server has
access to all the addresses that
relayed any particular message
(Figure 10-9).
Even with these tools, rock-
solid anonymity online is very
difficult to maintain. Your browser’s cookies, for instance, might reveal information
about you even if your IP address doesn’t. A resolute tracker can usually detect even
very faint digital footprints.
Web surfer
IP address
10.210.222.5
Anonymizing
Proxy Server
IP Address
14.85.90.20
Web Destination receives
transmission from
14.85.90.20
FIGURE 10-8
Proxy servers can be used to mask
a web surfer’s IP address.
Photos/Illustrations: Luna Van-doome/Shutterstock.
PRODUCTIVITY TIP
TOR is a free service operated by volunteers (www.torproject.org) that
anonymizes web surfing. An add-on is available for some browsers so that
users can enable it only when needed, since it can be slow.

www.torproject.org

298 introduction to information systEms
Surveillance
Surveillance technologies to monitor email, web surfing, and other online communica-
tions are readily available to government agencies for law enforcement. In the business
world, many employers also adopt these technologies. Surveys show that employers lean
toward surveillance for several reasons:
▶ Concerns about employer liability for allowing harassment or hostile work
environments
▶ Need to protect security and confidentiality
▶ Concerns about employee productivity and “cyberslacking”
▶ Concerns about bogging down corporate servers with personal files
Liability is a powerful driver, given several legal findings that hold employers respon-
sible for employees’ offensive online behavior. Continental Airlines was hit with a harass-
ment suit when its first female pilot complained that male employees were posting
harassing and insulting comments to an online discussion group called “Crew Members’
Forum.” The courts eventually held Continental responsible, even though the forum was
not hosted by the airline.
Security concerns about trade secrets also prompt employers to keep tabs on
communications. A pro football team, for instance, implemented software to track
leaks of the team’s playbook secrets. Any message that included the phrase “first 15,”
meaning the first 15 plays of the game, triggered an alarm. Employers sometimes step
up surveillance on departing employees who might decide to take confidential data
with them.
Preventing leaks is especially challenging when employees are IT professionals.
Edward Snowden, who leaked information to the press about the U.S. government’s own
surveillance programs, was working as an infrastructure analyst for private contractor
Booz Allen at the time. Even with tight security and employee surveillance, the company
could not prevent the leaks.17
Although sound reasons for surveillance exist, the downsides are not trivial.
Despite concerns about “cyberslacking,” surveillance itself can sometimes cause a
drop in productivity, as it suggests a lack of trust between management and staff.
Monitored employees may also suffer more stress, resulting in increased absenteeism
and lower productivity. Whatever policies the company chooses to implement, manag-
ers should make sure everyone understands what those policies are, and the reasons
for adopting them.
FIGURE 10-9
A network of distributed servers
can relay a transmission and
hide its source.
Photos/Illustrations: iofoto/Shutterstock, Psycho/Shutterstock, Lana Rinck/Shutterstock, CLIPAREA/Custom media/Shutterstock,
Alex Kalmbach/Shutterstock.

chapter 10 Ethics, Privacy, and Security 299
information security
A term that encompasses the protection of
an organization’s information assets against
misuse, disclosure, unauthorized access, or
destruction.
“The Right to Be Forgotten”
Growing concerns about “big data” and how permanent it is are leading to debates
about whether a new privacy right is needed: the right to be forgotten.18 The European
Commission is considering adding this to its data protection laws as a basic human right.
Europeans could demand that any company delete any and all personal data about them.
The company would also have to do its best to track down any personal data released to
third parties and have that deleted as well.
Some legal scholars argue that the “right to be forgotten” conflicts with freedom of
speech.19 For example, you can already delete your whole account from Facebook, pho-
tos and all. But should you be able to force Facebook to delete pictures of you that were
reposted by others to their own accounts? Should Facebook track down all the digital
footprints you left with other companies where you played social games?
Whether or not the right to be forgotten becomes law, technology innovations are
helping people erase some of those footprints, or at least make them a little less per-
manent.20 For example, Snapchat is a smartphone app that allows users to send self-
destructing photos that vanish in seconds after receipt. Nothing is foolproof, though,
and recipients can take a screenshot or snap a photo of the photo with another camera.
InfoRmATIon sECuRITy
Information security broadly encompasses the protection of an organization’s infor-
mation assets against misuse, disclosure, unauthorized access, or destruction. Like
most aspects of information systems, it draws on the four familiar pillars: technology,
processes, people, and data.
Risk Management
Companies spend millions on earthquake-proof vaults, video cameras, secure access
cards, and many other security precautions to protect assets. But with countless threats
and limited budgets, organizations can’t eliminate all risks.21 Instead, they must make
careful assessments to manage them. Risk managers consider many issues, beginning
with a clear understanding of what information assets need protection (Figure 10-10).
Laws play a large role here, requiring organizations to safely secure medical records,
financial information, Social Security numbers, academic records, and other sensi-
tive data. Governments in turn must secure classified documents, and companies must
protect their trade secrets.
Identifying Threats
Figure 10-11 shows examples of the many threats to information security that arise both
inside and outside the organization. They can be natural events or human-made, acci-
dental or deliberate.
4 Explain the steps that organizations use to manage security
risks, identify threats, assess
vulnerabilities, and develop
administrative and technical
controls.
▶ What information needs protection?
▶ What are the major threats from inside or outside the organization?
▶ What are the organization’s weaknesses, strengths, and vulnerabilities?
▶ What would be the impact of any particular risk?
▶ How likely are each of the risks?
▶ What controls can be used to mitigate risks?
FIGURE 10-10
Issues for risk managers.

300 introduction to information systEms
MaLwarE and BotnEts Human-made threats pound servers and computers every day with
automated attempts to install all types of malware—malicious software designed to attack
computer systems (Figure 10-12). The U.S. Navy, for instance, sees over 100,000 attacks
every hour, which is more than 30 per second.22 To help track down the attackers, security
software companies sometimes set up “honeypots,” which are computers configured with
specific vulnerabilities so they can attract different varieties of malware in the wild, study
their properties, and find out who started them.23
Many attacks are launched by criminal gangs that build and manage enormous botnets.
The term combines “robot” and “network” and refers to a collection of computers that
have been compromised by malware, often through some vulnerability in their software or
operating system. The Barmital botnet, which infected over 8 million Windows computers,
led people to malicious websites when they clicked on what they thought were legitimate
links returned by a search engine. This botnet was not just stealing victims’ confidential
data. It also created fraudulent clicks for online advertisers which they have to pay for, so it
was disrupting the whole online advertising business.24
The gangs activate their botnets to capture user IDs, passwords, credit card numbers,
Social Security numbers, and other sensitive information. They can then transfer funds,
steal identities, and purchase products, or they might just sell the information to other
criminals. They also rent out their zombie armies to various customers, such as spam-
mers who use them to relay the millions of unsolicited messages that now comprise the
vast majority of Internet email traffic.
Malware often infects a computer when an innocent user downloads a screen saver or
other freebie. Without the user’s knowledge, the infected computer becomes a “zombie,” added
to the gang’s growing botnet. Some analysts estimate that up to one-fourth of the world’s
computers contain botnet code that can be activated whenever the commander chooses. The
Mariposa botnet, shut down by Spanish and U.S. law enforcement agencies in 2009, spanned
more than 12 million computers in 190 countries. The challenges of coordinating legal inves-
tigations across national boundaries can make these gangs especially difficult to prosecute.25
distriButEd dEniaL of sErvicE Another grave threat posed by the botnets is the distributed
denial of service (DDoS) attack, in which zombies are directed to flood a single website server
with rapid-fire page requests, causing it to slow to a crawl or just crash. Someone with a
grudge can rent a botnet for a day to damage corporations, political enemies, or universities.
Human Threats
Accidental misuse, loss,
or destruction by
employees, consultants,
vendors, or suppliers
Actions by disgruntled
employees, insider theft,
sabotage, terrorism,
hackers, spam
Environmental Threats
Fire
Floods
Earthquakes
Hurricanes
Industrial accidents
War
Power failures
ArsonInformation
Assets
FIGURE 10-11
Types of information security threats.
Malware Description
Computer virus A malicious software program that can damage fi les or other programs. The virus can
also reproduce itself and spread to other computers by email, instant messaging, fi le
transfer, or other means.
Spyware Software that monitors a user’s activity on the computer and on the Internet, often
installed without the user’s knowledge. Spyware may use the Internet connection to
send the data it collects to third parties.
Keylogger Monitoring software that records a user’s keystrokes.
Worm A self-replicating program that sends copies to other nodes on a computer network
and may contain malicious code intended to cause damage.
Trojan horse A seemingly useful, or at least harmless, program that installs malicious code to allow
remote access to the computer, as for a botnet.
FIGURE 10-12
Examples of malware.

chapter 10 Ethics, Privacy, and Security 301
malware
Malicious software designed to attack
computer systems.
distributed denial of service (DDoS)
An attack in which computers in a botnet are
directed to flood a single website server with
rapid-fire page requests, causing it to slow
down or crash.botnet
A combination of the terms robot and
network referring to a collection of computers
that have been compromised by malware
and used to attack other computers.
One massive attack targeted Twitter, Facebook, and several other sites
in an attempt to silence a single blogger posting about the conflict
between Russia and Georgia. DDoS attacks cost organizations many
millions of dollars in downtime, lost business, and lost client goodwill
(Figure 10-13).
Phishing Since the botnets mask the actual source of the millions of
incoming messages, they are often used for phishing attacks. These typ-
ically start with an email such as the one in Figure 10-14, which clev-
erly lures taxpayers to click on a link. Recipients land on what appears
to be a genuine website, where they innocently type in their Social
Security number and other personal details. The lure can be anything
that gets users to enter personal information into a malicious website,
from emails offering employment to fake messages that say you need
to confirm your account information and reset your password now.
inforMation LEakagE The threat of information leaks comes not
just from cybercriminals. Employees can lose laptops and smart-
phones, mail containing backup media may go astray, and people
may drop unshredded sensitive documents into the dumpster.
These accidental leaks are not uncommon, and governments have
passed numerous laws imposing huge fines on organizations that
lose customer data. Organizations need to inform everyone whose
information has been compromised. Although the laws may help
stop identity theft, the sheer volume of leaked credit card and
FIGURE 10-13
Distributed denial of service attack
(DDoS). Under the control of the
botnet, the zombies send rapid-fire
page requests to the targeted site,
bringing down the server and blocking
out regular customers.
Photos/Illustrations: Psycho/Shutterstock, CLIPAREA/Custom media/Shutterstock, vector-RGB/Shutterstock, ArchMan/Shutterstock.
FIGURE 10-14
Sample phishing email.
Source: www.irs.gov/pub/irs-utl/phishing-email .
phishing
An attempt to steal passwords or other
sensitive information by persuading the
victim, often in an email, to enter the
information into a fraudulent website that
masquerades as the authentic version.

www.irs.gov/pub/irs-utl/phishing-email

302 IntroductIon to InformatIon SyStemS
Social Security numbers has
made this information rather
cheap to obtain. In the under-
ground market where it is bought
and sold, oversupply drives down
prices. Credit card numbers might
fetch just a few dollars, and a full
profile might go for under $10,
complete with Social Security
number, date of birth, driver’s license number, mother’s maiden name, and even an ATM
PIN.26 Figure 10-15 lists examples of information leaks.27
Assessing Vulnerability
An organization’s risk assessment must examine its vulnerabilities to determine how effective
its existing security measures are. Are employees ignoring warnings not to share passwords?
Does the information system maintain a log of every access attempt? Are administrators
alerted about water in the data center?
When an Apple employee left a prototype of the newest iPhone in a California bar,
the vulnerability posed by the human element—in this case, accidental loss—became
glaringly apparent. Apple is known for the impenetrable security surrounding its super-
secret product development, but that single iPhone slipped through.
Scenario: An elementary school librarian is trying to install some software
to create avatars from students’ photos so they won’t be tempted to upload
their own photos. She fails the first time, but rather than phone the vendor,
the librarian tries turning off the firewall and antivirus software. That works,
and the librarian turns the security back on.
Two weeks later, the school’s whole network goes down. The school’s IT
technician can see that the server’s CPU is overloaded with Internet traffic,
but can’t do anything. By noon, the harried principal is wondering whether to
close the school since so much depends on computers, from bus schedul-
ing and reporting to communications and academic records. At 1:30, the
principal receives a call from the security officer of a government agency in
Canada, who says the school’s server was turned into a zombie by a botnet
and used in a denial of service attack against the agency. The agency’s min-
ister insisted on stopping the attack at once, so the officer triggered a coun-
terattack to target the zombies as quickly as possible. First embarrassed,
then angry, the principal says, “But this is an elementary school! You can’t
just bring it down like that without telling us. It’s not ethical. What if this were
a hospital?!” The principal ponders suing someone, but isn’t sure who to
blame. The officer complains that no one can identify who created the botnet,
or who paid to use it to launch this DDoS.
The well-intentioned librarian took a shortcut to install software and made
the school’s network vulnerable. Once the malware was installed and the
DDoS against the government agency got underway, the security company in
Canada used intrusion-detection techniques to identify the zombies by their
IP addresses. That company was tasked with stopping the DDoS, so its staff
quickly shut down the zombies with a counterattack, without taking time to
learn who they were or what impact that decision might have. Recovering
from this event will cost the school considerable time and money.
The scenario involves many players: the librarian, the principal, the
school’s IT technician, the security officer in Canada, the agency’s minister,
the botnet creator, and the one who purchased use of the botnet and set off
the DDoS. How would you evaluate their ethical decision making?
THE ETHICAL FACTOR Ethical Dilemmas in a Distributed Denial
of Service Attack
Organization and Date Event
Facebook.com, June 21, 2013 Facebook discovered a bug that allowed unauthorized users to view
personal contact information of other users.
Goldman Sachs, Bloomberg,
May 18, 2013
Reporters for Bloomberg News could tap into Bloomberg’s data
terminals to monitor client’s activities.
NBC.com, February 22, 2013 NBC’s website was hacked to steal passwords and usernames.
Express Scripts, Ernst & Young,
February 18, 2013
A partner snuck into the headquarters and apparently emailed over
20,000 pages of data to himself.
Haagen-Daz, February 14, 2013 Thieves connected a fl ash drive with key-logging software to a cash
register to collect customers’ credit card information.
FIGURE 10-15
Sample information leakage events.
Source: Chronology of data breaches—Security breaches 2005–Present. Privacy Rights Clearinghouse.
www.privacyrights.org/data-breach, accessed September 23, 2013.
PRODUCTIVITY TIP
Check your credit card statements carefully for any unauthorized purchases,
and get free credit reports from www.annualcreditreport.com. The three
credit services will each provide one free report per year, so you can check for
suspicious activity every 4 months.

www.privacyrights.org/data-breach

www.annualcreditreport.com

chapter 10 Ethics, Privacy, and Security 303
risk matrix
A matrix that lists an organization’s
vulnerabilities, with ratings that assess each
one in terms of likelihood and impact on
business operations, reputation, and other
areas.
Once vulnerabilities have been analyzed, the organization can evaluate controls
that fill in security gaps and protect against specific threats. Industry standards are
often used for this step. Examples include the federal guidelines for informa-
tion security in government agencies
and the security self-assessment ques-
tionnaire developed by the Payment
Card Industry Security Standards
Council for companies that operate
e-commerce sites and accept credit
cards. The questionnaire helps organi-
zations identify measures required to
achieve compliance.29
Vulnerability depends partly on how likely any particular event may be. A major
earthquake in Mexico City rates as highly likely, but hurricanes in that region are very
rare. Even very unlikely events might pose serious risks, however, when their impact
would be immense if they did occur. Risks also differ depending on the threat. A major
information leak would compromise confidentiality, for example, while a power outage
would affect availability by bringing down the systems.
The risk matrix lists the vulnerabilities in a table, and managers rate the level of risk each
one presents in areas such as confidentiality, company reputation, lost revenue, or down-
time. The matrix also includes an estimate of how likely that event might be, and manag-
ers may add other metrics to further refine the analysis for their own organizations. The
matrix helps focus attention on the vulnerabilities that pose the greatest potential dangers.
Figure 10-16 shows a simplified example using rating scales of 1 (low risk) to 10 (high risk).
Administrative Security Controls
Administrative security controls include all the processes, policies, and plans the orga-
nization creates to enhance information security and ensure it can recover when danger
strikes. Some controls may establish information security policies that restrict the Inter-
net sites that employees can visit, or that deny Internet access altogether. Such policies
might add protection by prohibiting employees from downloading data to smartphones
or USB drives. Industries that routinely handle sensitive information will need to put
very strict policies in place, and take measures to enforce them. Leaving a workstation
without logging out, for example, may be trivial in some settings, but disastrous in others.
The processes and policies that control employee access to systems are some of the
most sensitive. Knowing how angry some terminated employees might become, some
employers cut off their access before they deliver the pink slip. IT employees pose greater
threats because of their expertise and higher level access.
Administrative controls to enhance information security extend beyond the organi-
zation to its vendors, suppliers, and customers. For example, what background checks
and due diligence should the organization do before signing an agreement with a cloud
Vulnerability
Leak of
Confi dential
Data
Lost
Integrity,
Reputation
Systems
Unavailable
Financial
Risk
Likelihood
That
Event Will
Happen
Total
Impact
Rating
No backup
power for a
workstation
1 2 8 2 4 4
Loss of
unencrypted
backup data
10 10 4 7 3 6.8
FIGURE 10-16
Simplified risk matrix.
Did You Know?
Attacks by insiders comprise 21% of the events involving information leakage.
These are growing more sophisticated and costly compared to events caused by
outside hackers. Nevertheless, the general public is not very aware of damage
caused by insider attacks because 70% are handled privately, with no prosecution
or legal action.28

304 introduction to information systEms
computing vendor? How should
the organization monitor access
to its systems by suppliers and
customers?
To avoid chaos and missteps
when something happens, the
organization should also have a
clear incidence response plan that
staff use to categorize the threat,
determine the cause, preserve any evidence, and also get the systems
back online so the organization can resume business (Figure 10-17).
Technical Security Controls
The technologies available to protect information assets help with
three important tasks:
▶ deterring attacks,
▶ preventing attacks, and
▶ detecting that an attack occurred.
Surveillance cameras, for instance, can deter unauthorized entry.
Even the automated message on a system’s login screen, issuing
dire warnings of criminal penalties for misuse, will deter most peo-
ple from trying to break in. Figure 10-18 shows how technical and
administrative controls work together for several security areas.
authEntication stratEgiEs Technical controls for preventing unau-
thorized access draw on technologies that can authenticate people and
determine what access privileges they should be granted. Most authen-
tication strategies rely on:
▶ Something the user knows, such as a user ID, password, PIN, or
answer to a security question;
▶ Something the user has in his or her possession, such as an ID
badge, credit card, or RFID chip; or
▶ Something the user is—a biometric characteristic that uniquely
identifies the user, such as a voice pattern, fingerprint, or face.
Reliance on user knowledge is the simplest strategy, although in
many ways the weakest and easiest to crack. Financial institutions
especially have expanded password security to require the user to
Identify the
threat
Contain the
damage
Determine the
cause
Recover the
systems
Evaluate
lessons learned
• Investigate logs.
• Preserve evidence.
• Communicate with
crisis management team.
• Stay calm.
• Restrict systems access.
• Take systems offline.
• Restore from media.
• Known to be good.
• Get organization up
and running.
• Prosecute offender.
• Improve systems.
• Reevaluate risk
matrix.
FIGURE 10-17
Steps in an incident response plan.
Category Administrative Control Examples Technical Control Examples
Account
management
The organization requires appropriate
approvals for requests to establish
accounts.
The organization monitors for atypical
usage of information system accounts.
The information system automatically
disables accounts after a time period
defi ned by the organization.
The information system automatically
logs any account creations,
modifi cations, or termination actions.
Access controls The organization defi nes the
information to be encrypted or stored
offl ine in a secure location.
The organization defi nes the privileged
commands for which dual authorization
is to be enforced.
The information system enforces
approved authorizations for access to
the system.
The information system prevents access
to any security-relevant information
contained within the system.
Information fl ow The organization defi nes the security
policy that determines what events
require human review.
The information system enforces the
organization’s policy about human
review.
Separation of duties The organization separates duties of
individuals as necessary to prevent
malevolent activity without collusion .
The information system enforces
separation of duties through access
control.
PRODUCTIVITY TIP
The administrative controls you establish for your own computer will help
protect your information assets. Turning off the computer at night, for
instance, will reduce your exposure to intrusion attempts, and save energy, too.
FIGURE 10-18
Examples of administrative and
technical controls.

chapter 10 Ethics, Privacy, and Security 305
encryption
Technique that scrambles data using
mathematical formulas, so that it cannot be
read without applying the key to decrypt it.
multifactor authentication
A combination of two or more
authentications a user must pass to access
an information system, such as a fingerprint
scan combined with a password.
incidence response plan
A plan that an organization uses to
categorize a security threat, determine the
cause, preserve any evidence, and also get
the systems back online so the organization
can resume business.
have several pieces of knowledge, or to link each login to a particular IP address. They
also take the precaution of sending the PIN to account holders by mail in a letter sepa-
rate from the user ID.
Biometric identifiers are also widely used, especially for physical security, since they
are more difficult to crack or forge. Most computer vendors offer laptops equipped with
fingerprint scanners, for example, and the technology is used for smartphones as well.
Multifactor authentication combines two or more authentication strategies, creating
much stronger security against unauthorized access. For example, a user might need to
swipe an ID badge and then also enter a password to gain access.
EncryPtion A powerful technical control that protects sensitive data is encryption. This
process transforms the data into an unreadable form using mathematical formulas, so that
no one can read it unless they know the key to unscrambling it. Encryption is used for both
storage and for data transmission. For storage, you can encrypt individual files on your com-
puter, or the whole disk drive, by adding a password, but you will not be able to retrieve the
information if you forget it. Encryption is so effective that if an organization loses sensi-
tive information that was encrypted, the notification laws described earlier do not apply. If
the backup tapes shown in the matrix in Figure 10-16 were encrypted, the risk assessments
would be much lower.
Secure data transmission relies on either symmetric or asymmetric encryption. In the
symmetric version, both the sender and receiver use the same key to encrypt and decrypt
the message. For asymmetric transmission, one key is used to encrypt the message, and
another to decrypt it.
For Internet transmission, a popular strategy is public key encryption, which uses
asymmetric transmission. One key is public, widely shared with everyone, but the other
is private, known only to the recipient. For example, when you want to communicate
with a company’s website securely, your browser uses the organization’s public key to
encrypt the data you send, and the organization uses its private key to read it. Though the
keys are mathematically related, the formulas are too complex and the keys too long for
anyone to decipher the private key from its paired public key.
Because symmetric transmission is faster and simpler to use, the first exchange using
public key encryption—between your computer and a secure website, for instance—is
one designed to share the same private key. Once both parties have the same key, they can
switch to symmetric transmission.
Organizations typically
obtain security certificates for
websites that need encryption,
purchased from a third party
such as VeriSign. The certificate
confirms that all communica-
tions between your computer and
the website are encrypted, and it
also certifies the site’s identity.
intrusion PrEvEntion and dEtEction systEMs Astronomer Clifford Stoll tells an old
detective story of how he was asked to look into a 75-cent accounting error on his lab’s
server. The logs showed that someone took 9 seconds of computer time without paying for
it. His curiosity piqued, Stoll began to track down the intruder. Few detection tools existed
in those years during the Cold War, but Stoll attached printers to incoming lines to record
public key encryption
A security measure that uses a pair of
keys, one to encrypt the data and the
other to decrypt it. One key is public,
widely shared with everyone, but the
other is private, known only to the
recipient.
PRODUCTIVITY TIP
Before entering sensitive data into any form on a website, check for the
https:// in the address bar to be sure transmissions are encrypted. Click on the
padlock symbol to see security details.

306 introduction to information systEms
any intrusions. He added some fake files that sounded super-secret and the hacker took the
bait. The intruder was selling information to the Soviet KGB, but Stoll’s sting operation put
a stop to it.30
Many more tools are available now to prevent unauthorized traffic from entering the
network and to detect any intrusions that do make it through. But the attackers’ tools
improve, too, and criminals constantly test defenses and hunt for vulnerable points.
firEwaLLs The most important defense is the firewall, a technical control that inspects
incoming and outgoing traffic and either blocks or permits it according to rules the orga-
nization chooses. The firewall can be a hardware device or a software program, and its
rules regulate traffic based on different levels of trust. Servers in the same domain would
be considered trustworthy, so traffic would pass easily between them. External traffic from
the Internet, however, would need different rules. The firewall might prohibit any Internet
traffic from reaching its database servers, for instance, but allow incoming requests to its
public web server.
Other rules might control which ports on the machine can accept traffic or which
IP addresses or domain names should be blocked. Organizations that prohibit use of
YouTube, for instance, can customize their firewalls to block access.
Firewall systems also include features to detect suspicious events and alert managers
immediately. For example, a failed attempt to log in as the computer administrator may
trigger a text message to designated smartphones, so IT staff can investigate.
BLocking sPaM Spam continues to be a costly menace, and intrusion prevention systems
are also needed to filter traffic. Combating spam has become even more critical as mes-
saging moves to mobile devices, where calling plans might charge users for every kilobyte
received. Many organizations install special email content-filtering appliances inside their
firewalls, so that all messages are examined for telltale signs of spam before they are deliv-
ered to any employees (Figure 10-19). Adjusting the filters is an ongoing challenge. The
goal is to trap spam, but avoid false positives in which important messages are blocked or
labeled junk mail. These technology advances are helping, and although spam still con-
stitutes about 67% of global email traffic, that figure is down from almost 90% in 2008.31FIGURE 10-19
Blocking spam.
Photos/Illustrations: Fenton one/Shutterstock, Login/Shutterstock, Broukoid/Shutterstock, ArchMan/Shutterstock, TyBy/Shutterstock,
Spectral-Design/Shutterstock, Alex Kalmbach/Shutterstock.

chapter 10 Ethics, Privacy, and Security 307
firewall
A defensive technical control that inspects
incoming and outgoing traffic and either
blocks or permits it according to rules the
organization establishes. The firewall can
be a hardware device or a software program.
Information Security
and Cloud Computing
The trend for businesses to move
toward cloud computing, where
their mission-critical applica-
tions and data are hosted by a
service off-site and accessed via
the Internet, is largely driven by
cost savings and convenience.
But IT managers worry about security for cloud computing and whether cloud providers
can adequately protect the organization’s most valuable assets. With countless informa-
tion leaks and security breaches, they have cause for concern.
Data protection laws present another issue for cloud computing. They vary by coun-
try, and they tend to assume that a citizen’s data is actually located somewhere within the
country’s boundaries. But with cloud computing, the data may be stored anywhere, and
it moves a great deal as vendors open new data centers to accommodate growth.32
Although cloud computing raises difficult security issues, it offers advantages as well.
Most organizations with their own data centers are struggling with security, too, and
information leaks are not uncommon. It takes considerable effort and resources for a
company to continually upgrade security and comply with laws. Budget pressures, along
with the growing challenge of recruiting qualified information security staff, are leading
even skeptical organizations to take a closer look at cloud computing.
Another problem cloud computing helps address is the loss of data when employees
download it to their portable devices and then lose them. When their data is cloud-based
and they can retrieve it from any device, these leaks may shrink.
Given cloud computing’s momentum, determined efforts are underway to develop
security standards and best practices, along with transparent auditing mechanisms that
will help assure potential clients that their information will be safe. The Cloud Security
Alliance is a nonprofit organization that brings experts together to develop standards
and controls that parallel those already required for e-commerce and medical records.
The IT community holds mixed views on how safe their data will be in the cloud, and the
fate of this architectural trend may well depend on robust security.
THE HumAn ElEmEnT In InfoRmATIon
ETHICs, sECuRITy, And PRIvACy
Human behavior and decision making play a central role in almost any situation com-
bining information ethics, privacy, and security. Indeed, human beings are very often the
weakest link for a number of reasons.
Cognitive Issues and Productivity
The sheer complexity of computers and information systems challenges even the bright-
est humans. It is not surprising that people will turn off their security features for a few
minutes to install software, as the librarian did in the DDoS scenario described earlier.
We prefer to apply our cognitive skills to productive pursuits, and when security policies
and procedures seem to get in the way, we may bypass them. In most cases nothing hap-
pens, but occasionally calamity results.
PRODUCTIVITY TIP
Your college or university probably has spam blocks in place, but no filter
is perfect. Check your junk mail occasionally in case messages you want to
receive were trapped by the filter. Identify any false positives as “not junk” so
the sender’s messages are not trapped again.
5 Explain why human behavior is often the weakest link for ethics,
privacy, and security, and provide
examples of strategies that
can be used to counteract the
weaknesses.

308 introduction to information systEms
wEak Passwords The limits of human memory (and patience) make the password a
serious vulnerability. On their own, people tend to create weak passwords that are easy to
remember and easier to crack. A security breach at RockYou.com released millions of pass-
words, and almost 300,000 people chose “123456.” Pet names ranked high, along with the
word “password” and “NCC1701” (the ID number of the starship Enterprise).
Although technical controls can force users to embed numbers and nonalphabetic
characters and change them frequently, the results are still not promising. Users then
tend to write passwords down and reuse them on less secure systems, such as online
games. Indeed, hackers break into corporate networks by offering employees free access
to new services. An alarming number will reuse their corporate login to create the
account.
We can’t easily remember a long string of random letters and symbols, but we have
no difficulty remembering such strings if they represent meaningful chunks of informa-
tion. For example, mhBs*124MTH is a strong password but it is easy for an aspiring
bowler to memorize: my highest Bowling score * 124 Must Try Harder. Figure 10-20
offers tips on creating secure passwords.
rEducing coMPLExity To reduce the complexity and cognitive load associated with mul-
tiple passwords, many organizations implement the single sign-on, which is a gateway service
that permits users to log in once with a single user ID and password to gain access to multiple
software applications.
Complexity hampers privacy decisions as well. Few people read the terms of service
before they click “I agree,” although those terms often contain troubling conditions that
trade privacy away. Social networking sites balance users’ privacy concerns against their
own need to generate advertising revenue through targeted marketing that relies on infor-
mation about each user’s preferences and friendship network. Facebook is often at the
center of privacy debates, not just for its own policies, but for the terms users agree to
when they play social games. The case study at the end of this text explores how Face-
book confronts privacy issues.
Social Engineering and Information Security
At West Point, where cadets take a 4-hour course on information security, 80% still fell
for a phishing email that told the students to click on a link to deal with a problem in
their last grade report. The scam was actually an experiment to test how well the train-
ing worked. It demonstrated the effectiveness of social engineering, which manipulates
people into breaking normal security procedures or divulging confidential information.
Humans are tempting targets for those with malicious intent who understand such
behavior.
One weak spot is simply the human desire to help others. People routinely pass virus-
laden hoaxes along to friends and neighbors, trying to be helpful. An employee who
swipes his or her ID badge to open a secure door and then courteously holds it open for
the person behind may be falling for a common social engineering trick to bypass physi-
cal security. The pressure to be helpful is even greater if the follower is holding packages
or using crutches (Figure 10-21).
▶ Do not include personal information such as names, addresses, or phone numbers.
▶ Avoid real words.
▶ Mix different character types, including lowercase, uppercase, and special characters.
▶ To reduce the cognitive load of memorizing the password, create “pass phrases” with
meaningful chunks and use the fi rst letter of each word, such as “I love whitewater
rafting_Done it 15 times” (Ilwwr_Di15t).
▶ Use different passwords for each login you want to secure, so loss of one does not
compromise the others.
▶ Change your passwords every 30 to 60 days, or as required by the application.
FIGURE 10-20
Creating secure passwords.

chapter 10 Ethics, Privacy, and Security 309
social engineering
The art of manipulating people into breaking
normal information security procedures or
divulging confidential information.
single sign-on
A gateway service that permits users to log
in once with a single user ID and password to
gain access to multiple software applications.
Respect for authority is another common human tendency that intruders exploit,
relying on uniforms, titles, or verbal hints that the company president wants something
done. Intruders gain easy access to office equipment just by wearing a tool belt.
Humans are certainly not immune to greed, and scammers tap this human frailty
routinely to persuade people to turn over confidential information or money. The so-
called 419 scam, named after a section of Nigeria’s criminal
code, has conned many people out of thousands of dollars.
The scam usually starts with an unsolicited email inviting the
recipient to participate in a scheme to gain large sums from
a foreign bank, simply by allowing the sender to cleanse the
funds through the target’s bank account. The target is even-
tually asked to pay an advance fee of some kind, or a transfer
tax, after which “complications” may require the payment of
additional fees.
Ironically, another highly effective bit of social engineer-
ing relies on the human desire to avoid malware. When a pop-
up appears that says your computer is infected and provides
a link for you to buy software to remove the virus, you may
have become a victim of “scareware.” The virus didn’t exist.
The “removal” software might be harmless, or it might actu-
ally be malware. As real threats grow, more and more people
fall for these scareware attacks (Figure 10-22).
FIGURE 10-21
Social engineering: Would you hold the door for these people so they don’t have to
search for their ID badges?
© Juice Images/Alamy
Speedy Malware Detection Wizard found
21 threats on your computer.
To remove, click CONTINUE
SPYWARE FOUND!
x
Continue
FIGURE 10-22
Scareware persuades people that a computer is infected when it is not.
The solution the victim pays for may be harmless or it may install its own
malware.

310 introduction to information systEms
Security Awareness and Ethical Decision Making
Organizations should have robust security awareness programs to help educate and con-
tinually remind people about the risks that lax security presents. The program should
cover the organization’s own policies and procedures, as well as laws and regulations
about how information should be handled to ensure compliance. Figure 10-23 lists
several relevant laws that touch on information security and privacy.
Beyond legal compliance, a security awareness program should also alert people to
the many ways in which social engineering can exploit human tendencies toward kind-
ness, helpfulness, greed, or just productivity. It should provide training in tools such as
encryption and help people spot areas where breaches are most likely.
Finally, it should reinforce the principle that the organization has an ethical responsi-
bility to maintain information security.33 Consider, for example, the extent of harm each
of these actions might inflict on other people, from customers, employees, and students
to stockholders and citizens.
▶ A sales rep copies customer data to her smartphone and quickly drops it into a jacket
pocket. Corporate policy forbids taking confidential documents out of the building,
but she just wants to work on them at home to catch up. She leaves her jacket on the
subway, but says nothing to her supervisor about the incident.
▶ A sixth grader finds a USB drive in a school computer and sees the names and
addresses of all the students and teachers. He uploads it to his social networking
account so all his friends have contact information.
▶ A university employee looks up old academic records of political candidates and
sends some provocative tidbits to the press.
▶ A coworker suspects an employee of accessing illicit websites at work, but hesitates
to mention it because it might get the employee in big trouble, or even fired.
▶ The CFO asks someone in IT to delete his whole email account from the server and
backup media because it contains messages that suggest criminal behavior.
How would you judge the actions of these people? These cases show how closely tied
ethics, privacy, and security are, and how humans make decisions about small and large
issues almost daily. Sometimes they are easy to make, but often they present dilemmas
that challenge even people who understand security and who try hard to make ethical
decisions. As information systems grow even more powerful and interconnected, the race
to protect these valuable information assets will become ever more urgent.
Law/Regulation Description
Privacy Act of 1974 Establishes requirements that govern how personally identifi able
information on individuals is collected, used, and disseminated by
federal agencies.
Health Insurance Portability
and Accountability Act (HIPAA)
Includes provisions to protect the privacy and security of individually
identifi able health information.
Family Educational Rights and
Privacy Act (FERPA)
Establishes privacy rights over educational records. For example, federally
funded educational institutions must provide students with access to
their own educational records and some control over their disclosure.
CAN-SPAM Act Prohibits businesses from sending misleading or deceptive commercial
emails, but denies recipients any legal recourse on their own. The act
also requires companies to maintain a do-not-spam list.
Gramm-Leach-Bliley Act Stipulates how fi nancial institutions are required to protect the privacy
of consumers’ personal fi nancial information and notify them of their
privacy policies annually.
Driver’s Privacy Protection Act
of 1994
Limits the disclosure of personally identifi able information that is
maintained by state departments of motor vehicles.
State Security Breach
Notifi cation Laws
Require organizations to notify state residents if sensitive data are
released. The wording varies by state.
European Union’s Data
Protection Directive
Establishes privacy as a fundamental human right for EU citizens. The law
is more restrictive than U.S. laws. For example, it requires companies to
provide “opt out” choices before transferring personal data to third parties.
FIGURE 10-23
Examples of laws touching on
information security and privacy.

chapter 10 Ethics, Privacy, and Security 311
The massively multiplayer online game business is lucrative, but very competitive. Your company has poured
millions into the game, adding vivid graphics, tense storylines,
and many features to support collaboration and team play,
and the strategy is paying off. You are very proud of the way
you were able to use social media to spread the word and
persuade people to try it out. Most noticed right away that
the avatars move very smoothly and they are much easier
to configure and control compared to other games. That’s
thanks to the terrific IT staff, who also made programming
breakthroughs so players could do more quests from their
smartphones. A number of celebrities even play the game,
although under false names and in disguise.
Now that the game’s sequel is ready to release, you
and the other senior execs must work out the strategy
and budget. Everyone thinks Ancient Age of Vampires will
be even more successful than the original game, and ana-
lysts project a significant revenue increase. Log in when
you’re ready to get to work. . . .
MyMISLab Online Simulation
Vampire Legends
A Role-Playing Simulation on Ethics, Privacy, and Security
in the Multiplayer Online Game Business

Key terms and concepts
Learning Objectives
Ethics is a system of moral principles used to judge right from wrong. One ethical framework
focuses on natural laws and rights. A second, called utilitarianism, emphasizes the consequences
of actions. Although many laws are grounded in ethical principles, actions can be legal but not
ethical or ethical but not legal. Most people tend to judge unethical behavior, such as plagiarism
or intellectual property theft, less harshly when the violator uses a computer and the Internet
compared to similar acts committed in face-to-face settings.
Information ethics focuses on the storage and transmission of digitized data and raises both
ethical and legal issues. Although most countries protect intellectual property (IP), digitized IP
is extremely difficult to protect, and many companies use digital rights management technologies
to safeguard their assets. Plagiarism has also become very difficult to prevent because of ICT,
although it can also be much more easily detected with originality-checking tools.
Privacy is under considerable pressure because of the growing volume of personal information
online, the complexity of privacy settings and privacy policies, and users’ willingness to trade
privacy for convenience. Services that use proxies can offer anonymity for online activity.
Surveillance poses threats to privacy, but employers often choose to implement surveillance
because of concerns about liability, security, confidentiality, and productivity. Some
governments are debating whether to pass laws that give people the “right to be forgotten” with
respect to information that companies collect about them online.
Information security ensures the protection of an organization’s information assets against
misuse, disclosure, unauthorized access, or destruction. Organizations use risk management to
identify assets needing protection, identify the threats, assess vulnerabilities, and determine the
impact of each risk. Threats arise from both human and environmental sources and include
accidental events, intentional attacks from insiders or external criminals, fires, floods, power
failures, and many more. Distributed denial of service and phishing attacks are common
threats that result in significant downtime and leakage of sensitive information. Administrative
controls encompass the policies, procedures, and plans the organization creates and enforces
to protect information assets and respond to incidents when they occur. Technical controls are
implemented by the information systems and include strategies such as encryption and user
authentication. Intrusion prevention and detection systems block traffic and activity based on
the rules the organization develops and alert managers if suspicious activity occurs. The firewall
is an important element for intrusion prevention. Standards for information security for cloud
computing are under development but are critical to the future of this architectural trend.
Human beings prize productivity highly and may neglect security when it interferes. Social
engineering tactics take advantage of human behavioral tendencies to manipulate people into
disclosing sensitive information or bypassing security measures. Training in security awareness
and the relationships between security, ethics, and privacy can help counteract these tendencies.
1
4
2
5
3
ethics
natural laws and rights
utilitarianism
intellectual property (IP)
digital rights management
(DRM)
information privacy
proxy
information security
malware
botnets
distributed denial of service
(DDoS)
phishing
risk matrix
incidence response plan
multifactor authentication
encryption
public key encryption
firewall
single sign-on
social engineering
312
C H A P T E R
10 chapter summary

10-1. What are ethics? What are two broad categories of
ethics? What approach does each category take?
What are examples of each category of ethics? What
is the difference between ethics and the law?
10-2. What is intellectual property (IP)? What are the
information ethics associated with IP? What is the
impact of digital media on the information ethics of
IP? What are examples of technologies used to con-
trol access to digitized intellectual property?
10-3. What is plagiarism? What are the information ethics
associated with plagiarism? What is the impact of digi-
tal media on the information ethics of plagiarism? What
are examples of technologies used to detect plagiarism?
10-4. What is information privacy? What is anonymity?
What are strategies that may be used to achieve ano-
nymity on the Internet?
10-5. Why do organizations implement surveillance?
What are the advantages of surveillance? What are
the disadvantages of surveillance?
10-6. What are the steps that organizations take in order
to manage information security risks and build a
risk matrix? What is involved in each step of this
process?
10-7. What are the two types of threats to information
security? What are examples of each type of threat?
10-8. What are information security vulnerabilities? How
do organizations assess vulnerability?
10-9. What are examples of administrative controls that
organizations implement to improve security?
10-10. What are examples of technical controls that orga-
nizations implement to improve security?
10-11. Why is human behavior often the weakest link for
information ethics, information privacy, and infor-
mation security? What are examples of strategies
that organizations can implement to counteract
the weaknesses in human behavior and decision
making that have a negative impact on information
security and privacy?
10-12. According to Wikipedia.org, digital rights management
is used by organizations such as Sony, Amazon, Apple,
Microsoft, AOL, and the BBC. What is digital rights
management? Why do organizations use technology to
protect intellectual capital? Describe a typical DRM
application that can be used to manage access to digital
content. Are there disadvantages to using DRM?
10-13. Two dreaded “P” words for college students are pro-
crastination and plagiarism. Does the first action neces-
sarily lead to the second? Visit Plagiarism.org to learn
more about the various forms of plagiarism. How are
the different types of plagiarism similar? How are they
different? What are the consequences of plagiarism at
your university? Consult your student handbook to
learn how plagiarism is defined by your school and how
faculty members may respond to cases of plagiarism.
What are the options for discipline in cases of plagia-
rism? Prepare a 5-minute presentation of your findings.
10-14. The Identity Theft Resource Center® is a nonprofit
organization dedicated to helping users understand
and prevent identity theft. Visit Google.com and
search for “ITRC Fact Sheet 101” or visit www
.idtheftcenter.org and select “Consumer Resources”
and “ID Theft Test” to locate “ITRC Fact Sheet 101:
Are You at Risk for Identity Theft.” Answer 20 self-
test questions relating to document disposal, Social
Security number protection, information handling,
and scams to determine your ID theft risk score. Are
you savvy about identity theft risks or do you need
to take some corrective actions? Prepare a 5-minute
presentation to share with your classmates.
10-15. Do you trade privacy for convenience? Visit Google
.com and select “About Google” to locate the
“Privacy & Terms” link located at the bottom of the
page. Follow this link to “Policies and Principles,”
then locate the “Privacy Policy” link at the bottom
of this page. Does Google place cookies on your
computer or other devices? Why do they use cook-
ies? What are location-enabled services? Does Google
have information about your actual location? Under
what circumstances does Google share personal infor-
mation with other companies? How do you describe
the information security measures that Google takes
to safeguard access to personal information? Is there
anything in the privacy policy that makes you uncom-
fortable? Are you likely to change your Google search
habits as a result of reviewing its privacy policy?
10-16. Malware is malicious software that is developed for the
purpose of causing harm. What are different types of
malware? How does malware infiltrate a computer sys-
tem? What is a botnet? Why do criminals use botnets?
What is a distributed denial of service attack? What are
three ways that DDoS attacks impact organizations?
Visit Microsoft.com and search for “malicious software
removal tool.” How frequently does Microsoft release a
new version of this tool? Search Microsoft.com to learn
more about how to boost your malware defense and pro-
tect your PC. Prepare a brief summary of your findings.
10-17. Why is it important to verify the identity of computer
users? What are three authentication strategies? Which
is the strongest form of authentication? Which is the
weakest? What credentials does your university use to
chapter review Questions
projects and discussion Questions
chapter 10 Ethics, Privacy, and Security 313

www.idtheftcenter.org

314 introduction to information systEms
verify your identity for access to email and other web-
based information such as personal financial aid infor-
mation and online course materials? Is this strong or
weak authentication? What is a security token? Visit
Wikipedia.org to learn how security tokens are used to
authenticate users and prepare a brief report of your
findings. Do you think it is a good idea to use security
tokens to authenticate students? Why or why not?
10-18. Did you ever wonder why junk email is called
“spam”? The Monty Python sketch on spam has been
viewed over five million times on YouTube. That’s a
lot of spam! Work in a small group with classmates
to consider why spam is one of the biggest problems
facing the Internet today. Approximately how much
email traffic is made up of spam? Is spam a prob-
lem on mobile devices? Why is spam a problem for
consumers? Why is it a problem for organizations
and Internet service providers? What types of techni-
cal controls do organizations use to combat spam?
Prepare a brief report of your group discussion.
10-19. Recall from Chapter 3 how cloud computing gener-
ally requires leasing IT resources, depending on a
third party to store data or provide services. Work in
a small group with classmates to consider the secu-
rity risks associated with cloud computing. Why are
IT managers concerned about protecting cloud-based
information assets? What is the IT industry response to
concerns about cloud computing? What is the Cloud
Security Alliance? Consider the class registration appli-
cation at your university. Does your group consider
this a mission-critical application? Why or why not?
Prepare a 5-minute presentation of your discussion that
includes a recommendation for or against using cloud
computing for critical applications at your university.
application exercises
10-20. ExcEl ApplicAtion:
citywide community college
The IT Department at Citywide Community College
developed a computer security incident response plan that
requires users to provide information for each security
incident. Louis Hermann, the IT manager, inventoried the
major components of the college’s computer systems and
created a spreadsheet to track the equipment by manufac-
turer, model number, and serial number. He decided to con-
fine the list to major computer components, and he does not
try to track keyboards, mice, and so forth. Louis then cre-
ated a spreadsheet to track systems security incident facts
including information about the department reporting the
incident, target-specific information (host machine name,
etc.), source-specific information (source IP address), and
information about the type of security incident or attack.
Louis has asked you to use the data provided in the CCC
Security spreadsheet, Ch10Ex01, to identify (1) the depart-
ment reporting the highest number of security incidents and
(2) the most prevalent type of intrusion. Use the “countif”
function to count the number of security incidents in which
the computer system was compromised. Use a memo for-
mat to submit a summary of your findings to Louis.
10-21. AccEss ApplicAtion:
citywide community college
Louis Hermann, IT manager at Citywide Community
College, is working with two spreadsheets to manage com-
puter security incident reporting. One spreadsheet tracks
the major components of the college’s computer systems,
and the other spreadsheet tracks security incident facts. To
provide for better reporting capabilities, Louis wants you to
set up an Access database that tracks college departments,
computer systems, and security incidents. Download the
spreadsheet Ch10Ex02 and import the worksheets to cre-
ate the database shown in Figure 10-24. Create a report
that lists the number of security incidents reported by each
department. Create a second report that lists the number of
attacks in which the system was compromised for the depart-
ment having the greatest number of security incidents. What
other reports would Louis find useful?
FIGURE 10-24
Citywide Community College security
database.

chapter 10 Ethics, Privacy, and Security 315
case study #1
Social game developer Zynga is a leading player in the industry, with 240 million active users in more than 175 countries. It features popular titles such as Castleville,
Mafia Wars, Farmville 2, Words with Friends, and Zynga Poker. Most
people play the games with their friends on Facebook or on Zynga’s
own site (Zynga.com). Founded by Mark Pincus in 2009, Zynga’s pop-
ularity exploded in 2012, when revenue topped $1.2 billion. Expenses
for game development and acquisitions are high, however, so despite
12.8% sales growth, the company posted a loss in net income.
Unlike most online game companies, Zynga earns over 90% of its
revenue from in-game purchases of virtual goods rather than adver-
tising. The games are free to play, but advancement can take a long
time. Players who want to advance more quickly can use their Paypal
accounts to purchase game currency, energy points, or virtual goods.
Social games rise and fall in popularity, and Zynga pulls the plug
on games that falter. One of the games the company killed off with
barely two weeks’ notice was Petville, and outraged players were furi-
ous. Many had invested years in nurturing and caring for their digital
pets, sharing the adventure with their friends and family on Facebook.
Thousands posted their sadness and anger on social media sites, with
comments like those in Figure 10-25.
Clearly, the players had an emotional investment in their virtual
pets, and also in the social dimension of the game that Zynga’s soft-
ware specifically encourages. For example, players earned points by
visiting neighbors, who were actually real-life friends with their own
virtual pet in the game. Points mounted up quickly as more neighbors
joined and exchanged gifts.
Zynga tracks and analyzes player behavior closely, and uses the
“big data” to add features that ensure players log in frequently to
develop that strong attachment. Zynga wisely chose not to let some-
one’s virtual pet die from hunger if the player did not feed it daily.
However, the pet was taken to the pound, and the owner had to find
ways to earn enough cash to retrieve it.
Zynga offered credits for its other games, but Petville players were
quite dismayed by the company’s lack of sensitivity. Certainly, compa-
nies have to shut down badly performing products, but there is a dif-
ference between terminating a line of shampoo and killing off a game
like Petville. Customers are not likely to mourn the loss of a favorite
hair product in the same way they would a virtual puppy they have
been nurturing for years.
Even though the terms of service agreement gave the company
vast leeway to terminate services or close down games, and Zynga’s
metric-driven business strategy justified the shut-down, its approach
generated a lot of ill will. At best, it was a customer relations blunder,
but it also raised ethical questions. The company’s software is spe-
cifically designed to create such emotional ties, so observers thought
that the company should have recognized they existed and arranged
for a more sensitive closing. Certainly more advance notice was war-
ranted. Rather than assume players would happily switch to another
game and forget about their pets, Zynga might have held online cer-
emonies to bid farewell, or planned a clever happy ending in which
the pets founded their own world together.
Zynga is no longer closely tied to Facebook, which was taking a
cut of Zynga’s profits. Its own website, Zynga.com, is open to anyone
who loves gaming, whether a Facebook user or not. The company’s
future is unclear, and time will tell whether Zynga can use its big
data to better understand its own customers and develop a profitable
business.
Zynga Kills Petville and Angers Virtual Pet Owners
▶ “I loved my bunny now I will never get to see her again—it is not fair at all.”
▶ “My autistic son and I had played Petville together for two years…I wish you ‘people’ could have
seen the streams of tears running down both our faces as we played our last session. We even took
photographs. I guess money trumps everything!”
▶ “This is the last day my little friend will be alive. So sad.”
▶ “My daughter is heartbroken.”
▶ “Zynga [stinks]!! And I will NEVER play any of your games again. You can take your lousy credits and
shove them! I hope Karma comes around to get you and you think back on how many people you
upset and lost due to [the] stupid, greedy decision to remove Petville.”
FIGURE 10-25
Comments from players who objected to Zynga’s decision to shut down Petville.

316 introduction to information systEms
discussion Questions
10-22. When Zynga dropped Petville abruptly, virtual pet owners
protested that they had been harmed. This ethical argument
uses a utilitarian framework. How might you argue from a
natural laws and rights ethical framework that Zynga was
wrong?
10-23. The suddenness of Zynga’s action created a firestorm of
customer discontent. What are other ways that Zynga might
have handled the discontinuance of a failing game without
creating such protest?
10-24. How is the ownership of digital information determined? Is it
ethically wrong to deny people access to owned information
if that denial causes harm?
10-25. When virtual pet owners invested emotionally and financially
in ‘their’ pets, should they have been considered at least par-
tial owners of the digital information? Why or why not?
Sources: Farewell to Fido: A lesson in digital customer relationship management.
(January 30, 2013). Knowledge @ Wharton, http://knowledge.wharton.upenn.edu/article
.cfm?articleid=3178, accessed March 30, 2013.
Huston, C. (2013). Zynga, Inc. Hoover’s Online, http://subscriber.hoovers.com.proxy3.library
.jhu.edu/H/company360/overview.html?companyId=161848000000000, accessed July 8,
2013.
Rosenbush, S., & Totty, M. (March 11, 2013). How big data is changing the whole equation for
business. The Wall Street Journal, http://search.proquest.com/docview/1315526655?accountid=
11752, accessed July 8, 2013.
case study #2
Silently protecting the inboxes of billions of people worldwide is an international nonprofit organization called Spamhaus, which describes its four-point mission as:
▶ Tracking the Internet’s spam operations.
▶ Providing dependable real-time anti-spam protection for Internet
networks.
▶ Working with law enforcement agencies to identify and pursue
spammers worldwide.
▶ Lobbying governments for effective anti-spam legislation.
With headquarters in the United Kingdom and Switzerland, Spamhaus
maintains a “block list” containing the IP addresses believed to originate
spam. Many governments, corporations, universities, and other organiza-
tions check the list before delivering mail, blocking any messages whose
senders match an entry on it.
Identifying and Fighting Spammers
How do senders wind up labeled as spammers and placed on the
block list? Spamhaus defines spam as any mail that is both unso-
licited and sent in bulk. Mail that meets this definition may not be
illegal in many places, including the United States, so Spamhaus is the
target of lawsuits claiming damages for lost business. For example,
a Chicago email marketing firm called “e360” sued Spamhaus for
more than $11 million in damages. A U.S. court eventually awarded
e360 $27,000, but Spamhaus refuses to pay even that amount, insist-
ing that e360 is a spammer. Although e360 is now out of business, its
main employee complains bitterly about this kind of community polic-
ing that works outside of traditional law enforcement. “Spamhaus.org
is a fanatical, vigilante organization that operates in the United States
with blatant disregard for U.S. law,” he said.
Although the cause is noble, the stakes are extremely high, so the
work itself can be both dangerous and secretive. Larry, Spamhaus’s
chief technical officer, who prefers not to reveal his last name, says,
“We get threats every day. In the U.S., it is people bringing lawsuits
against us. And then there are organized criminals in Russia and
Ukraine, who use different methods.” Police have advised Steve
Linford, head of Spamhaus, to be suspicious of any unexpected pack-
ages delivered to his home.
Spamhaus Hit with DDoS Attack
In March 2013, a massive distributed denial of service (DDoS) attack,
one of the largest in Internet history, hit the Spamhaus website. The
attackers used “DNS reflection,” in which the Internet’s domain name
servers, which resolve URLs to their corresponding IP addresses, are
spoofed into sending huge traffic streams to one website. Spamhaus
crashed, and the enormous attack left many wondering if the whole
Internet might be in danger.
Sven Kamphuis quickly took credit for the attack, accusing Spam-
haus of trying to “control the Internet through underhanded extortion
tactics.” Kamphuis heads a company named CyberBunker; this com-
pany offers a hosting service that does not keep any traffic logs, so
there are no records for police to confiscate. Spammers and copyright
violators flock to hosts like this, and Spamhaus had blocked several of
CyberBunker’s clients, some of whom volunteered to launch the DDoS
attack. Police arrested Kamphuis in Spain a few weeks afterwards.
Pros and Cons of Community Policing
Industry analysts know that community policing is not perfect and that
block lists can contain false positives that harm legitimate businesses.
It is time-consuming and expensive for companies to work through the
process to get cleared. But as one analyst put it, “These [spammers]
aren’t just a nuisance. They’re a cancer on society. And Linford has
taken it upon himself to do something about them. . . . That these cops
are self-appointed is troubling. But marketers would do well to under-
stand that without Spamhaus, people’s inboxes would be unusable.”
Community Policing on the Internet: Spamhaus Targets Worldwide Spammers
and Draws a Massive Distributed Denial of Service Attack

http://knowledge.wharton.upenn.edu/article.cfm?articleid=3178

http://subscriber.hoovers.com.proxy3.library.jhu.edu/H/company360/overview.html?companyId=161848000000000

http://search.proquest.com/docview/1315526655?accountid=11752

chapter 10 Ethics, Privacy, and Security 317
discussion Questions
10-26. How do the interests of computer users differ from the inter-
ests of spammers?
10-27. Do you agree with the Spamhaus methodology to reduce spam?
10-28. What other approaches could be taken to reduce spam?
10-29. What are the relevant legal issues in this case?
Sources: Anderson, N. (June 16, 2010). Accused spammer demands $135M from
Spamhaus; gets $27,002. Ars Technica, http://arstechnica.com/tech-policy/news/2010/06/
accused-spammer-demands-135m-from-spamhaus-gets-27002.ars, accessed June 4, 2011.
Constantin, L. (2013). DDoS attack against Spamhaus was reportedly the largest in history.
CIO, (13284045), 7.
Kirk, J. (2013). Spamhaus warns marketers to keep email databases tidy. CIO, (13284045), 39.
Palmer, M. (2009). Secret war on web crooks revealed. Financial Times (London).
June 15, p. 16.
Riley, M., Matlack, C., & Levine, R. (2013). CyberBunk: Hacking as performance art.
Bloomberg Businessweek, (4324), 33–34.
Tam, D. (March 27, 2013). Did the spam cyber fight really slow down the Internet? CNet
News, http://news.cnet.com/8301-1009_3-57576699-83/did-the-spam-cyber-fight-really-
slow-down-the-internet/, accessed April 25, 2013.
Tam, D. (April 26, 2013). Police arrest Dutchman for alleged Spamhaus web attacks. CNet
News, http://news.cnet.com/8301-1009_3-57581639-83/police-arrest-dutchman-for-
alleged-spamhaus-web-attacks/, accessed April 25, 2013.
Vijayan, J. (2013). Spamhaus attacks expose huge open DNS server dangers. CIO,
(13284045), 35.
e-project 1
This e-project will show how third-party cookies read by a browser can
shape the user’s online browsing experience across websites.
First, you will need to remove existing cookies so you can conduct
the experiment with a clean slate. Once they have been removed, con-
figure your browser to accept new third-party cookies. (Check your
browser’s “help” if you need assistance.)
Next, visit online retailer Zappos (zappos.com) and look around for a
product you would never actually purchase. Examine the product, click-
ing on features, and then add it to your cart. The goal is to add the third-
party cookies about your visit and your shopping interests. Don’t buy
anything, of course. Zappos participates in quite a few ad networks, and
each one will place a cookie on your computer.
10-30. Browse to several sites that carry advertising, such as yahoo
.com, latimes.com, time.com, aol.com, and bloomberg.com.
Search each page to see if there are any Zappos ads. Which
websites show an ad from Zappos? Which ones did not show
any Zappos ads? What was the content of the ads?
10-31. Remove all your cookies again, and revisit the same list of sites.
What Zappos ads do you see now?
10-32. Explain the results that you found in this e-project. (Don’t forget
to reconfigure your browser to the privacy settings you prefer.)
Tracking the Trackers:
Investigating How Third-Party Cookies Steer the Ads You See
e-project 2
In this e-project, you will explore Spamhaus’s Registry of Known Spam
Operators (ROKSO), a list the organization maintains and posts on its
website.
Visit www.spamhaus.org and click on ROKSO. How does Spamhaus
determine who or what should be in the registry?
Download the file Ch10_SpamHaus, which contains a list of known
spammers from 2011.
10-33. Sort the list by the TopTen column. Which entry is considered the
#1 spammer?
10-34. Next, you will generate a pivot table and chart showing the list
of countries, with the count of each country’s known spam-
mers. Select the data in all columns and then choose Insert,
Pivot Chart. Drag and drop Country to the Axis Fields, and Name
to the Values box, so the chart shows the count of spammers by
country.
a. Which country has the most known spammers?
b. Which country is second in terms of the number of known
spammers on this list?
10-35. To view a chart containing just the Top Ten offenders by country,
click on IsOnTopTen in the Field List, and then click the down
arrow to the right. Uncheck “no” so the analysis will only include
spammers who are on the top 10 list. Drag the IsOnTopTen field
to the Report Filter box. Which countries have the most spam-
mers in the top ten?
Analyzing Spammers by Country, Using Excel Pivot Tables

http://arstechnica.com/tech-policy/news/2010/06/accused-spammer-demands-135m-from-spamhaus-gets-27002.ars

http://news.cnet.com/8301-1009_3-57576699-83/did-the-spam-cyber-fight-really-slow-down-the-internet/

http://news.cnet.com/8301-1009_3-57581639-83/police-arrest-dutchman-for-alleged-spamhaus-web-attacks/

www.spamhaus.org

http://arstechnica.com/tech-policy/news/2010/06/accused-spammer-demands-135m-from-spamhaus-gets-27002.ars

318 introduction to information systEms
chapter notes
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germans-cant-see-meteorite-youtube-videos-due-to-
copyright-dispute/, accessed February 24, 2013.
7. Bustinza, O. F., Vendrell-Herrero, F., Parry, G., &
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study_pdf/2011_BSA_Piracy_Study-Standard ,
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9. Albanesius, C. (February 25, 2013). ISPs to start roll-
ing out ‘six strikes’ copyright alert system. PCMag.com,
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10. Schiller, K. (2010). A happy medium: Ebooks, licens-
ing, and DRM. Information Today, 27(2), 1–44.
11. Hasshi, S. (March–April, 2013). Effectiveness of anti-
piracy technology: Finding appropriate solutions
for evolving online piracy. Business Horizons, 56(2),
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12. BI2 technologies awarded contract to implement
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inmates, suspects, and gang members. (June 1, 2010).
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13. Palmer, M. (May 20, 2010). Google debates face rec-
ognition technology after privacy blunders. Financial
Times, http://www.ft.com/cms/s/2/3cf20b4a-6373-11df-
a844-00144feab49a.html#axzz2YMxW1Fov, accessed
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14. Steinmetz, K. (2013). From here to E-ternity. Time,
181(5), 54–55.
15. Bradshaw, T., Menn, J., & Schafer, D. (May 18, 2010).
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wifi data. Financial Times (London), http://search
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16. Steiner, P. (July 5, 1993). On the Internet, no one knows
you’re a dog (cartoon). The New Yorker, p. 61.
17. Shane, S., & Sanger, D.E. (June 20, 2013). Job title key
to inner access held by Snowden. New York Times,
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inner-access-held-by-snowden.html?pagewanted=all&_
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18. Venables, M. (2013). The EU’s ‘right to be forgotten’:
What data protections are we missing in the US? Forbes,
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the-ecs-right-to-be-forgotten-proposal-in-the-u-s/,
accessed April 25, 2013.
19. Rosen, J. (2012). The right to be forgotten. Stanford
Law Review, http://www.stanfordlawreview.org/online/
privacy-paradox/right-to-be-forgotten?em_x=22,
accessed February 24, 2013.
20. Gillette, F. (2013). Snapchat and the right to be forgot-
ten. Bloomberg Businessweek, 4316, 42–47.
21. The Cybersecurity Risk. (2012). Communications of the
ACM, 55(6), 29–32. doi:10.1145/2184319.2184330
22. Protalinski, E. (December 5, 2012). The US Navy sees
110,000 cyberattacks every hour. The Next Web, http://
thenextweb.com/us/2012/12/05/us-navy-sees-110000-
cyber-attacks-every-hour-or-more-than-30-every-
single-second/, accessed February 25, 2013.
23. Corrons, L. (March 2010). The rise and rise of NDR.
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24. Kirk, J. (February 7, 2013). Microsoft, Symantec take
down Barmital click-fraud botnet. Network World,
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http://www.ftc.gov/opa/2002/09/okcasketsales.shtm

http://www.eff.org/deeplinks/2009/07/judge-overturns-lori

http://arstechnica.com/tech-policy/2013/02/germans-cant-see-meteorite-youtube-videos-due-to-copyright-dispute/

http://portal.bsa.org/globalpiracy2011/downloads/study_pdf/2011_BSA_Piracy_Study-Standard

http://www.pcmag.com/article2/0,2817,2415850,00.asp

http://eon.businesswire.com/news/eon/20100601006529/en

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http://arstechnica.com/tech-policy/2013/02/germans-cant-see-meteorite-youtube-videos-due-to-copyright-dispute/

http://thenextweb.com/us/2012/12/05/us-navy-sees-110000-cyber-attacks-every-hour-or-more-than-30-every-single-second/

chapter 10 Ethics, Privacy, and Security 319
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Official PCI Security Standards Council Site

Learning Objectives
Describe the seven phases of the systems development life cycle (SDLC).
Describe three major software development strategies.
Explain why organizations choose one software development strategy over another for particular projects.
Explain how organizations decide whether to build or buy, and the steps they use if they choose to buy an
information system.
Identify several ways in which the human element is important for systems development and procurement.
1
4
2
5
3
C H A P T E R
11 systems Development and Procurement
HOW DO INFORMATION SYSTEMS COME INTO BEING? SOME
START OFF IN A PROGRAMMER’S BASEMENT, and a few of
those burst out to earn billions for their creators. Most, how-
ever, are built or bought in response to a business need.
In the online simulation for this chapter called “Green
Wheeling,” the business need is clear. A university launched
a campaign to contact alums, local corporations, wealthy
residents, and potential donors to ask for donations to pur-
chase electric vehicles for the campus so students wouldn’t
need cars. The problem, though, is that the information
system they rely on to manage this campaign is in sham-
bles and must be replaced. Duplicate names abound and
the volunteer fund-raisers—including you—are irritating
donors with multiple phone calls. You join a task force to
identify what the real problems are, what features you need
most, and how you will go about getting this new informa-
tion system. You’ll learn what trade-offs people make as
they push for the features that matter most to them, and
you will also weigh the pros and cons of buying software
vs. building it.
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.
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Green Wheeling
A Role-Playing Simulation on Systems Development
for a Fund-Raising Application
This chapter traces the life cycle of an information system,
from the birth of the idea and the planning phase to the sys-
tem’s implementation and maintenance. A lot can go wrong
in this cycle, and many projects fail along the way. We will
see why that can happen, and the kinds of choices people
make as they navigate all the options. We also examine how
information systems—like the university’s crumbling fund-
raising system—age, and why they eventually must be
replaced.
chapter 11 SyStemS Development anD Procurement 321
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MyMISLab Online Simulation
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322 IntroDuctIon to InformatIon SyStemS
SySTEmS dEvEloPmEnT
lIfE CyClE
Bored at the thought of another frozen lasagna dinner, Lily looks closely at her refrig-
erator’s shelves and spots parmesan cheese, garlic, cream, and other odds and ends. Her
cabinets also hold chicken stock, tomato paste, and olive oil, so there must be something
creative to make. Her few cookbooks have tempting recipes, but none match her supply.
If only she could find one that uses what she has, not what she doesn’t have. If a system
had that information, could it do a matching process to recommend some dishes she
hasn’t considered?
Innovations often spring from frustrations like this one, and Lily starts mulling over a
web application to fill this gap. As a senior manager for an online grocer that delivers to
a 20-mile radius, she is also thinking about competitive advantage, and how this applica-
tion, her “What to Make with What You Have” cookbook, might help the company. Lily
is no stranger to web development; she was charged with implementing the company’s
main e-commerce website. She starts making notes, planning to bring the idea up at the
next managers’ meeting.
The systems development life cycle (SDLC) is the process that begins with planning
and goes through several phases until the system has been implemented. It then enters
its maintenance period. In theory, the process encompasses seven sequential steps
(Figure 11-1), although, of course, the real world is often more unruly. The seven steps
are planning, analysis, design, development, testing, implementation, and maintenance.
Here we look at each.
Planning
The goal in this step is to define the business need for the project, assess its
importance to the company, and determine whether the project is actually fea-
sible. Most organizations are not short of ideas for information system proj-
ects, but they all have limited time and funding. Indeed, many have a long
queue of ideas to enhance or replace existing systems or to implement brand
new ones, all of which may seem worthwhile. Lily’s cookbook project may
face some tough competition for the company’s resources. A steering commit-
tee with business stakeholders and IT staff often lead the planning phase and
make the case for the new system.
Assessing Business need Three major factors that bolster business need and
determine where to allocate funding for systems development projects are:
▶ Return on investment (ROI)
▶ Competitive advantage
▶ Risk management
If the project will either save or earn more money than it will cost, the
return on investment (ROI) is positive. For some projects the ROI is relatively
easy to calculate. For example, when two school districts in Canada merged
into one, they each had separate phone systems. They decided to replace the
systems with unified communications and IP phones that rely on Internet con-
nections, at a cost of $500,000. The combined district saved $200K a year,
returning the investment in just 2 1⁄2 years. The school also benefits from many
added features such as paging, public address system, videoconferencing, and
free call forwarding.1
ROI can be much harder to estimate in other projects. Lily envisions that
her system will promote online grocery sales by including a feature to sug-
gest recipes that will also work well—except for one or two items the cus-
tomer is missing. The application would offer a discount coupon for those,
and promise speedy delivery. Since the customer would already be paying the
Describe the seven
phases of the systems
development life cycle (SDLC).
1
1. Planning
2. Analysis
3. Design
4. Development
5. Testing
6. Implementation
7. Maintenance
FIGURE 11-1
Systems development life cycle
phases.
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chapter 11 SyStemS Development anD Procurement 323
requirements analysis
The process by which stakeholders identify
the features a new information system will
need and then prioritize them as mandatory,
preferred, or nonessential.
feasibility study
Part of the information system planning
process that examines whether the initiative
is viable from technical, financial, and legal
standpoints.
systems development life cycle (SDLC)
The process that describes the seven steps
in the life of an information system: planning,
analysis, design, development, testing,
implementation, and maintenance.
delivery charge, the promotion might also suggest some other items to complement her
pantry. The site would also have an RSS feed from the grocer’s regular site, listing current
promotions.
Leveraging information systems for competitive advantage is a powerful driver for
systems development, and Lily thinks this aspect should be stressed in the proposal.
Thinking about the site in those terms, she decides to add a loyalty feature for repeat
customers who can earn points toward free deliveries. She also describes a commenting
and reviewing function so that customers can rate the recipes and share their tips. That
would help build a community of creative people who like to cook something fun on the
spur of the moment with little advance planning.
Risk management is a third driver of information systems development, one that usu-
ally touches on security, privacy, safety, and regulatory compliance. For example, the
company’s CIO might insist on new software development to improve information secu-
rity for customer data. The development effort won’t increase sales, but it will protect the
company from security threats. Lily’s project doesn’t reduce risk, so it can’t be justified
on that basis. In fact, it may raise new privacy concerns. Customers might not be will-
ing to divulge food preferences in connection with personally identifying information,
since it might hint at medical problems or just awful eating habits. A strong privacy
policy will be needed, and Lily will cover this in her proposal.
FeAsiBility study The feasibility
study is an important part of the plan-
ning process that examines whether
the initiative is viable from technical,
financial, and legal standpoints. It may
not be technically feasible if the tech-
nologies either don’t exist yet or are not
mature enough to support the project’s
goals. Financially, the return on invest-
ment may be promising, but the orga-
nization may not have sufficient capital
to fund it. A legal review may uncover risks that could expose the company to lawsuits.
Disputes over technology patents are particularly common. For instance, Apple sued
Samsung over patent violations involving smartphones and the courts awarded Apple
almost $600 million.3
The feasibility of Lily’s project depends partly on whether she can get access to reci-
pes in a format that can be analyzed according to ingredients. Her company already has a
huge database of grocery products, so that side of the matching is already in place.
Analysis
Once the project has approval to proceed, the next step is to analyze and document what
the system should actually do from the business (as opposed to the technical) perspective.
During requirements analysis, stakeholders identify the features the system will need and
then prioritize them as mandatory, preferred, or nonessential.
Gathering these requirements entails many meetings, interviews, and reviews of the
way existing processes unfold. The person who leads this analysis needs a solid back-
ground in business management and information systems, but also outstanding listening
and consensus-building skills. The stakeholders will have different views about how pro-
cesses actually work and how they should be improved, especially when their own jobs
are involved. You will see that happening in the Green Wheeling simulation.
Did You Know?
When you call a taxi, how long will it take to arrive? It’s frustrating when you
don’t know and must stand outside waiting. A pair of entrepreneurs in the
United Kingdom developed an information system to address this problem, one
designed for smartphones. Using the app, customers can phone a taxi, then watch
its progress on an interactive map. The app shows exactly when it will arrive, how
much the ride will cost, and who is driving the cab.2 It removes the guesswork so
you can finish your dessert.
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Process diAgrAms And Business Process imProvement The analysis will develop a
clear understanding of the processes the system will support, usually using process diagrams.
These trace how each process operates from beginning to end in a way that is clear to all the
stakeholders. Figure 11-2 shows an example.
A well-done requirements analysis should also uncover opportunities to optimize
business processes and even eliminate some of them. As we described in Chapter 1, atten-
tion to how information systems can improve business process management (BPM) can
yield rich dividends. For instance, a process that includes routing a supply purchase to a
supervisor for approval might not be needed at all if the rules the supervisor uses to make
decisions can be built into an expert system. Manual data entry from handwritten forms
is a major target for elimination, drawing on intelligent character recognition, or custom-
ers who will happily input their own data on the web.
When you buy an airline ticket on the carrier’s website, you do all the data entry
yourself, including your passport number if it is an international trip. Contrast that with
a phone call to an airline reservation specialist, who will charge you a fee for making
the arrangements and entering your data for you. As an added bonus, customers have a
strong motivation to avoid errors in their own data, so accuracy improves.
An early form of BPM introduced in the 1990s was called business process reengi-
neering (BPR). In his article with the provocative subtitle “Don’t Automate, Obliterate,”
Michael Hammer proposed BPR as a means to make sweeping changes that eliminated
all processes that did not add value.4 Following his advice, many companies went through
wrenching, expensive, and ultimately unsuccessful projects led by consultants to redesign
processes throughout the organization. It soon became clear that the human element is
key to managing and improving business processes, and by 1995, BPR was criticized as a
fad that “forgot people.” BPR’s objectives are sound, though, if the techniques are used
in a more focused way on smaller projects in the context of new system development and
overall business process management.5
requirements deFinition document The output of the analysis phase is the requirements
definition document (RDD), which specifies in detail what features the system should have,
Customer
visits
website
Customer selects grocery
products available from
database
System retrieves
matching recipes and
near matches
Output displays matches
and coupons for
products that are missing
New
account?
Yes Prompt user to create
an account
No
Yes
No
FIGURE 11-2
Sample process diagram.
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requirements definition document (RDD)
A document that specifies the features a new
information system should have, prioritized
by stakeholders. It also includes assumptions
and constraints that affect the system, such
as the need to migrate and possibly reformat
data from an existing system.
business process reengineering (BPR)
The design and analysis of workflows in an
organization with the goal of eliminating
processes that do not add value.
process diagrams
Graphical representations that trace how
each process that a new information system
will support operates from beginning to end.
prioritized by the stakeholders. It also includes assumptions and constraints that affect the
system, such as the need to migrate and possibly reformat data from an existing system. In
addition to the system’s actual features, the document should address the kinds of require-
ments listed in Figure 11-3. Stakeholders sign off on the document, confirming that this is
indeed the system they need, specified as precisely as possible.
Build or Buy? Once the stake-
holders agree on what is needed,
a review of commercially avail-
able information systems may
take place. The RDD is used as
a feature guide to help compare
the systems to see how well each
one aligns to the organization’s
requirements. A general rule of thumb is that if an organization can buy or license soft-
ware that meets at least 75% to 80% of its requirements, and costs are within reason, the
“buy” option is probably a favorable approach. “Buy” is also typically the best choice
when the system supports common business functions, such as financial or human
resource management. We will come back to the procurement process later in this chap-
ter. For now, we continue with systems development when the choice is to build it from
scratch. Design, development, testing, and implementation might proceed with in-house
IT staff or the project might be outsourced to a software development company. In either
case, the RDD is the road map.
Design Phase
The design phase involves translating the RDD into a workable technical design. Here,
the team makes decisions about the system’s architecture, and draws up plans that
describe the technical details.
ArchitecturAl design The choice of software development environments and hard-
ware architecture is a critical one. As we discussed in Chapter 3, the organization has to
consider the enterprise architecture as a whole. Although a particular software develop-
ment environment might be marginally more efficient for a specific project, the disadvan-
tages of a fragmented, poorly integrated architecture are too costly to ignore.
The choice will also be affected by the experience and capabilities of the IT staff. A
company whose IT staff is very experienced with the Java programming language, Linux
servers, and MySQL databases, for example, would lean in that direction for new projects
Types of Requirements Examples
Functional requirements System features, prioritized by stakeholders; description of processes the
system will support, and the system’s input and output
Usability requirements Ease of learning the software, task effi ciency, screen attractiveness
Accessibility requirements Accessibility for people with disabilities
Performance requirements Response time, reliability, availability, scalability
Interface requirements User navigation, data display
Security requirements Authentication, privacy, encryption
Compliance requirements Processes and reports required for compliance
Integration requirements Interfaces with other systems
Language requirements Support for English, Spanish, and/or other languages
FIGURE 11-3
Types of requirements included in a
requirements definition document.
PRODUCTIVITY TIP
You can optimize one of your own processes by leveraging information
systems. Before you run errands, make a checklist. Then use Google Maps or
another navigation tool to find the most efficient order for your destinations
and the best routes to take.
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to leverage its existing expertise. If the staff is experienced only in older technologies,
however, the organization’s chief architect will want to take this opportunity to train
staff in new tools, ones that align with the enterprise’s future architecture.
A growing trend in software design is service-oriented architecture (SOA), in which systems
are assembled from relatively independent software components, each of which handles a
specific business service. For example, one chunk of code might “get the customer’s credit
rating,” and different applications and business units could interface to this chunk to per-
form the same common task, rather than build it separately. The approach is especially use-
ful in fast-moving, agile companies that need to make many changes to business rules and
processes, and that also want to streamline common business services across the enterprise.
Verizon developers, for instance, built a service to “get the customer service record.”
The underlying software code was not pretty—it had to retrieve a complex jumble of
data from 25 different systems. But other developers who needed that service for new
web-based applications didn’t have to worry about the innards—they only had to write
a single link to interface with the service’s outside wrapper. Without the service, those
developers would have had to write interfaces to all those 25 systems independently, and
the results that were returned for each customer may not have been consistent. Worse,
when a 26th system is added, from a merger perhaps, every one of those systems would
need changes, not just the one service.
Like many companies, the online grocer where Lily works has a mix of architectures,
since some systems were purchased from software vendors and integrated with others
that were custom-built. However, the grocery product database is in a MySQL database,
and the web applications are all developed with the open source programming language
called PHP. That architecture makes the most sense for the cookbook project.
Whatever architecture is selected, the organization must also consider size and capac-
ity issues, since the application will put new pressures on it. For example, more server
space might be required, whether in the data center or in the cloud.
dAtA models And dAtABAse design The design phase captures all aspects of how the sys-
tem’s components will function together to accomplish the goal, using descriptions, models,
and diagrams. It is the technical blueprint for the whole system, with all the fine print and
details. The analyst and IT staff will look this over very closely because fixing mistakes now
helps avoid costly corrections later.
The database schema described in Chapter 4, for instance, will show all the details for
the database’s tables, the fields for each table, and the relationships between the tables.
The use case diagram will show how different types of users will interact with the system
(Figure 11-4). (They really do use those stick figures to represent users.) Other diagrams
document specific business processes and rules, screen layouts, and navigation.
Many designers rely on standardized graphics symbols and notations to improve
communication and clarity, often using the unified modeling language (UML). Devel-
oped by a consortium of 11 companies, UML offers a standardized approach to
modeling. Designers can use it to create visual models and blueprints
that document the system’s components, as well as the behaviors it is
expected to perform.
The design phase also addresses usability and considers the needs
of all the different end users who will interact with the system. For a
customer website, a positive user experience adds business value and
encourages visitors to come back. Eager buyers return again and again
to Amazon because usability is high; customers can easily locate what
they need, enter shipping information, and complete the purchase.
Usability does not mean flashy graphics and slow-to-load animations,
which can often discourage customers rather than attract them.
Designers also consider end users with disabilities in this phase, and
legal requirements to make systems accessible to them are growing.
Target settled a lawsuit filed by the National Federation of the Blind,
creating a $6 million fund to compensate visually impaired people who
were unable to take advantage of the company’s website using their
Grocery
managers
Customer
Updates grocery
product database
Selects
grocery items currently
available in kitchen
Orders products
online
Rates and comments
on recipes
FIGURE 11-4
Simplified use case diagram.
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use case diagram
Diagrams that show how different types of
users will interact with the system.
service-oriented architecture (SOA)
A set of design principles in which systems
are assembled from relatively independent
software components, each of which handles
a specific business service.
screen readers.6 Accessibility features will not just satisfy legal requirements; they will
also broaden the customer base.
Development Phase
Converting the design into an operational information system is the goal of the develop-
ment phase. Depending on the system’s scope, this phase might require teams of develop-
ers to work for months, each constructing one portion of the system.
Software developers use their own information systems to streamline work and keep
one another informed about progress or challenges. For example, version control software
tracks versions of the code, acting like a library with checkout procedures to prevent
developers from writing over one another’s files. To work on a program, the developer
checks it out of the library. Other developers can still view it and see who has it, but they
can’t make their own changes. When the developer has finished, the code is checked back
into the library as the latest version, and another developer can then check it out.
Project- and issue-tracking software offers useful features to help developers stay
abreast of all aspects of their projects. Developers can upload diagrams and documenta-
tion, comment on activity, describe challenges, report bugs, and request assistance. The
software maintains a complete history of project activity, including dates showing when
each module was started and completed and who has been assigned each task. It also
offers customizable dashboards so developers can see at a glance how the project is com-
ing along and which activities they need to complete today (Figure 11-5). Software tools
are available to facilitate code review, a peer review process in which programmers famil-
iar with the project and the development environment check over one another’s work
to ensure it is well documented and properly written. Software can check for security
vulnerabilities in the code so they can be fixed early.
unified modeling language (UML)
A standardized approach to modeling an
information system using graphics, symbols,
and notations to improve communication
and clarity.
version control software
A type of software that tracks versions of the
source code during development, enforcing
checkout procedures to prevent developers
from writing over one another’s files.
FIGURE 11-5
Project- and issue-tracking software.
Source: Jira, from Atlassian.
code review
A peer review process in which programmers
check over one another’s work to ensure its
quality.
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328 IntroDuctIon to InformatIon SyStemS
Testing Phase
Testing goes on during the development phase, as individual modules are completed.
When the system has been completed, it undergoes much more rigorous testing to
ensure that the whole system works smoothly together, not just its individual modules.
Figure 11-6 lists examples of the kinds of tests developers might perform.
Each test mimics events the
system will handle when it goes
live. The test cases are carefully
documented so the developers
can make corrections in case of
any failures. Software tools help
tremendously with this testing
as well. For example, once devel-
opers have created a library of
test cases, software tools can automatically run them against the system as it evolves to
test for errors. The software can simulate an army of customers, simultaneously trying
to complete a web-based form with different data, different input errors, different brows-
ers, and different expected outcomes. For Lily’s cookbook, the test cases would include a
range of people, some whose cupboards are almost bare and others who have rare spices
and specialty foods.
Other software tools can check for security holes, compliance with accessibility
regulations, performance under loads, broken web links, and more (Figure 11-7).
These tools, and also independent test-
ers, are critical because programmers
are not the best testers of their own
code. They know how the code actu-
ally works and unconsciously avoid
the odd key presses and clicks that end
users try.
Implementation
As the go-live date approaches, tasks shift to the needs of the end users who will be using
and managing the system. They will need documentation and training to understand clearly
how the new system works and how it differs from the old one, if there was one. Their jobs
may change considerably and they must feel confident they can handle the new roles.
Organizations have several choices about how to implement a new system:
▶ Parallel implementation
▶ Phased implementation
▶ Direct implementation
Types of Testing for
Information Systems Description
Unit testing Programmers can check the functionality of small modules of code during
the development phase.
System testing Both end users and IT staff test the functionality of the entire system.
Stress testing Tests are conducted by IT staff to assess how well the system performs
under peak loads.
Parallel testing Using the same input, developers compare the new system’s output
to the output generated by the system it is replacing.
Integration testing End users and IT staff test the new system’s interfaces with other
software components it links to.
Acceptance testing End users perform fi nal testing to determine whether the project is
complete as specifi ed.
FIGURE 11-6
Types of testing for information
systems.
Did You Know?
Kentico Software found a creative way to motivate end users to report bugs they
spot in its web content management software. The company plants a tree in the
bug finder’s honor and maintains a Tree Gallery with photos of every tree planted
by the developer responsible for fixing it, the name of the person who reported the
bug, and the tree’s location.7
PRODUCTIVITY TIP
When creating a new document for one of your courses, you need a way to
track versions. Try using a standardized file-naming convention that combines
the course code, short paper title, and version number, such as BUS101_SDLC_
v01. Don’t fall into the trap of tacking the word new onto the filename for the
latest version. “New” becomes old very quickly.
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parallel implementation
A type of implementation in which the new
system is launched while the old one it is
replacing continues to run so output can be
compared.
phased implementation
A type of implementation in which the
modules of a new information system are
launched in phases rather than all at once.
A parallel implementation launches the new system while the old one is still running.
Employees either do their jobs twice, once on each system, or two separate teams handle
the same processes, one team on each system. An advantage to this approach is that both
systems are processing the same cases, so if the new one is operating properly, the out-
put should be the same. However, parallel implementation is very expensive and thus is
usually in place for only a short period. Also, if the old system is being retired because it
bungled some processes, the comparisons might not be valid.
A phased implementation launches modules in phases rather than all at once. For
example, an ERP might start with human resources, then phase in components of the
financial modules. The implementation team and trainers can focus on one departmen-
tal group at a time, helping them become accustomed to the new software while the
developers watch for glitches. A disadvantage is that the new system’s modules may be
tightly integrated, so implementing one without the others may create some confusion
and require temporary interfaces to the old systems. For example, the human resources
system will include payroll data that must be passed to the old general ledger if the new
ledger isn’t up and running yet. Consistency is also an issue if information is maintained
in more than one place as the modules are phased in.
Direct implementation switches off the old system and launches all the modules of the
new one on a single, very hectic go-live date, sometimes called the “big bang” (after the
way astronomers describe the universe’s explosive origin). Often employees go home at
night and come back in the morning to find the new system all in place. A major advan-
tage is that all those temporary bridges between old and new modules are unnecessary,
and people whose roles span modules do not have to switch back and forth. The strategy
FIGURE 11-7
Software testing tool to examine web applications for various types of problems, such as missing text descriptions for images.
direct implementation
A type of implementation in which all
the modules of a new information system
are launched at the same time, and the
old system is turned off; also called the
“big bang” approach.
Source: http://achecker.ca, developed by the Adaptive Technology Resource Centre—University of Toronto. http://atrc.utoronto.ca.
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330 IntroDuctIon to InformatIon SyStemS
works well for smaller systems and may be the only logical choice for them. However, the
risks can be high for large-scale implementations of complex software such as the ERP,
involving thousands of employees.
Often the type of system determines which implementation plan is feasible. Lily’s
application, for instance, can easily be implemented in phases, with the matching feature
that compares pantry contents to the recipe database launched first. Company staff will
be trained to enter and maintain the grocery and recipe databases, with the IT staff pre-
pared to respond to tech support questions. Customers can start populating the system
with the contents of their larders and retrieve recipes immediately. The online grocer’s
marketing team will favor this sequence because it offers a quick win in terms of com-
petitive advantage. The customers will be more likely to come back once they devote all
that effort to enter their own data. Later phases can add user comments, reviews, and
targeted promotions to further boost loyalty.
Maintenance
During the first weeks, dedicated support people are usually on call to resolve technical
glitches, train users, correct documentation, and make sure everyone has access to all the
functionality they need. As things settle down, the system moves into maintenance mode,
in which the regular help-desk team can provide support. Maintenance does not mean
changes are not being made to the system, however. Most information systems continue
to evolve to fix bugs and respond to changing conditions.
Bug Fixes And chAnge requests Despite extensive testing, no system with any complexity
is bug-free. The test cases used to pound the system into shape touch on only a small subset
of all the possible events and combinations. Once the system has gone live, users introduce
more cases and bugs surface.
Bugs also arise because the surrounding technologies evolve. For instance, Internet
Explorer, Firefox, Safari, and other browsers are constantly being upgraded to new ver-
sions. Sometimes those upgrades cause trouble in systems that were tested with earlier
browser versions; this is why
you often see notices that say,
“works best with [browser name,
version number].” Databases
such as Oracle or SQL Server
also upgrade to new releases,
and migrating to the latest ver-
sion can cause some compo-
nents of the software to break.
Maintenance includes the work needed to support changing business requirements.
In a merger, for instance, staff will need to integrate data or build new interfaces between
two information systems. Each company might have a comprehensive database of sup-
pliers, but they can’t easily be consolidated because the fields don’t match or there are too
many duplicates.
For example, the merger between United and Continental Airlines created a long list
of systems maintenance issues. Frequent flyer account balances and reward rules had
to be harmonized, along with records on the two companies’ airplane fleets. Creating a
single roster of employees with accurate human resource records is another challenge,
complicated by different union seniority rules that govern work assignments for pilots
and other positions.8
Changes in government regulations also drive systems maintenance. For example,
when states began passing legislation that required organizations to notify customers
affected by a breach of their personal information, companies raced to encrypt the data,
whether it resided on servers, laptops, smartphones, backup media, or other places that
might leave data exposed. As long as the data files are encrypted, the notification require-
ments do not apply.
Most systems continue to evolve as new features and enhancements are added after
the initial launch. Lily plans to collect feedback from everyone who uses the “What to
PRODUCTIVITY TIP
When you find a bug in one of your college’s systems, immediately take a
screen shot, write down what you were doing at the time, and add any details
that might help the IT staff replicate it, such as the browser you’re using and
the version number. Forwarding this information is much more productive for
you, IT, and the whole organization compared to calling with the vague report
that “it isn’t working.”
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legacy systems
Older systems built on aging or obsolete
architectures that continue in use because
they still function reasonably well and
replacing them is costly.
change control process
A process organizations use to manage and
prioritize requests to make changes or add
new features to an information system.
Make with What You Have” website to help her decide which features to add to make the
site more compelling and effective.
To manage all the bug fixes and change requests, organizations put into place a
change control process. IT staff help clarify the change requests and estimate the resources
required to accomplish them. They then work closely with business units and executive
management to determine priorities. Backlogs of these fixes can grow very long, espe-
cially as the system gets older.
When inFormAtion systems groW old Unlike mechanical gear, software doesn’t wear
out with use. Information systems do age, however, and eventually need replacement.
Over time the maintenance burden may grow very heavy. All the changes pile up inside
the code, adding patches and work-arounds that clog what was once streamlined code.
Maintenance projects needed to keep a system secure and up-to-date with the latest ver-
sions of the underlying technology are often deferred, as business units devote resources
to new features that offer competitive advantage. Like an old house whose owners add
a lovely rose garden rather than replace the faulty copper wiring, information systems
accumulate hidden signs of aging. The systems become harder to adapt to changing busi-
ness needs, and they can also present risk of catastrophic failure.
For example, almost every system needed maintenance work to dodge the inevitable
breakdowns associated with Y2K, the computing problem that loomed in the late 1990s.
Most systems had been designed to store the year as a 2-digit field rather than four digits
to save space on hard disk drives. Thus, as December 31, 1999, neared, maintenance teams
devised ways to avoid confusion by increasing the field size or adding rules that determined
whether “00,” for instance, meant 1900 or 2000. But many organizations used the imminent
event to replace their legacy systems, older systems built on aging or obsolete architectures
that continue in use because they still function reasonably well and replacing them is costly.
SofTwARE dEvEloPmEnT STRATEgIES
The system development life cycle (SDLC) describes an orderly progression from plan-
ning to maintenance and eventual replacement, with discrete steps in between. However,
actual projects may deviate from a straightforward step-by-step approach, using alterna-
tive development methods. The SDLC aligns closely with the waterfall method, which we
discuss first.
Just as organizations can develop innovative information systems that
streamline operations and build competitive advantage, they can build in
requirements for new systems that promote ethical decision making and
social responsibility. For instance, software can promote the goal of “going
green” by automatically reminding employees of the environmental cost each
time they choose to print out a document. Systems that track each user’s
print usage and provide frequent reports also achieve that goal because they
increase individual accountability.
To promote ethical decision making in procurement, the software can
automatically compare current prices offered by qualified suppliers. When
the buyer can see the comparison and knows that others can see them,
too, he or she is more likely to make an objective choice rather than favor
a supplier whose sales rep brought a nice gift on the last call. Ensuring
transparency about the details of any decision is a powerful tool to promote
ethical behavior.
Employees can also be alerted with pop-up boxes or color coding
whenever they view confidential information about customers as a reminder
to avoid privacy breaches. Systems can prevent employees from download-
ing such data as well.
When managers develop the requirements for new information sys-
tems, they should consider what features might facilitate ethical decision
making. While the systems must meet minimum compliance requirements,
they can do much more toward promoting high ethical standards and corpo-
rate social responsibility.
THE ETHICAL FACTOR Developing Systems That Promote Ethical
Decision Making and Social Responsibility
2 Describe three major software development strategies.
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Waterfall Software Development
In the waterfall method, the SDLC tasks occur sequentially, with one activity starting only
after the previous one has been completed (Figure 11-8). The analysis phase nails down the
requirements, and at that point the developers estimate the time and resources needed to
complete the project. Programmers don’t start writing any code until all the previous phases
have been completed, including the detailed design. Different people may be engaged in
each task, and they hand off their work to the next team when their part is done.
In theory, the progression continues forward from one task to the next. In prac-
tice, though, requirements often change after later stages have already begun, forcing
the waterfall to run back uphill. The design has to be changed, and then the program-
ming must be changed as well. Although the waterfall method has been used for decades,
success rates are often quite disappointing, especially for large projects that take a long
time to complete. Over the year or more that design and development are underway, the
organization’s needs are quite likely to change, so the system the developers are build-
ing is already obsolete. The rework is costly and time-consuming, resulting in blown
budgets and missed deadlines. These frustrations led to the development of alternative
approaches that are better able to adapt to changes in the business landscape.
Iterative Methods
Iterative methods compress the time horizon for software development, partly to reduce
the impact of fast-changing business needs and the resulting rework. They focus on
the time available until the next release, or iteration, and the development team deter-
mines how many of the requirements it can deliver in that timeframe. While the water-
fall method estimates time and resources needed based on the analysis of requirements,
the iterative methods do the reverse. Given available time and staffing, what features
can we deliver?
Planning
Analysis
Design
Development
Testing
Implementation
Maintenance
Time—
Analysis
Design
Development
Testing
Implementation
Mainten
FIGURE 11-8
Waterfall method of software
development.
Source: Arpis/Shutterstock.
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rapid application development (RAD)
A strategy in which developers quickly bring
up prototypes to share with end users, get
feedback, and make corrections before
building the fully functional version.
iterative methods
Strategies that compress the time horizon
for software development, partly to reduce
the impact of changing business needs and
the resulting rework. They focus on the time
available until the next release, or iteration,
and the development team determines how
many of the requirements it can deliver in
that timeframe.
waterfall method
Method in which the systems development
life cycle tasks occur sequentially, with one
activity starting only after the previous one
has been completed.
Iterative approaches vary, but most incorporate the tasks in the SDLC rapidly, and
they overlap. Figure 11-9 shows how the tasks might be undertaken for a project expected
to release in 6 months. Notice how the tasks are sequenced, but they don’t end before the
next task begins.
A common approach used in iterative methods that helps software developers bring an
application to life more quickly is called rapid application development (RAD). Developers
create a software prototype that they can share with users and get their feedback to make
corrections and improvements before more time is spent building a fully functioning ver-
sion. End users are much more helpful when they can see a prototype even if most of it
doesn’t actually work. The approach works well with the overlapping phases typical of iter-
ative development, and it is often used in other software development approaches as well.
Agile Methods
Agile software development methods use a less structured approach in which tasks are
not sequenced according to the SDLC. Instead, many activities occur simultaneously.
The development team is typically very cohesive and usually collocated rather than geo-
graphically distributed as teams in a waterfall project might be.
An agile team also includes one or more business users dedicated
to the project. The duration for development, called the “time
box,” is quite short, often just 2 to 6 weeks.
In 2001, developers who were using various agile methods came
up with a “manifesto” that clarifies the key features (Figure 11-10).
The methods stress a team-oriented approach that includes end
Planning
Amount of timing of effort on each phase
Analysis
Design
Development
Testing
Implementation
1 2 3 4 5 6
Go live
Months
FIGURE 11-9
Task phases in an iterative software development approach, preparing for a release in 6 months.
agile software development
Development strategies involving cohesive
teams that include end users, and in which
many activities occur simultaneously rather
than sequentially to accelerate delivery of
usable software.
▶ Individuals and interactions over processes and tools
▶ Working software over comprehensive documentation
▶ Customer collaboration over contract negotiation
▶ Responding to change over following a plan
We value
FIGURE 11-10
The Agile Manifesto.
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334 IntroDuctIon to InformatIon SyStemS
users and an unconcern for strictly defined processes, written documentation, and contracts.
Many different varieties of agile methods exist, but two examples are Scrum and XP.9
scrum Scrum offers a framework for software development that relies on tightly knit, cohe-
sive teams that do “sprints” of 2 to 4 weeks each. The customer’s voice on the team is called
the “product owner,” and this person makes sure the project adds business value. He or she
might be a marketing executive if the project involves customer relationships or a manager
from finance if the new feature will improve the billing process. Lily would be the product
owner for the “What to Make with What You Have” website. The project manager gets the
colorful name of Scrum Master. The term scrum is actually a move in the sport of rugby, in
which the team members pack together, acting in unison to get the ball down the field.
At the start of a sprint, the product owner prioritizes the backlog of requirements for
the software, and the team decides which ones are feasible for the next sprint. Once the
team has confirmed the requirements, they are fixed for the sprint’s duration so the team
can get right to work. Short sprints, close collaboration, and daily meetings help ensure
that developers don’t work for months on a set of requirements only to face the waterfall
problem: business needs have already changed. The goal is to have workable software
with the new features at the end of each sprint.
extreme ProgrAmming (xP) Another team-based agile method, extreme programming (XP),
focuses on frequent releases of workable software and time boxes for development. The
approach stresses four fundamental principles: coding, testing, listening, and designing. A
project starts with user stories, often written on 3 × 5 index cards, and the team arranges
these into a plan for the features that will be in the next software release.
A distinguishing feature of XP is that developers work in pairs, reviewing one anoth-
er’s work, providing each other with feedback, and testing the code as it is written. Often
the pair will sit side by side, viewing the same monitor and pushing the keyboard and
mouse back and forth as they collaborate to come up with good coding solutions. XP’s
strong emphasis on testing is also an important feature, and one reason for its develop-
ment was to improve software quality. Poor software quality costs the U.S. economy an
estimated $59 billion annually, and more thorough testing can help reduce that waste.
Agile methods continue to evolve, and most companies draw on several methods to
develop effective teams that can work smoothly with their business colleagues to develop
the best solutions to business needs.
ComPARIng SofTwARE
dEvEloPmEnT APPRoACHES
How do organizations choose which method to use? While some developers are fanati-
cal about one method, all can work well or poorly, depending on the situation and the
people using them.
Type of Project
First, the choice of a development approach depends heavily on the type of project. For
example, an iterative approach will work well for projects in which the requirements can
be launched in discrete phases as releases. The clarity of requirements can also affect the
choice. A waterfall method would work when the requirements are clear, stable, and easy
to define well in advance. When business needs are changing rapidly, lengthy projects
based on the waterfall method will fail and an agile approach should be used.
Organizational Culture
The organization’s culture is also an important element. Moving to an agile development
approach means much more than programming in pairs or adopting the colorful Scrum
vocabulary. It is a cultural shift that many development teams may find uncomfortable.10
After years of using the waterfall method, for instance, developers are inclined to resist
changes or additions to the requirements after the analysis phase has been done. They
3Explain why organizations choose one software development strategy
over another for particular projects.
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extreme programming (XP)
A team-based agile method that features
frequent releases of workable software, short
time boxes, programmers who work in pairs,
and a focus on testing.
Scrum
An agile process for software development
that relies on tightly knit, cohesive teams that
do “sprints” of 2 to 4 weeks each.
see it as rework, and they try to lock down the requirements through written documents,
contracts, and user sign-offs. Agile methods need developers who welcome changes in
requirements, because they understand that the ultimate goal is to develop software that
users really want, not just to finish a project on time.
Another cultural shift is from the “me” mentality to “we.” The waterfall method
stresses sequenced tasks, so developers who complete their task on time consider them-
selves successful even if the project itself is falling behind. But agile teams are collectively
responsible for delivery, and team members must help one another achieve the goal to be
successful. The team must be cohesive and trusting, since each member’s job and career
may depend on the whole team’s performance.
Is Waterfall Dead?
Excitement surrounding the nimble iterative and agile methods has led to predictions of
doom for the waterfall method. But surveys show that the older approach is still widely used,
despite its disappointing track record.11 One reason it persists is that business managers are
comfortable with its logical and familiar structure. The cultural challenges associated with
agile methods are also larger than some organizations anticipate. They find that agile develop-
ment needs more discipline, not less, especially for larger projects, and employees need coach-
ing and time to adjust to a team-oriented approach. Some prefer not to make that switch.12
Outsourced software development also tends toward waterfall methods. Once the
requirements phase is complete, the contractor uses the results to determine the cost of
the whole project, before signing a contract. If the client wants changes to the require-
ments in midstream, or adds features outside the scope of original requirements, the
price would go up.
However, to avoid the risks of the traditional waterfall method, companies are adapt-
ing the method to much shorter timeframes and more focused goals, often adding agile
methods into the mix. Those prolonged projects in which the software is delivered years
after requirements were collected are, for the most part, a thing of the past.
SofTwARE PRoCuREmEnT:
THE “Buy” STRATEgy
As commercial software companies add more features and reduce licensing costs, orga-
nizations are increasingly considering the “buy” strategy, rather than custom devel-
opment. Especially for business functions that don’t offer very much competitive
advantage, prepackaged software may be the best choice. The prepackaged options go
beyond the commercial software products that an organization can license from the
vendor and install on its own servers. They also include free, open source software.
The rapidly evolving software-as-a-service (SaaS) products described in previous chap-
ters expand options still further. Organizations can lease just the subscriptions they
need, and employees can access the cloud-based application with their web browsers or
smartphone apps.
Pros and Cons of Build and Buy
Figure 11-11 highlights the major pros and cons associated with custom systems devel-
opment and prepackaged software. As mentioned earlier, prepackaged software that
handles at least 75% of the organization’s requirements could be an excellent choice.
But the decision is really more complicated than that, and many factors should be con-
sidered. Strategic value, overall cost, time needed to deploy, the need for customization,
and the availability of IT resources should all enter the equation.
4 Explain how organizations decide whether to build or buy, and the
steps they use if they choose to buy
an information system.
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336 IntroDuctIon to InformatIon SyStemS
The Procurement Process
Figure 11-12 shows the SDLC, including the steps organizations take when they decide
to pursue a “buy” strategy.
rFi And rFP During the early phases of the SDLC, IT staff and business users should be
systematically exploring the landscape of prepackaged software that might fit the organiza-
tion’s needs. As the list of user requirements develops, they will send out a request for infor-
mation (RFI) to a large number of potential vendors to serve as their initial market scan of the
options. The RFI describes the new system in broad, high-level terms, and interested vendors
send responses describing their products and services.
At this point, the steering committee decides whether to proceed with the design phase or
buy. If the responses to the RFI and the committee’s own research show some possible pre-
packaged options, the committee will develop a request for proposal (RFP), which is an invita-
tion to software companies to submit a formal proposal, including a detailed description of
their products, services, and costs. The RFP details the requirements that were developed in
the analysis phase and also information about the organization’s architecture, staffing, and
other relevant details. This invitation is sent to the most promising commercial vendors and
possibly also to companies that specialize in implementing open source products.
Releasing an RFP does not commit the organization to the “buy” approach, and
the steering committee may decide to custom-build the product after all. But the RFP
Pros Cons
Custom System
Development
Is tailored closely to the organization’s needs
May offer strategic value that contributes
to company’s competitive advantage
May not require employees to change their
processes
Usually has higher overall cost
Requires more time before going live
Requires ongoing in-house maintenance,
upgrades, and compliance
Prepackaged
Software
Handles processes using industry best
practices
Requires shorter implementation time
Usually carries lower cost
Can include vendor’s new features and
maintains compliance requirements
Works best for applications that offer few
competitive advantages
Does not match all the organization’s
requirements
Might overstate product’s capabilities and
vendor support
Requires organization to change business
processes and develop interfaces to other
systems
May not include new features needed by
the organization
May not fi t enterprise architecture
FIGURE 11-11
Pros and cons of custom systems
development and prepackaged
software.
NoNo
Build?
t
Yes
Planning
Analysis
and RFI
RFP
Design Testing
t
Development
Vendor
Evaluation
and Selection
Contract
Negotiation and
Signing
MaintenanceImplementation
Customize
Implementation
Maintenance
FIGURE 11-12
SDLC including steps for the
“buy” option.
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chapter 11 SyStemS Development anD Procurement 337
best of breed
An approach used by organizations in which
they procure the best systems for each
application, regardless of the vendor, and
then build interfaces among them.
request for proposal (RFP)
An invitation to software companies to submit
a formal proposal, including a detailed
description of their products, services, and
costs. The RFP details the requirements
developed in the analysis phase and also
includes information about the organization’s
architecture, staffing, and other relevant details.
request for information (RFI)
A request sent to software vendors containing
a high level description of the information
system an organization needs, so that vendors
can describe their products that may fit.
provides the platform for vendors to compete fairly and present their best cases for meet-
ing the organization’s needs. The RFP process is also typically used to procure the ser-
vices of a software development company to custom build the system, if the organization
decides to outsource the project rather than build it in-house.
evAluAting the oPtions For large projects, especially ones that involve major systems for
multinational corporations or large government agencies, the procurement process can be
lengthy and complex. The bidders might offer many options with different prices, and as part
of their bid they may include consulting companies that will serve as implementation partners.
The steering committee checks references, explores software demos, visits sites where
the software products are in use, and narrows down the list. The finalists are invited to
do presentations for the stakeholders, and the steering committee develops an evalua-
tion strategy that prioritizes the criteria it will use to rate the solutions. For example, the
spreadsheet in Figure 11-13 shows five weighted criteria. The stakeholders rate each ven-
dor’s responses on the criteria and start contract negotiations with the winning vendor.
The criterion “vendor architecture” deserves special attention because of the need to
consider the overall enterprise architecture and the other systems the company is using.
Some organizations choose a best of breed approach, in which they procure the best sys-
tems for each application regardless of the vendor. The CRM may be a cloud-computing
solution, for instance, while the finance and human resources systems are on company
premises and from a different vendor. With these different architectures, the firm must build
interfaces that allow its systems to interact with one another and pass data back and forth.
Another approach is unified procurement, in which organizations strongly prefer sys-
tems that are offered by a single vendor, especially the one that supplies the ERP. Even if
the ERP’s customer relationship management system does not fit as well, the company
chooses it over competitors to keep integration problems to a minimum and maintain a
consistent enterprise architecture.
Adaptation and Customization
When the packaged solution meets 75% or more of the organization’s needs, what hap-
pens to the other 25%? One possibility is for the company to adapt its own processes to
Weight 30% 20% 10% 20% 20% 100%
Scale (1=very poor
to 5=very good)
Matches
Requirements
Vendor
Experience
Vendor
References
Vendor
Architecture Cost Totals
Commercial Software
Vendor 1
5 3 2 1 1 2.7
Commercial Software
Vendor 2
4 2 3 1 2 2.5
Open-Source Solution 2 1 4 2 4 2.4
SaaS 4 1 4 4 3 3.2
FIGURE 11-13
Evaluating responses to an RFP on weighted criteria.
unified procurement
An approach used by organizations in
which they prefer systems from a single
vendor, especially to avoid the need to build
interfaces.
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338 IntroDuctIon to InformatIon SyStemS
match what the software will support. Many vendors, especially the large ERP compa-
nies, strongly recommend this path, arguing that their software products build in the
industry’s best practices for standard business processes. At Johns Hopkins, for example,
hospital employees were paid every 2 weeks (26 per year), but university employees were
on a twice-monthly scheme (24 per year). Rather than customize the new ERP to handle
two payroll schedules, Hopkins switched everyone to the same calendar.
Another possibility for that 25% is to customize the software, either by paying the soft-
ware vendor or another company to do it or by making the code changes in-house. For
processes that are not so easy for an organization to alter, or ones that support features that
add strategic value and competitive advantage, customization may be the best approach.
The drawbacks to customization are not trivial, however, and managers should con-
sider them carefully. Although tailoring some features to the organization’s processes
may make implementation easier, problems arise later. Adding customized code to a
major software product can introduce errors that may not be discovered until well after
going live, especially in large systems with tightly integrated modules. The vendor may
also refuse to support customized code it did not build. When bugs crop up, it is hard to
tell whether the errors lie in the vendor’s product, in the organization’s custom-developed
segments, or somewhere in between. Identifying just who is responsible for fixing the
problem is important when support contracts are in place.
Another drawback involves upgrades. The vendor will continue to improve the prod-
uct with new features, but organizations that add custom code have a major challenge
with each new release. They must add their customizations to the new version and test
the whole system to make sure everything still works. In some cases, companies decide
not to take advantage of a new release because of these headaches. Over time, the com-
pany’s customized software drifts further and further behind the vendor’s current offer-
ing. The vendor may decide to drop support for older versions, leaving the organization
entirely responsible. These lessons have been learned painfully over time, and most orga-
nizations wisely try to keep customization to a minimum.
THE HumAn ElEmEnT In SySTEmS
dEvEloPmEnT And PRoCuREmEnT
The logical approaches to systems development and procurement described here do not
always unfold quite so tidily. Communication on cross-functional teams, for instance,
can be challenging.
Cross-Functional Teams
Especially in the planning, analysis, and implementation phases, people who don’t often
work together will join cross-functional teams, and communication problems may arise.
IT staff might not quite understand what the marketing team members mean when they
talk about a system that will “delight” customers. And people in sales will scratch their
heads when the IT person mentions RDDs or time boxes. Communication gaps and dif-
ferent priorities may also appear between different business units, such as marketing and
accounting. The accounting people must ensure compliance, but marketing people may
stress customer relationship management features. Whether the team decides to build or
buy, the members will need to bridge the gaps to be successful.
During the planning and analysis phases, the cross-functional team members will try
to describe how processes work and what the requirements for a new system should be.
But most employees will only have a firm grasp on the part of a process that they deal
with. They may find it challenging to design a system that can streamline the process
from end to end and still satisfy all the requirements from accounting, finance, market-
ing, and sales. The exercise is often quite productive, though, as cross-functional teams
with members from different parts of the company share knowledge and ideas. The ana-
lyst who leads this effort can promote this knowledge-sharing aspect of systems develop-
ment, since it offers added benefits for the whole organization.
Identify several ways in which the
human element is important for
systems development
and procurement.
5
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chapter 11 SyStemS Development anD Procurement 339
The Role of Senior Management
Senior managers play a key role in systems development and procurement, one that
should stress the strategic value of the new information system to the organization. They
can inspire employees to work together and ensure the resources the project team needs
are available. Through their leadership, they can also prepare the organization for change.
However, senior managers can sometimes get involved in unproductive ways. For instance,
a company director in the United Kingdom wound up influencing a purchasing decision by
jumping into the process at the wrong time. A dedicated project team was looking into options
for a client tracking system, and invited vendors to show their products. None fit, but one lik-
able sales rep impressed the director, who declared, “This system can do all we need . . . and
more!” The team was reluctant to contradict the boss so they purchased the product. Over
a year later, the project was still stalled because the software needed so much customizing.13
The industry trend that promotes cloud computing and software as a service (SaaS)
also affects how decisions about systems development and procurement are actually
made, as well as who makes them. Because IT support is not as much needed to manage
servers or maintain software, some SaaS sales representatives bypass the CIO and make
appointments with senior managers in finance, marketing, or other units. IT staff may
have a long backlog of projects, so managers may decide to move ahead independently.
CIOs and senior managers in the business units must maintain close communication
to implement cloud services wisely and securely, and to avoid the pitfalls of multiple
independent systems that don’t exchange data. Companies need master data manage-
ment to deal with inevitable integration problems, as we described in Chapter 4. And
they do need IT’s help. For IT staff, the changes also take some adjustment, as they
develop strategies to integrate cloud computing into the architecture.
Working with Consultants
Implementing a new system, especially a large one from a commercial ven-
dor, often means engaging consulting services to help configure, customize,
and launch the software. The consultants might be employees of the software
vendor or they might work for a separate company with expertise in that
software product and a history of successful implementations in other orga-
nizations. The consultants can take on many roles to help make the project a
success, such as those listed in Figure 11-14.
AdvAntAges And disAdvAntAges One advantage of engaging consul-
tants is that it gives the organization access to experts who know the
software well. Experienced consultants have seen how different com-
panies implement the product, and they know where the trouble spots
are. For example, some modules may need extra attention and training
because the user interface is confusing, and others might have known
bugs that require work-arounds. The organization’s own IT staff would
not have this knowledge.
A special kind of consultant called a systems integrator has expertise in making the
different hardware and software components of an information system work together.
The components, such as scanners, servers, smartphones, software, and database, may all
come from different vendors, and the systems integrator takes responsibility for making
them function smoothly with
one another.
Another advantage of con-
sulting services is that the orga-
nization does not have to assign
so many key people to the
PRODUCTIVITY TIP
Consulting is a vague term. If you are involved in hiring one—or if you act as
one yourself—be sure to clarify the scope of work, payment, due dates, and
other arrangements in writing.
systems integrator
A consultant who ensures that the hardware
and software components of an information
system work together when they come from
different vendors.
▶ Requirements gathering and clarifi cation
▶ Customization services
▶ Data cleansing and migration
▶ Software confi guration
▶ Systems integration services
▶ Documentation
▶ User training
▶ Training of IT staff
▶ Project planning
▶ Communications
▶ Implementation support
FIGURE 11-14
Common roles for information systems consultants.
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340 IntroDuctIon to InformatIon SyStemS
project full-time and then backfill their positions. The director of marketing, for exam-
ple, can participate in a project to implement a CRM but still maintain oversight of the
marketing unit.
Consultants are not a cure-all, however, and they come with disadvantages. The orga-
nization’s own employees will be less involved in many of the development and imple-
mentation tasks, so they will miss opportunities to learn the ins and outs of the software.
They may also feel less ownership of the project and be less committed to all the changes
that new processes will mean to their units.
Clients often file lawsuits when a project involving consultants falters or goes
way over budget. For example, California’s Marin County sued Deloitte Consulting
for $30 million, accusing Deloitte of fraud when its consultants claimed extensive
knowledge of the ERP system the county was implementing. That suit was eventually
settled, but such disputes are not uncommon. It can be difficult to determine where
the fault lies.14
contrAct mAnAgement The frequent need to engage consultants increases the value
of an important skill information systems professionals need: contract management. The
people who oversee such contracts will be negotiating terms and conditions, document-
ing any changes to the agreements, tracking progress, and ensuring that both the consult-
ing company and the organization meet their obligations on time. The CIO and IT staff
will help write the language for these contracts. They will also monitor the project and
flag potential problems, since many IT-related tasks will not be familiar to business users.
If the consultants are customizing the software and charging by the hour, the change
control process will be especially important. Business managers will need a clear under-
standing of how changes in the requirements can escalate costs or delay the go-live date.
Regardless of whether the organization builds or buys the information system, suc-
cessful implementation will depend heavily on effectively managing the project from start
to finish. Dealing with budgets, timelines, escalating requirements, and the many “people”
issues that go along with massive changes in the way the organization functions are all
part of project management, and missteps are easy to make. The next chapter takes up this
important topic, and how projects fit into the much larger picture of strategic planning.
Green Wheeling! That’s the campaign you’re working on for a university, trying to raise funds from rich alums,
donors, and corporate foundations. You get a list every
week from the Development Office, and you try to contact
each name to persuade these donors to help purchase a
fleet of electric vehicles for student rentals so they don’t
need cars on campus.
The campaign is a mess. Your lists always have wrong
numbers, or people who have never heard of the university.
Yesterday, you visited a foundation that another rep had just
contacted last week. The administration knows it needs an
information system to manage this calamity, and you’ve
been asked to join a task force to get one. Meetings will use
web conferencing, so log in when you’re ready. . . .
Online Simulation
Green Wheeling
A Role-Playing Simulation on Systems Development
for a Fund-Raising Application
MyMISLab
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C H A P T E R
11 chapter summary
Key terms and concepts
Learning Objectives
The systems development life cycle (SDLC) includes seven steps. During the planning phase (1),
the business need for the system is established and a feasibility study is conducted to ensure the project
is feasible. In the analysis phase (2), the project team identifies the requirements for the system
to create the requirements definition document (RDD), drawing process diagrams and listing
features the system should support. The design phase (3) translates the RDD into a workable
technical design, addressing issues such as data models, databases, usability, accessibility, and
others. In the development phase (4), programmers translate the design into a working system,
taking advantage of techniques such as version control and code review. During the testing
phase (5), the unit modules are tested independently, and the whole system undergoes tests to
ensure the units can work together properly. The system goes live in the implementation phase
(6), which can be parallel, phased, or direct. Finally, the system enters the maintenance phase
(7) in which bugs may continue to arise that need to be fixed, and the organization may choose
to add enhancements.
Software development strategies include the waterfall method, iterative methods, and agile
methods. In waterfall development, one phase of software development starts after the previous
one has been completed. Iterative strategies compress the development process by focusing
on the next release date and working only on features that can be included in that. The SDLC
phases often overlap. Agile development methods are more unstructured, with activities
occurring at the same time. Two examples are extreme programming (XP) and Scrum.
The choice of software development method depends on the type of project and the
organizational culture. Agile methods require a team-oriented approach, for example. Waterfall
methods are useful when organizations outsource development to external contractors.
The decision about whether to build or buy the system should consider whether a purchased
system can handle at least 75% of the organization’s requirements and whether the system is
important for strategic reasons. Other factors include cost, time to deploy, architecture, and
skill sets. Procurement usually starts with a request for information (RFI), followed by a request
for proposal (RFP) to the leading candidates. The RFP process is also used to select a software
development company to custom build the system, if the organization chooses to outsource the
project.
The human element affects systems development and procurement, partly because people from
different parts of the organization work together in cross-functional teams, and communication
issues may arise. Senior managers should emphasize the system’s strategic value and inspire
employees to work together. Organizations are increasingly hiring consultants to assist with
systems implementation, so information systems professionals need to develop effective contract
management skills.
1
4
2
5
3
systems development life
cycle (SDLC)
feasibility study
requirements analysis
process diagrams
business process
reengineering (BPR)
requirements definition
document (RDD)
service-oriented architecture
(SOA)
use case diagram
unified modeling language
(UML)
version control software
code review
parallel implementation
phased implementation
direct implementation
change control process
legacy systems
waterfall method
iterative methods
rapid application
development (RAD)
agile software development
Scrum
extreme programming (XP)
request for information (RFI)
request for proposal (RFP)
best of breed
unified procurement
systems integrator
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11-1. What are the seven phases of the systems develop-
ment life cycle? What activities occur in each phase?
11-2. What is the waterfall method of software develop-
ment? How do the SDLC tasks occur in this method
of development? What are the success rates for
systems developed using the waterfall method? Is
the waterfall method dead? Why does the waterfall
methodology persist despite its track record?
11-3. What is the iterative method of software develop-
ment? How do the SDLC tasks occur in this method
of development? What role does time play in this
development methodology?
11-4. What is the agile method of software development?
How do the SDLC tasks occur in this method of
development? What role do teams play in agile soft-
ware development? How does the time frame for
agile development differ from that of iterative devel-
opment?
11-5. Why do organizations choose one software develop-
ment methodology over another? What are two fac-
tors that affect this decision? Why do organizations
consider each of these factors when selecting a soft-
ware development strategy?
11-6. What are the advantages and disadvantages of
custom-building software?
11-7. What are the advantages and disadvantages of buy-
ing prepackaged software?
11-8. What rule of thumb do business analysts recommend
for making the decision to buy or custom-build soft-
ware? What other factors affect this decision?
11-9. What steps do organizations take when they decide to
buy rather than build software? What activities occur
in each step? How is an RFI different from an RFP?
Does the logical approach to systems procurement
always prevail? What are examples of ways in which
the human element affects information systems pro-
curement decisions?
11-10. Why are cross-functional teams needed for systems
development and procurement? What kinds of prob-
lems might they experience?
11-11. What role should senior managers play in systems
development and procurement?
11-12. What are the advantages and disadvantages of
engaging consultants to assist with implementation?
What kinds of skills do IS professionals need to
work effectively with consultants?
chapter review Questions
11-13. Lily’s cookbook project faces some tough competition
for the company’s resources. She knows her coworkers,
Stan and Rohit, are working on a proposal to incorpo-
rate a DVD rental feature on the company’s website,
and she needs to make a strong case for her “What to
Make with What You Have” online cookbook if she
wants approval for her project. You are on the steering
committee that will help Lily in the planning phase,
and your job is to help her identify and summarize the
business need for the project. What are the major fac-
tors that support a business need and determine where
to allocate funding for a systems development project?
Which factors has Lily considered? Can you think
of other potential benefits of this project? Are there
any feasibility issues with this project? Prepare a brief
summary of Lily’s case that outlines the facts relating
to the proposed online cookbook.
11-14. Consider Lily’s online cookbook and describe the
requirements for that system. Which requirements do
you think are most important for Lily’s website? Which
are least important? Prepare a brief summary that pri-
oritizes the requirements of Lily’s online cookbook.
11-15. Recall from Chapter 3 that enterprise architecture
describes the blueprint of the information technology and
organizational resources that are used to execute business
processes. At what stage in the systems development
life cycle do stakeholders determine the architecture
they will use to build an information system? What is
SOA? Visit YouTube.com and search for “infoclipz:
service oriented architecture.” View this 3-minute video
by InfoWorld and prepare a brief summary that includes
a discussion of the benefits and challenges of SOA.
11-16. The first software bug was a moth. Really. Visit the
Computer History Museum at www.computerhistory
.org to learn how Grace Hopper, a rear admiral in the
Navy, made history in the computer field with the first
software bug. The rigorous testing that takes place
during the development phase of the SDLC encom-
passes much more than looking for bugs. What are
the six types of testing that may be performed in the
development phase? What occurs in each test? How
are scenarios used in the software testing process?
How do software tools facilitate software testing? Is it
a paradox to use software to test software?
11-17. If software doesn’t wear out, which phase is generally
the longest phase in the SDLC? Maintenance begins
in the first few weeks of implementation and may
last for many years until such time as the system is
declared obsolete. For example, changes that occur at
a university often require maintenance of the system.
Describe the software modifications that might be
needed if the university changed all the classes offered
projects and discussion Questions
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chapter 11 SyStemS Development anD Procurement 343
by a particular academic department to e-learning, so
that no classrooms were needed. Describe the changes
that might be needed to accommodate students who
have more than one email address.
11-18. Work with a small group of classmates to develop a
process diagram that illustrates the steps necessary
to register for a class at your university. Use standard
flowchart notation to represent processing steps with
rectangles, decisions with diamonds, and the order-
ing of steps (i.e., flow control) with arrows. Prepare a
PowerPoint presentation of your process diagram to
share with your class.
11-19. ExcEl ApplicAtion:
Jay’s Bikes
Heather and Jay Madera started Jay’s Bikes in the family
garage. Cycling is their passion! They moved to their bicycle-
friendly community because of its three great bike trails that
were built by the city to promote tourism and strengthen the
downtown area. Jay’s Bikes’ business is booming and now
Heather and Jay are operating three retail stores with 18
full-time employees. The stores stock a wide range of bikes
and apparel for both casual and professional riders, and
they have become gathering points for local bike enthusiasts
and tourists alike.
Jay is currently using an old version of point-of-sale
(POS) software and he wants you to create the spreadsheet
shown in Figure 11-15 to evaluate the alternatives for a new
system. Jay has weighted the selection criteria according
to his preferences. Create a formula to calculate the total
weighted score for each software alternative. Be sure to
include a formula to calculate the total weight of all factors
and use absolute cell references where appropriate. Based on
the initial evaluation shown here, the best option for Jay’s
Bikes is SaaS for retail.
Questions
1. Which alternative scores highest if the “matches
requirements” criterion is weighted at 50% and the
“vendor architecture” is weighted at 0%?
2. Which alternative is best if the “matches requirements”
criterion is weighted at 40%, “vendor architecture” is
weighted at 0%, and “cost” is weighted at 30%?
3. Which alternative is best if the “matches requirements”
criterion is weighted at 50%, “vendor architecture” is
weighted at 0%, and “cost” is weighted at 20%?
11-20. AccEss ApplicAtion:
Managing a Recipe collection
Steve and Gail Horton are cooking enthusiasts who want to
use a database to manage their collection of recipes. They have
asked you to help them create the Access database shown in
Figure 11-16. Use the information provided in the Horton
spreadsheet Ch11Ex02 to create and populate the tables. Create
a report that lists the vegetarian recipes first, in descending
order by the number of servings. Include the recipe ID number
and the recipe name. Review the tables in the database and sug-
gest other reports that Steve and Gail would find useful.
application exercises
FIGURE 11-15
Vendor evaluation for Jay’s Bikes POS
system.
FIGURE 11-16
Managing a recipe collection with
Access.
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344 IntroDuctIon to InformatIon SyStemS
case study #1
Babycenter.com’s website pioneers some of the most interactive and engaging tools for parents and parents-to-be, with birth announcements, customized preg-
nancy calendars, a baby names finder, emails timed to child develop-
ment stages, and tips to help parents survive an 8-hour plane ride
with children. Like many Internet companies, however, it started in
a very fragile, understaffed, and chaotic development environment.
Its network operations team consisted of just three people, and pro-
gramming staff spent 85% of their time fighting fires and fixing bugs.
Priorities for developing the site’s new features kept changing, and
attempts to use the waterfall method were frustrated by delays in nail-
ing down requirements and delivering design specs.
Something had to change. While recovering from back surgery,
the company’s VP for engineering read about agile development, par-
ticularly Scrum. Intrigued, he started a pilot project. The Scrum team
held daily standup meetings, usually 15 minutes or less. The “prod-
uct owner,” who was the business manager from the department re-
questing the new features, collaborated closely with the developers to
prioritize requirements. The pilot worked well, but the company’s de-
velopers continued to struggle with competing priorities, complaining
that they were splitting their time 50/50/50: “I’m spending 50% of my
time on Project X, 50% on Project Y, and 50% on Project Z.” Develop-
ers were still racing between projects and maintenance activities, and
most were engaging in “cowboy coding,” bypassing access controls
and good programming practices to quickly fix bugs and get at least a
few new features installed.
In the next phase, the VP demanded a more disciplined approach,
blocking the developers out of the production system and drawing
on Scrum principles. The most wrenching cultural change was man-
agement’s drive to clear the company’s backlog of requirements and
establish priorities based on their strategic value or return on invest-
ment. Previously, business stakeholders would individually bring ideas
to the developers, who did their best to decide which to work on first.
The shift to using strategic value and ROI to prioritize projects dis-
mayed managers whose requirements were pushed down the list, but
it ensured that developers would work on high-value projects rather
than managers’ personal agendas. Now developers could say, “Sorry,
that’s not on my sprint. Go see the product owner.”
More Scrum features were adopted, such as the full-time assign-
ment of a product owner and at least two developers on every team.
Product owners had to become accustomed to deeper involvement
in the features they were requesting, attending the standup meetings
and working much more closely with the software than before. Some
of the developers had been used to the freedom of choosing which
projects they thought were important, but they came to appreciate the
value of Scrum’s structure.
The Scrum sprints provided another way to add discipline to
Babycenter’s software development environment. Managers came to
respect the planning meetings because they knew that requirements
are fixed once the sprint starts. They also took more pains to review the
software early, to avoid winding up with something that wasn’t what
they wanted, but couldn’t change for at least 2 weeks.
BabyCenter started with baby steps, but gradually it put into place
a highly disciplined agile development environment that ensures
its software projects align with business goals. The results speak for
themselves, as they do in other companies that have adopted agile
software methods. Babycenter reaches over 34 million mothers
around the world, with websites in 11 different languages. In the U.S.,
7 in 10 babies are born to moms who rely on Babycenter.
discussion Questions
11-21. Describe the previous software development process at
Babycenter.com.
11-22. Describe the new software development process at
Babycenter.com. How has the software development process
changed?
11-23. What cultural changes were required for Babycenter.com
employees to adapt to the new software development
process?
11-24. What might Babycenter.com business stakeholders and develop-
ers not like about the new software development process?
How could Babycenter.com executives respond to these
concerns?
Sources: Benton, E. (March 25, 2010). Tina Sharkey, CEO of BabyCenter. Fast Company,
http://www.fastcompany.com/1597709/tina-sharkey-ceo-babycenter, accessed April 25, 2013.
Melo, C. de O., Cruzes, D. S., Kon, F., & Conradi, R. (2013). Interpretative case studies on agile
team productivity and management. Information and Software Technology, 55(2), 412–427.
Nottonson, K., & DeLong, K. (2008a). Baby steps: Agile transformation at BabyCenter.com. IT
Professional, 10(5), 59–62.
Nottonson, K., & DeLong, K. (2008b). Crawl, walk, run: 4 years of agile adoption at
BabyCenter.com. AGILE ‘08 Conference.
Schein, A. (2013). Babycenter, L.L.C., Hoovers Online, http://subscriber.hoovers.com/H/
company360/overview.html?companyId=60450000000000, accessed July 12, 2013.
Baby Steps Toward Scrum: How Babycenter.com Made the Cultural Transition
to Agile Software Development
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chapter 11 SyStemS Development anD Procurement 345
case study #2
The agile software development method called extreme programming (XP) has its enthusiasts and detractors, and the jury is still out on whether it is a better choice
compared to approaches such as Scrum. Mindful of how important
agility is for military software, the U.S. Strategic Command launched
a pilot XP project.
XP shares many principles in common with Scrum and other agile
methods, including the early and continuous delivery of functionality,
close collaboration between developers and end users, and respon-
siveness to changing requirements. XP developers are less plan-driven
and do much less documentation to define requirements. XP also fea-
tures “pair programming,” in which two developers work together on
the same computer.
For the military project’s pilot, the XP team’s job was to add new
search functionality to SKIWeb, the Command’s strategic knowledge
and information website used to share information about military
operations and world events across the whole command and intel-
ligence communities. All team members were contractors, except for
the government functional manager who served as user collaborator.
The two programmers sat next to one another in a cubicle, and the
user collaborator’s office was on the same floor. Other team members
were either in the same building or nearby, so no one was participat-
ing in virtual mode.
The project got off to a rocky start when one of the two developers
announced that she’d tried pair programming before and wasn’t will-
ing to do it again. The team didn’t try to enforce it, but did encourage
her to work closely with her programming partner to solve thorny logic
problems together. Other agile practices were welcomed and adopted
easily. For instance, the practice of delivering frequent small releases
rather than infrequent major ones was already in place. Having the
customer on-site is another critical element, and the user collaborator
was right down the hall.
The daily meetings were very successful, but problems in work
assignments and communications arose. XP team members are sup-
posed to be fully assigned to the project to avoid distractions, but this
project’s team members were often pulled off for other assignments
or emergencies. Midway through, they found they needed someone
with expertise in interface design, but that person was skeptical about
joining the XP project and communication suffered. One team mem-
ber complained that there was resistance to change from a traditional
hierarchy to the more collaborative XP style of communication.
Research with undergraduates suggests that paired program-
mers do about as well as the best performer of the pair, but no bet-
ter, raising doubt about whether “two heads are better than one” for
programming tasks. However, the students enjoyed the programming
task more when working in pairs, and the weaker member gained
some confidence. Another study of 40 XP teams suggests that paired
programming itself may not be a key ingredient for XP’s success. The
factors that make XP work are really the collective ownership of the
project by the whole team, the involvement of the client, and a strong
focus on code standards and testing.
In the U.S. Strategic Command’s pilot, the team members’ percep-
tions about the project were positive, despite the snags. They believed
that the XP approach led to very good quality software, even better
than the team might have produced using the old approach. As more
and more organizations switch to agile methods such as XP, we will
better understand just what it is about these methods that make them
successful.
discussion Questions
11-25. How did the U.S. Strategic Command adjust to unexpected
issues as it implemented extreme programming?
11-26. What types of changes accompany the extreme program-
ming methodology?
11-27. Why could a methodology such as extreme programming be
good for a military project? What might be its disadvantages?
11-28. Does the research mentioned at the end of the case study
influence your view of XP?
Sources: Balijepally, V., Mahapatra, R., et al. (2009). Are two heads better than one for
software development? The productivity paradox of pair programming. MIS Quarterly,
33(1), 91–118.
Fruhling, A., McDonald, P., et al. (2008). A case study: Introducing eXtreme programming
in a U.S. government system development project. Proceedings of the 41st Hawaii
International Conference on Systems Science. http://www.computer.org/portal/web/csdl/
doi/10.1109/HICSS.2008.4, accessed June 11, 2011.
Wood, S., Michaelides, G., & Thomson, C. (2013). Successful extreme programming:
Fidelity to the methodology or good teamworking? Information & Software Technology,
55(4), 660–672.
Extreme Programming at the U.S. Strategic Command
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346 IntroDuctIon to InformatIon SyStemS
e-project 1
The Internet archive (www.archive.org) is a nonprofit organization that
builds the Internet’s library, the “wayback machine.” Copies of web-
sites are archived at intervals for researchers, historians, and schol-
ars. In this e-project you will take a look at Babycenter.com’s website
at different stages. (The archive doesn’t maintain all the images and
graphics, so often a page will not be displayed correctly; some links
won’t work.)
Visit www.archive.org and retrieve the historical files for www
.babycenter.com.
Right-click on each of the following dates one at a time, and open
each page in a new window to make it easier to compare.
February 8, 2004
February 4, 2006
February 7, 2008
(The archive sometimes removes pages, so if any date is not avail-
able, choose one that is reasonably close.)
Open another window with the current website for www.babycenter.com.
11-29. How has the website changed over this time period? What new
features or services were added or removed?
11-30. What advantages does Scrum offer to the development of this
website?
Watching Babycenter.com Change over Time with the Internet Archive
e-project 2
Excel is a useful tool to analyze data from software development. In this
e-project, you will analyze the pattern of software defects that are iden-
tified on each day of a 14-day programming project. Download the Excel
file called Ch11_SoftwareDefects.
For each type of graph or chart you create, copy the image to the
worksheet labeled Output, so you will be able to compare them at the
end of the e-project.
11-31. Create a line graph that shows the number of severe defects on
each day of the 14-day period. The x-axis should show the day
number, and the y-axis should be labeled “Number of Severe
Defects.”
11-32. Now create another line graph that shows Minor Defects. One
way to do this is to hide the “Severe” column by right-clicking
at the top of the B column and click Hide. (To unhide, select
Columns A and C, right-click again, and choose Unhide.)
11-33. Next, create a stacked-column chart, and include Severe, Minor,
and Total Defects.
11-34. Create another version of your stacked-column chart so that it
only includes Severe and Minor Defects.
11-35. Create a clustered bar chart using Severe, Minor, and Total
Defects columns.
11-36. Create a 100% stacked area chart using Severe, Minor, and
Total Defects columns.
11-37. Compare the pros and cons of the different representations for
this data set. Which representations do you think developers will
find most useful? Which one do you think could be misleading
to developers?
Analyzing Software Defect Rates Using Excel
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chapter 11 SyStemS Development anD Procurement 347
chapter notes
1. Duffy, J. (June 18, 2010). Unified communications saves
Canadian school district $200K/year. NetworkWorld,
http://www.networkworld.com/news/2010/061810-
pembina-schools-unified-communications.html,
accessed July 8, 2013.
2. Ribbeck, M. (March 2, 2013). Young entrepreneurs
launch Bristol taxi app. The Bristol Post, http://www
.thisisbristol.co.uk/Young-entrepreneurs-launch-
Bristol-taxi-app/story-18286033-detail/story.html#
axzz2MmB8FXO5, accessed March 6, 2013.
3. Sherr, I. (March 1, 2013). U.S. judge reduces Apple’s
Patent award. Wall Street Journal, http://online.wsj
.com/article/SB100014241278873234783045783345405
41100744.html, accessed March 6, 2013.
4. Hammer, M. (July/August, 1990). Reengineering work:
Don’t automate, obliterate. Harvard Business Review,
104–112.
5. Ozcelik, Y. (2010). Do business process reengineer-
ing projects payoff ? Evidence from the United States.
International Journal of Project Management, 28(1), 7–13.
6. Havenstein, H. (2008). Target pact won’t lead to web
access standards. Computerworld, 42(37), 18.
7. Kentico plants a tree for every bug found by their clients.
PRWeb.com, http://www.prweb.com/releases/2011/03/
prweb5194854.htm, accessed July 10, 2013.
8. Schlangenstein, M., et al. (2010). United and
Continental reach for the sky. Bloomberg Businessweek,
(4178), 19–20.
9. Wilson, N. (March 21, 2012). Best practices in tran-
sitioning to agile: Scrum coding practices. Gartner
Research, ID:G00232492.
10. Hotle, M., & Norton, D. (2010). The cultural transi-
tion to agile methods: From “me” to “we.” Gartner
Research, ID:G00174915.
11. Hotle, M., Norton, D., & Wilson, N. (August 20, 2012).
The end of waterfall as we know it. Gartner Research,
ID:G00238330.
12. Wilson, N. (January 25, 2013). Managing the agile proj-
ect. Gartner Research, ID: G00245859.
13. Howcroft, D., & Light, B. (2010). The social shaping of
packaged software selection. Journal of the Association
for Information Systems, 11(3), 122–148.
14. Kanaracus, C. (January 11, 2013). Marin county settles
legal claims against Deloitte, SAP over software proj-
ect. ComputerWorld, http://www.computerworld.com/s/
article/9235619/Marin_County_settles_legal_claims_
against_Deloitte_SAP_over_software_project, accessed
March 7, 2013.
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http://www.thisisbristol.co.uk/Young-entrepreneurs-launch-Bristol-taxi-app/story-18286033-detail/story.html#

http://online.wsj.com/article/SB10001424127887323478304578334540541100744.html

http://www.prweb.com/releases/2011/03/prweb5194854.htm

http://www.computerworld.com/s/article/9235619/Marin_County_settles_legal_claims_against_Deloitte_SAP_over_software_project

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Learning Objectives
Define a project, and explain how time, cost, and scope affect it.
Describe the five processes of project management.
Explain how project management software helps managers plan, track, and manage projects.
Identify the main factors that cause projects to succeed or fail.
Explain the importance of strategic planning for information systems, and provide examples.
Explain how the human element affects strategic planning.
1
4
2
5
6
3
C H A P T E R
12 Project Management and Strategic Planning
PROJECTS THAT INVOLVE INFORMATION SYSTEMS NEED
SKILLED OVERSIGHT, and poor project management is often
the reason new information systems go off track. This chapter
explores the phases of a project from the beginning, in which
a plan is first developed, through the processes used during
each phase. You will also learn about the project manager’s
role and the software tools that help track progress on tasks,
work assignments, and expenses.
In the online simulation for this chapter called “eXtreme
Virtual Reality,” you will get first-hand experience acting
as that project manager, helping this start-up company get
ready for opening day. The company creates high-tech virtual
reality experiences such as hot air balloon rides and under-
water adventures. You’ll need to coordinate all the software
testing so they can open on time, with reliable systems that
work smoothly to create these amazing rides. But tasks
outside IT are also essential, such as marketing and legal
reviews. They all must be carefully planned and monitored.
As in any project, however, you should also expect surprises.
The second part of the chapter explores strategic plan-
ning for information systems, and projects like the one in the
online decision-making simulation play a key role. Strategic
planning charts the course for all the organization’s informa-
tion system resources and all the people who will use them.
InTRoduCTIon
An online, interactive decision-making simulation
that reinforces chapter contents and uses key
terms in context can be found in MyMISLab™.
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eXtreme Virtual Reality
A Role-Playing Simulation on Managing a Project to Open a New Business
pa
sp
ho
to
gr
ap
hy
/S
hu
tt
er
st
oc
k.
It lays out the guiding principles and vision, showing how
the organization’s strategies align with its goals. But the
strategic plan is not just a list of projects or a tally of antici-
pated hardware expenses. It is the road map that clari-
fies how information systems contribute to the company’s
mission and strategy for the future, and what needs to be
done to protect the organization’s assets and ensure its suc-
cess. The human element plays a large role in strategic plan-
ning, and the chapter includes examples of the human biases
and tendencies that affect the process.
chapter 12 Project ManageMent and Strategic Planning 349
MyMISLab Online Simulation
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350 IntroductIon to InforMatIon SySteMS
WHAT Is A PRojECT?
Successful project management starts with knowing what a project is and what it isn’t. A
project is a temporary activity that is launched for a specific purpose, to carry out a particular
objective. Figure 12-1 lists common characteristics for most projects, from landing a space-
craft on Mars to running for political office. Launching virtually any new information system,
whether it is a new web portal for customers or a whole new financial system, is a project.
Projects vs. Processes
Projects are temporary, with their own budgets, timelines, and sponsor. In contrast,
a business process is a series of events designed to deliver a product or service that is
repeated over and over. Projects are unique, but processes are recurring. For instance,
publishing the next edition of a monthly magazine is not a project, even though all the
stories and puzzles are fresh. It is a process; tasks repeat each month, such as assigning
stories, designing graphics, and scheduling print runs. Projects are one of a kind, and
they involve uncertainty. People are doing things that are new to them, so their predic-
tions about how long tasks will take may be well off the mark. In contrast, a process
should be tweaked so that the underlying activities are streamlined, efficient, predictable,
and cost effective. Figure 12-2 contrasts the tasks involved in a unique project to open a
new restaurant and a frequently repeated procurement process.
Define a project, and explain how
time, cost, and scope affect it. 1
A project
▶ is a temporary endeavor
▶ has a specifi c, unique purpose
▶ has a primary customer or sponsor, as well as stakeholders
▶ requires resources, staff time, and expertise from different areas
▶ includes an element of uncertainty
▶ has metrics for success
PROJECT: Opening a new restaurant PROCESS: Procuring office supplies
Select best
vendor
Order
supplies
Receive
supplies
Pay invoice
Planning
Obtain start-up funds
Contract with vendors
Advertise
TASKS TIMELINE (in weeks)
Furnish restaurant
Stock kitchen
Opening Day!
1 2 3 4 5 67 8
FIGURE 12-1
Common characteristics of a project.
FIGURE 12-2
Projects vs. processes.
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chapter 12 Project ManageMent and Strategic Planning 351
project
A temporary activity launched for a specific
purpose, to carry out a particular objective.
project management
A systematic approach to project planning,
organizing, and managing resources,
resulting in a project that successfully meets
its objectives.
Often, whether a particular event is a process or project depends on your point
of view. For example, a wedding is a one-time project to the bride and groom, but it
would be a process to a wedding planner who handles all the details routinely.
Project management skills are essential for projects incorporating information
systems. However, many activi-
ties in IT are business processes
that repeat, and they should be
made as streamlined, routine, and
cost-effective as possible. Help-
desk support, information system
maintenance, software updates and
patch installation, user training,
and backups are all processes, not
projects.
The Triple Constraint: Time, Cost, and Scope
Every project is constrained by three fundamental forces: time, cost, and
scope. These three are interrelated; if one changes, the others are affected
(Figure 12-3).
Often one of the constraints is fixed for a particular project, so the
other two forces must be adjusted if change is needed. For a new web-
site feature, for example, a manager might say $100,000 is the limit, not
a penny more—thus fixing the costs. To stay within budget, the project’s
scope can be reduced.
New financial information systems usually must launch at the beginning
of the fiscal year, so the time constraint is critical. Managers face tough deci-
sions when the go-live date nears if tasks remain undone. Training time may
be cut to the bone, and any nonessential software features might be aban-
doned to avoid having to wait another year to go live. To implement its ERP
on the cutover date, one state government agency went live with almost no
accounting reports yet available. A frustrated budget analyst said, “With no
reports, it’s like driving wearing a blindfold.” The alternative, though, might
have been to spend another year using the legacy system.
PRojECT MAnAgEMEnT
As the theme park’s newly hired assistant director for social media, Stan M. is eagerly
anticipating his first assignment. The park’s mammoth new waterslide, the largest in
the region, is scheduled to open at the start of the summer, and the CEO wants a
blockbuster social media campaign to promote it. With a background in business
and information systems, Stan knows that managing a project like this without a
plan is like launching a Broadway musical with no score and no script, so he gets
to work.
Project management is a systematic approach to project planning, organizing, and
managing resources, resulting in a project that successfully meets its objectives. It requires
knowledge and skills in many areas, and a clear understanding of the processes that
underlie a successful project.1
PRODUCTIVITY TIP
You can improve your own productivity by distinguishing between projects
and processes, and managing them wisely. Term papers, for example, have
many features that are “process-like.” Create term paper templates with
standard headers, footers, styles, and naming conventions, and develop
streamlined strategies for organizing your references. Don’t treat everything
as a unique project.
Cost
ScopeTim
e
FIGURE 12-3
Time, cost, and scope: The triple constraint.
2 Describe the five processes of project management.
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352 IntroductIon to InforMatIon SySteMS
The Five Project Management Processes
Every project has five underlying processes that require management, beginning with the
very first stage in which the project is conceived. Each process becomes more intense at
certain phases of the project, as shown in Figure 12-4.
▶ Initiating
▶ Planning
▶ Executing
▶ Monitoring and controlling
▶ Closing
InItIatIng The initiating processes lay the groundwork for the project by clarifying the
value it will bring to the organization, setting its objectives, and estimating the project’s
length, scope, and cost. Projects might be proposed by different people, but in this early
phase managers should identify the major players in the project, including the sponsor, the
project manager (PM), the team members, and other stakeholders.
A key document that authorizes the project is the project charter. The charter shows
that the senior management support the project, which is an essential element for success.
It should also include a clear statement of objectives, estimated start and end dates, the
names of the relevant people and their roles, a tentative budget, criteria for success, and
any other pertinent information to get the project off to a good start.
Some managers might depend on less formal emails to authorize a project, or assume
that some comments made at a meeting should get things rolling. But those approaches put
a fledgling project on shaky footing. If the manager leaves or decides to reassign a key team
member, the project could be left hanging. The charter helps to avoid unexpected surprises
later. Stan drafted the simple charter shown in Figure 12-5. More complex and costly proj-
ects will have charters with more detail that go through several versions before formal signoff.
Another initiating process is the kickoff meeting, where the stakeholders meet one
another, sometimes for the first and only time. Led by the project manager, the team
reviews the charter and discusses next steps.
PlannIng The planning processes should start very early with the overarching project man-
agement plan. This will be the road map and guide for executing the project, and it describes
the components needed to ensure success. The plan will include an organizational chart, a
description of the work to be performed, schedule information, success metrics, and nota-
tions about any information systems that will be used. It should also identify the deliverables,
which are the products, documents, or services that will be delivered to the sponsor during
the course of the project. For Stan’s project, those will include the new blog and website,
video clips, mass emails, a Facebook page, sample Twitter output, and reports showing the
analytics on page views and other metrics. Given the uncertainty that is part of any project,
the plan should include steps stakeholders take to make changes and get them approved.
The project management plan should clarify the scope of the project, and some-
times this requires a separate document. Given their varying needs and requirements,
Initiating
Planning
Executing
Monitoring/
Controlling
Closing
Start Date End Date
FIGURE 12-4
The five project management
processes.
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chapter 12 Project ManageMent and Strategic Planning 353
initiating processes
Processes that lay the groundwork for the
project by clarifying its business value; setting
its objectives; estimating the project’s length,
scope, and cost; identifying team members;
and obtaining approval.
project charter
A document that authorizes a project that
includes a clear statement of objectives,
estimated start and end dates, the names
of the relevant people and their roles, a
tentative budget, criteria for success, and
other pertinent information.
deliverables
The products, documents, or services that will
be delivered to the sponsor during the course
of a project.
scope creep
A term that refers to the way in which features
are added in an uncontrolled way to a
project, often without considering the impact
on the budget or timeline.
planning processes
The processes in project management that
focus on planning how the project will be
executed.
project management plan
The road map and guide for executing a
project that includes information such as an
organizational chart, a detailed description
of the work to be performed, information
about the schedule, details about meetings
and reviews, success metrics, and notations
about any information systems or project
monitoring tools that will be used.
stakeholders may quarrel over what is inside or outside the project scope, advocating for
the features they prefer. A strategy for changing the scope that everyone agrees upon in
advance will help resolve such disputes and avoid scope creep, in which features are added
in an uncontrolled way, often without consideri

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