44 Part One Organizations, Management, and the Networked Enterprise

Firms producing goods and services on a global scale achieve extraordinary cost reductions by f inding low-cost
suppliers and mana g in g production facilities in other countries. Internet service firms, such as Google and eBay,
are able to replicate their business models and services in multiple countries without having to redesig n their
expensive fixed-cost information systems infrastruc- ture. Half of the revenue of eBay (as well as General Motors)
originates outside the United States. Briefly, inf ormation systems enable globalization.

T H E EMERGING DIGITAL FIRM

All of the change s w e have just described, coupled with equal ly si gnif icant organizational redesign, have created
the conditions for a fully digital firm. A digital firm can be defined along several dimensions . A digital firm is
one in which nearly all of the organization’s significant business relationships with customers, suppliers,
and employee s are digitally enabled and mediated. Core business processes are accomp lis hed through dig ital
netw orks spanning the entire organization or linking multiple organizations.
Business processes refer to the set of logically related tasks and behaviors that organizations develop over time
to produce specif ic business results and the unique man ner in which t hese activities are organized and
coordinated. Developing a n e w product, generatin g a nd fulfillin g an order, creating a marketing plan, a nd
hiring an empl oyee are examples of business processes, and the ways organizations accomplish their business
processes can be a source of competitive strength. (A detailed discussion of business processes can be found in
Chapter 2.)
Key corporate assets—intellectual property, core competencies, and f inancial and human assets—are managed
through digital means. In a digital f irm, a ny piece of inf ormation required to support key business decisions is
available at a n y time and anywhere in the firm.
Digital f irms sense and respond to their environments far more rapidly than traditional f irms, giving them more
f lexibility to survive in turbulent times. Digital f irms offer extraordinary opportunities for more f lexible
global organization and management. In digital f irms, both time shif ting and space shif ting are the norm. Time shifting
refers to business being conducted continuously, 24/7, rather than in narrow “work day” time bands of 9 a.m. to 5
p.m. Space shifting means that work takes place in a global workshop, as well as within national boundaries.
Work is accomplished physically wherever in the world it is best accomplished.
M any f irms, such as Cisco Systems, 3M, and IBM, are close to becomin g digital f irms, using the Internet to
drive every aspect of their business. Most other companies are not f ully digital, but they are moving toward close
digital integration with suppliers, customers, and employees.

STRATEGIC B U S INE SS OBJECTIVES OF INFORMATION S Y STEMS

What makes i nf ormation s ys tem s so essentia l today? W hy are bus ine sse s investing so much in inf ormation
system s and technolog ies? In the United States, more than 21 million managers and 154 million workers in the
inf orma- tion and knowledge sectors in the labor f orce rely on inf ormation systems to conduct business.
Inf ormation systems are essential for conducting day-to-day business in the United States and most other
advanced countries, as well as achieving strategic business objectives.
 Chapter 1 Information Systems in Global Business Today 45

Entire sectors of the economy are nearly inconceivable without substantial

inv estments in inf ormation systems. E-commerce f irms such as Amazon, eBay,
Google, and E*Trade simply would not exist. Today’s serv ice industries—f inance,
insurance, and real estate, as well as personal serv ices such as travel, medicine,
and education—could not operate without inf ormation systems. Similarly, retail
f irms such as Walmart and Sears and manuf acturing f irms such as General Motors
and General Electric require inf ormation systems to surv iv e and prosper . Just as
offices, telephones, f iling cabinets, and ef ficient tall buildings with elevators were
once the f oundations of business in the twentieth century, inf ormation technol-
ogy is a f oundation for business in the twenty-first century.
There is a growing interdependence between a f irm’s ability to use inf orma-
tion technology and its ability to imple ment corporate strategies and achiev e
corporate goals (see Figure 1 .2 ). What a business would lik e to do in f ive years
often depends on what its systems will be able to do. Increasing market share,
becoming the high-quality or low-cost producer, developing new products, and
increasing empl oyee productiv ity depend more and more on the k inds and
quality of inf ormation systems in the organization. The more you understand
about this relationship, the more v aluable you will be as a manager .
Specif ically, business f irms invest heav ily in inf ormation systems to achiev e
six strategic business objectiv es: operational excellence; new products, serv ices,
and busines s models; customer and suppl ier int imacy; improv ed decision
mak ing; competitiv e advantage; and surv iv al.

Operatio nal Exc ellenc e

Businesses continuously seek to improv e the eff iciency of their operations in
order to achieve higher prof itability. Inf ormation systems and technologies are
some of the most important tools av ailable to managers for achiev ing higher

F I GURE 1.2 THE I NTERDEP ENDENCE BETW EEN ORGANIZATI ONS AND
I N F ORMATION S Y S TEM S

In contemporary systems, there is a growing interdependence between a firm’s information systems

and its business capabilities. Changes in strategy, rules, and business processes increasingly require
changes in hardware, software, databases, and telecommunications. Often, what the organization
would like to do depends on what its systems will permit it to do.
46 Part One Organizations, Management, and the Networked Enterprise

lev els of ef f iciency and productiv ity in business operations, especially w he n

coupled with changes in business practices and management behav ior .
Walmart, the largest retailer on earth, exemplif ies the power of inf ormation
systems coupled with brilliant business practices and supportive manageme nt
to achiev e world-class operational ef f iciency. In f iscal year 201 4, Walmart
achiev ed $4 73 billion in sales—nearly one-tenth of retail sales in the United
States—in large part because of its Retail Link system, which digitally link s its
suppliers to ev ery one of Walmart’s stores. As soon as a customer purchases
an item, the supplier monitoring the item k now s to ship a replaceme nt to the
shelf . Walmart is the most eff icient retail store in the industry, achiev ing sales
of more than $4 28 per square foot, compared to its closest competitor, Target,
at $2 95 a square foot. Other less ef f icient general merchandi se stores generate
f rom $1 5 0 to $2 0 0 a square foot.

New P r o d uc t s, Servic e s, and B us i ne s s M o d e ls

Inf ormation systems and technologies are a major enabling tool for f irms to
create n ew products and serv ices, as well as entire ly n e w business model s.
A bu siness model describes ho w a company produces, deliv ers, and sells a
product or serv ice to create wealth.
Today’s music industry is v astly diff erent from the industry a decade ago.
Apple Inc. transf ormed an old business model of music distribution based on
v inyl records, tapes, and CDs into an online, le gal distribution model based
on its own iPod technology platf orm. Apple has prospered f rom a continuing
stream of iPod innov ations, including the iTunes music serv ice, the iPad, and
the iPhone.

Custom er and Supplier Intim acy

When a business real ly k nows its customers, and serv es them well, the custom-
ers generally respond by returning and purchasing more. This raises rev enues
and profits. Lik ewise with suppliers: the more a business engages its suppliers,
the better the suppliers can prov ide v ital inputs. This lowers costs. How to
really k now your customers, or suppliers, is a central problem for businesses
with millions of of f line and online customers.
The M andarin Oriental in M anhattan and other high-end hotels exemplif y
the use of inf ormation systems and technologies to achiev e customer intimacy.
These ho tels us e computer s to k ee p track of guests’ pref erences, suc h as
their pref erred room temperature, check -in time, frequently dialed telephone
number s, a nd te lev is io n pro grams, an d store the se data i n a large data
repository. Indiv idual rooms in the hotels are network ed to a central network
serv er computer so that they can be remotely monitored or controlled. When a
customer arriv es at one of these hotels, the system automatically changes the
room conditions, such as dimming the lights, setting the room temperature, or
selecting appropriate music, based on the customer’s digital prof ile. The hotels
also analyze their customer data to identif y their best customers and to dev elop
indiv idualized mark eting campaigns based on customers’ pref erences.
JCPenney exemplif ies the benef its of inf ormation systems-enabled supplier
intimacy. Ev ery time a dress shirt is bought at a JCPenney store in the United
States, the record of the sale appears immediate ly on computers in Hong Kong
at the TAL Apparel Ltd. supplier, a contract manuf acturer that produces one
in eight dress shirts sold in the United States. TAL runs the numbers through a
computer model it dev eloped and then decides how m a n y replacement shirts
to mak e, and in what styles, colors, and sizes. TAL then sends the shirts to
 Chapter 1 Information Systems in Global Business Today 47

each JCPenney store, bypassing completely the retailer’s warehouses. In other

words, JCPenney’s shirt inv entory is near zero, as is the cost of storing it.

Impro ved Dec isio n M a k i ng

M any busines s ma nag ers o perate in a n i nf ormation f og bank , nev er re al ly
hav ing the right inf ormation at the right time to m ak e an inf ormed decision.
Instead, managers re ly on f orecasts, best guesses, and luck . The result is ov er-
or underproduction of goods and serv ices, misa llocat io n of resources, and
poor response time s. These poor outcomes raise costs and lose customers.
In the past decade, inf ormation systems and technologies hav e made it pos-
sible for mana gers to us e real-time data f rom the mark etplace wh en mak in g
decisions.
For instance, Verizon Corporation, one of the largest telecomm uni cati on
compan ies in t he United States, uses a Web-based digital dashboard to pro-
v ide manag ers wit h preci se real-t ime inf ormation on customer c omplain ts,
network perf ormance for each locality serv ed, and li ne outages or storm-dam-
aged lines. Using this inf ormation, manag ers can i mme dia tel y allocate repair
resources to af f ected areas, inf orm consumers of repair ef f orts, and restore
serv ice f ast.

Co mpetitive A dvantag e
When f irms achiev e o ne or more of the se busines s objectiv es—operational
excellence; ne w products, serv ices, and business models; customer/supplier
in tima cy; a nd im prov ed deci sio n mak ing —chance s are t he y hav e a lrea dy
achieved a competitiv e advantage. Doing things better than your competitors,
charging less for superior products, and responding to customers and suppliers
in real time all add up to higher sales and higher prof its that your competitors
cannot match. Apple Inc., Walmart, and UPS, described later in this chapter, are
industry leaders because they k now how to use inf ormation systems for this
purpose.

S ur vi va l
Business f irms also inv est in inf ormation systems and technologies because
they are necessities of doing business. Sometimes these “necessities” are driv en
by industry-level changes. For instance, af ter Citibank introduced the f irst
automated teller machines (ATM s) in the New York region in 1 9 7 7 to attract
customers through higher serv ice lev els, its competitors rushed to prov ide ATMs
to their customers to k eep up with Citibank . Today, v irtually all bank s in the
United States have regional ATMs and link to national and international ATM
network s, such as CIRRUS. Prov iding ATM serv ices to retail bank ing customers
is simply a requirement of being in and surv iv ing in the retail bank ing business.
There are m a n y f ederal and state statutes and regulations that create a legal
duty for companies and their employees to retain records, including digital
records. For instance, the Toxic Substances Control Act (1 9 7 6 ), which regulates
the exposure of U.S. work ers to more than 7 5 ,0 0 0 toxic chemicals, requires
f irms to retain records on employee exposure for 3 0 years. The Sarbanes-Oxley
Act (2 002 ), which was intended to improv e the accountability of public f irms
and their auditors, requires certif ied public accounting f irms that audit public
companies to retain audit work ing papers and records, including all e-mails, for
f iv e years. The Dodd-Frank Wall Street Ref orm and Consumer Protection Act
(2 0 1 0) which was intended to strengthen regulation of the bank ing industry
requires f irms to retain all records for ten years. M any other pieces of f ederal
48 Part One Organizations, Management, and the Networked Enterprise

and state legislation in health care, f inancial serv ices, education, and priv acy
protection impose sign if icant inf ormation retentio n and reportin g require-
ments on U.S. businesses. Firms turn to inf ormation systems and technologies
to prov ide the capability to respond to these challenges.

1.2 WHAT I S AN INFORM ATION S YS TEM ? HOW DOES

IT W ORK ? W HAT ARE ITS M ANAGEM ENT ,
ORGANIZATION , AND TECHNOLOGY COM PONENTS
AND W HY ARE COM PLEM ENTARY ASSETS
ESSENTIAL FOR ENSURING THAT INFORM ATION
S Y S TEMS PROV IDE GENUINE VALUE FOR AN
ORGANIZATION ?
So f ar we’v e used information systems and technologies inf orma ll y wit h -
out def ining the terms . In formation techn ology (IT) consist s of all th e
hardware and sof tware that a f irm needs to use i n order to achiev e its busi-
ness objectiv es. This includes not only computer machines, storage dev ices,
and handheld mobile dev ices, but also sof tware, such as the Windows or Linux
operating systems, the M icrosof t Off ice desk top productiv ity suite, and the
m a ny thousands of computer programs that can be f ound in a typical large
f irm. “Inf ormation systems” are more complex and can be best understood by
look ing at them f rom both a technology and a business perspectiv e.

WHAT IS AN INFORMATION SY STEM?

An in formation system can be def ined technically as a set of interrelated
components that collect (or retriev e), process, store, and distribute inf ormation
to support decision mak ing and control in an organization. In addition to sup-
porting decision mak ing, coordination, and control, inf ormation systems ma y
also help managers and workers analyze problems, v isualize complex subjects,
and create new products.
Inf ormation systems contain inf ormation about signif icant people, places,
and things with in the organization or in the env ironmen t surroundi ng it.
B y in formation we m ea n data that hav e been shaped into a f orm that is
meaningf ul and usef ul to h uman beings. Data, in contrast, are streams of raw
f acts representing ev ents occurring in organizations or the physical env iron-
ment bef ore they hav e been organized and arranged into a f orm that people can
understand and use.
A brief ex amp le c ontra sti ng i nf orma ti on a nd data m a y prov e usef u l .
Super mark e t check o ut cou nters scan m il li on s of p iec es of data f rom bar
codes, which descri be each product. Such pieces of data can be totaled and
analy ze d to prov ide mea ni n gf u l i nf ormatio n, suc h as the total n um ber of
bottles of dish deter gent sold at a particular store, wh ich brands of di sh deter -
gent w ere sel lin g the most rap idly at that store or sales territory, or the total
amoun t spe nt on t hat brand of d ish de tergen t at that store or sales reg io n
(see Figure 1 .3 ).
Three activ ities in an inf ormation sy st em produce the inf ormation that
organizations need to mak e decisions, control operations, analyze problems,
and create n e w products or serv ices. These activ ities are input, processing,
and output (see Figure 1 .4 ). In pu t captures or collects raw data f rom within
 Chapter 1 Information Systems in Global Business 49
Today
F I GURE 1.3 DATA AND I N F ORM ATION

Raw data from a supermarket checkout counter can be processed and organized to produce meaningful information,
such as the total unit sales of dish detergent or the total sales revenue from dish detergent for a specific store or sales
territory.

the organization or f rom its external env ironment. Processing converts this
raw input into a meaningf ul f orm. Output transf ers the processed inf orma-
tion to the people who will use it or to the activities for which it will be used.

F I GURE 1.4 F UNCTI ONS OF AN I NF ORM ATION S Y S TEM

An information system contains information about an organization and its surrounding

environment. Three basic activities—input, processing, and output—produce the information
organizations need. Feedback is output returned to appropriate people or activities in the
organization to evaluate and refine the input. Environmental actors, such as customers,
suppliers, competitors, stockholders, and regulatory agencies, interact with the organization
and its information systems.
50 Part One Organizations, Management, and the Networked Enterprise

Inf ormation systems also require feed back, whic h is output that is returned to
appropriate members of the organization to help them ev aluate or correct the
input stage.
In a prof essional sports team’s system for selling tick ets, the raw input con-
sists of order data for tick ets, such as the purchaser’s name, address, credit card
number, number of tick ets ordered, and the date of the game for whic h the
tick et is being purchased. Another input would be the tick et price, which would
f luctuate based on computer analysis of how muc h could optimally be charged
for a tick et for a particular game. Computers store these data and process them
to calcu late order totals, to track tick et purchases, and to send request s f or
paymen t to credit card companies. The output consists of tick ets to print out,
receipts for orders, and reports on online ticket orders. The system prov ides
meanin gf ul inf ormation, such as the numb er of tick ets sold for a particular
game or at a particular price, the total number of tick ets sold each year, and
f requent customers.
Although computer -based inf ormation systems us e computer technolo gy
to process raw data into meaningf ul inf ormation, there is a sharp distinction
between a computer and a computer program on the one hand, and an inf or-
mation sy stem on the other . Electronic computers and related sof tware pro-
grams are the technical f oundation, the tools and materials, of modern infor-
mation systems. Computers prov ide the equipment for storing and processing
inf ormation. Computer programs, or sof tware, are sets of operating instructions
that direct and control computer processing. Knowin g how computers and
computer programs work is important in designing solutions to organizational
problems, but computers are only part of an inf ormation system.
A house is an appropriate analogy. Houses are built with hammers, nails,
and wood, but these do not mak e a house. The architecture, design, setting,
landscaping, and all of the decisions that lead to the creation of these f eatures
are part of the hou se and are cruc ial f or solv ing the problem of puttin g a
roof ov er one’s head. Computers and programs are the hammers, nails , and
lumber of computer -based inf ormation systems, but alone they cannot produce
the inf ormation a particular organization needs. To understand inf ormation
systems, you must understand the problems they are designed to solv e, their
architectural and design elements, and the organizational processes that lead to
these solutions.

DIMENSIONS OF INFORMATION S Y STEMS

To f ully understand inf ormation sy stems , you mus t understa nd the broader
organizati on, m a n a ge me nt , and inf ormatio n tec hno lo gy d ime ns io ns of
syst ems ( see Figure 1 .5 ) and their power to prov ide solutions to cha lle nge s
and problems in the busi ness env ironm ent . We ref er to this broader under -
standi ng of inf ormati on s ys tem s, wh ic h en com pa sse s a n und ersta nd in g
of the m a na ge me nt and organizati onal d imen si on s of s yst em s as we ll a s
the tech nica l dime ns ion s of sy ste ms, as in formation systems literacy.
Compu ter literacy, in contrast, f ocuses p r i mar i ly on k now le dge of
inf ormation technology.
The f ield of management in formation systems (MIS) tries to achiev e this
broader inf ormation systems literacy. MIS deals with behav ioral issues as well
as technical issues surrounding the dev elopment, use, and impact of inf orma-
tion systems used by managers and employees in the f irm.
Let’s examine each of the dimensions of inf ormation systems—organizations,
management, and inf ormation technology.
 Chapter 1 Information Systems in Global Business Today 51

F I GURE 1.5 I N F ORM ATION S Y S TEMS ARE M ORE THAN COM P UTERS

Using information systems effectively requires an understanding of the organization, management,

and information technology shaping the systems. An information system creates value for the firm as
an organizational and management solution to challenges posed by the environment.

Org anizatio ns
Inf ormation systems are an integral part of organizations. Indeed, for some
companies, such as credit reporting f irms, there would be no business without an
inf ormation system. The k ey elements of an organization are its people, structure,
business processes, politics, and culture. We introduce these components of orga-
nizations here and describe them in greater detail in Chapters 2 and 3 .
Organizations hav e a structure that is composed of diff erent lev els and
specialties. Their structures rev eal a clear -cut div ision of labor. Authority and
responsibility in a business f irm are organized as a hierarchy, or a pyramid struc-
ture. The upper lev els of the hierarchy consist of managerial, professional, and
technical employees, whereas the lower lev els consist of operational personnel.
Senior man agemen t mak es long-range strategic decisions about products
and serv ice s as wel l as ensur es f i nancia l perf ormance of t he f irm. Middle
man agement carries out the programs and plan s of sen ior ma na gem en t,
and operation al man agement is responsible for monitoring the daily activ i-
ties of the business. Knowledge workers, such as engineers, scientists, or
architects, design products or serv ices and create new k nowledge for the f irm,
wherea s data workers, such as secretaries or clerk s, assist with sc heduli ng
and communications at all lev els of the f irm. P rodu ction or service workers
actually produce the product and deliv er the serv ice (see Figure 1 .6 ).
Experts are employed and trained for diff erent business functions. The major
business fu nction s, or specialized task s perf ormed by business organizations,
consist of sales and mark etin g, ma nuf acturin g and production, f inance and
accounting, and h u ma n resources (see Table 1 .2 ). Chapter 2 prov ides more
detail on these business f unctions and the ways in w hich t hey are supported by
inf ormation systems.
An organization coordinates work through its hierarc hy and through its
bu sin ess processes, which are lo gical ly relate d task s and behav iors f or
accomplishing work . Dev eloping a new product, f ulf illing an order, and hiring a
new employee are examples of business processes.
52 Part One Organizations, Management, and the Networked Enterprise

F I GURE 1.6 LEVELS I N A F I RM

Business organizations are hierarchies consisting of three principal levels: senior management, middle
management, and operational management. Information systems serve each of these levels. Scientists
and knowledge workers often work with middle management.

M ost organizations’ bu si nes s pr oces ses in cl ude f ormal rul es that hav e
been dev eloped ov er a long time for accompli shin g task s. These rules guide
empl oyee s i n a v ariety of procedures, from writing a n inv oice to res pondi ng
to cu stomer c omplai nts. Some of the se bu sines s processes hav e be en writ-
ten down, but others are inf ormal work practices, such as a requirement to
return t ele pho ne cal ls f rom cowork ers or customers, that are not f ormally
docume nted. Inf ormation sys tem s auto mate m a n y business proce sses. For
instance, how a cust omer receiv es credit or how a customer is billed is of ten
determi ned by an inf ormation system that incorporates a set of f ormal busi-
ness processes.
Each organization has a unique cu ltu re, or fundamental set of assumptions,
v alues, and ways of doing thing s, that has been accepted by most of its members.
You can see organizational culture at work by look ing around your univ ersity or
college. Some bedrock assumptions of univ ersity lif e are that professors k now
more than students, the reasons students attend college is to learn, and that
classes f ollow a regular schedule.

TABLE 1.2 MAJOR BUS I N ES S F UN CTI ONS

FUNCTION PURPOSE
Sales and marketing Selling the organization’s products and services
Manufacturing and production Producing and delivering products and services

Finance and accounting Managing the organization’s financial assets and maintaining the
organization’s financial records
Human resources Attracting, developing, and maintaining the organization’s labor
force; maintaining employee records
 Chapter 1 Information Systems in Global Business Today 53

Parts of an organization’s culture can alw ays be f ound embedde d in it s

inf ormation systems. For instance, UPS’s f irst priority is customer serv ice, which
is an aspect of its organizational culture that can be f ound in the company’s
pack age track ing systems, which we describe later in this section.
Different lev els and specialties in an organization create dif ferent interests
and points of v iew. These v iews of ten conf lict ov er how the company should be
run and how resources and rewards should be distributed. Conf lict is the basis
for organizational politics. Inf ormation systems come out of this cauldron of dif-
f ering perspectiv es, conf licts, compromises, and agreements that are a natural
part of all organizations. In Chapter 3 , we examine the se f eatures of organiza-
tions and their role in the dev elopment of inf ormation systems in greater detail.

M a na g e m ent
M anagement’ s job is to m ak e sense out of t he m a n y situations f aced by
organizations, mak e decisions, and f ormulate action plans to solv e organiza -
tional problems. Managers perceiv e business challenges in the env ironment;
they set t he organizational strategy f or respond ing to those challe nges ; an d
they allocate the huma n and f inancial resources to coordinate the work and
achiev e success. Throughout, they must exercise responsible leadership. The
business inf ormation systems described in this book ref lect the hopes, dreams,
and realities of real-world managers.
But managers must do more than manage what already exists. They must
also create new products and serv ices and ev en re-create the organization from
time to time. A substantial part of management responsibility is creativ e work
driv en by new k nowledge and inf ormation. Inf ormation technology can play a
powerf ul role in helping mana gers desig n and deliv er ne w products and serv ices
and redirecting and redesigning their organizations. Chapter 12 treats manage-
ment decision mak ing in detail.

Inf o r m at io n Tec hno lo g y

Inf ormation technology is one of ma ny tools managers use to cope with change.
Computer hardware is the physical equipment used for i nput, processing, and
output activ ities in an inf ormation system. It consists of the f ollowing: comput-
ers of various sizes and shapes (including mobile handheld dev ices); v arious
input, output, and storage dev ices; and telecommunications dev ices that link
computers together .
Compu ter software consists of the detailed, preprogrammed instructions
that control and coordinate the computer hardware components in an inf orma -
tion system . Chapter 5 describes the co ntemp orary sof tware and hardware
platf orms used by f irms today in greater detail.
Data man agemen t techn olog y consists of the sof tware gov erning the
organization of data on physical storage media . M ore detail on data organization
and access methods can be f ound in Chapter 6 .
Networking and telecommun ication s technology, consisting of both
physical dev ices and sof tware, link s the v arious pieces of hardware and transf ers
data f rom one physical location to another . Computers and communications
equipment can be connected in network s for sharing v oice, data, images, sound,
and v ideo. A network link s two or more computers to share data or resources,
such as a printer .
The world’s largest and most widely use d network is the In tern et . The
Internet is a global “network of network s” that uses univ er sal s tandard s
(described in Chapter 7 ) to connect millions of diff erent network s with nearly 3
billion users in ov er 2 3 0 countries around the world.
54 Part One Organizations, Management, and the Networked Enterprise

The Internet has created a new “univ ersal” technology platf orm on which to
build n e w products, serv ices, strategies, and bus ines s mo dels . This s a me
technology platf orm has internal uses, prov iding the connectiv ity to li nk differ -
ent system s and net work s within the f irm. Internal corporate network s based
on Internet technol ogy are called in tran ets. Priv ate intranets extende d to
authorized users outside the organization are called extranets, and f irms use
such net work s to coordinate their activ ities w ith other f irms f or mak ing
purchases, collaborating on design, and other interorganizational work . For
most busine ss f irms today, usi ng In ternet tech nol ogy is both a busine ss
necessity and a competitiv e adv antage.
The World Wide Web is a serv ice prov ided by the Internet that uses univer -
sally accepted standards for storing, retriev ing, f ormatting, and displaying infor-
mation in a page f ormat on the Internet. Web pages contain text, graphics, anima-
tions, sound, and v ideo and are link ed to other Web pages. By click ing on
highlighted words or buttons on a Web page, you can link to related pages to f ind
additional inf ormation and link s to other locations on the Web. The Web can
serv e as the f oundation for new k inds of inf ormation systems such as UPS’s Web-
based pack age tracking system described in the f ollowing Interactive Session.
All of these technologies, along with the people required to run and manage
them, represent resources that can be shared throughout the organization and
constitute the f irm’s in formation technology (IT) in frastru ctu re. The IT
inf rastructure prov ides the f oundation, or platform, on w hich the f irm can build
its specif ic inf ormation systems. Each organization must caref ully design and
manage its IT inf rastructure so that it has the set of technology serv ices it needs
f or the work it wants to accompli sh wi th inf ormation sys tems . Chapters 5
through 8 of this book examine each major technology component of inf orma-
tion technology inf rastructure and show how they all work together to create
the technology platf orm for the organization.
The Interact iv e Sessio n on Technology de scribe s s ome of th e ty pi cal
technologies used in computer -based inf ormation systems today. UPS inv ests
heav ily in inf ormation systems technology to mak e its business more ef f icient
and customer oriented. It uses an array of inf ormation technologies, including
bar code scanning system s, w ireles s netw ork s, large mai nf rame computers,
handheld computers, the Internet, and ma ny diff erent pieces of sof tware for
track ing pack age s, calc ulat in g f ees, ma in tai ni n g cust omer accoun ts, a nd
managing logistics.
Let’s identif y the organization, management, and technology elements in the
UPS pack age track ing system we hav e just described. The organization element
anchors the pack age track ing system in UPS’s sales and production f unctions
(the m a i n product of UPS is a serv ice—pack age deliv ery). It specif ies the
required procedures for identif ying pack ages with both sender and recipient
inf ormation, tak ing inv entory, track ing the pack ages en route, and prov iding
pack age status reports for UPS customers and customer serv ice representativ es.
The system must also prov ide inf ormation to satisf y the needs of manag-
ers and work ers. UPS driv ers need to be trained in both pack age pick up and
deliv ery procedures and in how to use the pack age track ing system so that they
can work ef f iciently and ef f ectiv ely. UPS customers m a y need some training to
use UPS in-house pack age track ing sof tware or the UPS Web site.
UPS’s ma na geme nt is responsible for monitoring serv ice lev els an d costs
and for promoting the company’s strategy of combining low cost and superior
serv ice. M anagemen t decided to us e computer sys tems to increase t he ease
of sendin g a pack age using UPS and of check i ng its del iv ery status, thereby
reducing deliv ery costs and increasing sales rev enues.
 Chapter 1 Information Systems in Global Business Today 55

INT E R A C T IV E S E S S IO N: T E C H NO L OGY
UPS COMPETES GLOBALLY WITH INFORMATION TECHNOLOGY
Un ited Parcel Service (UPS) started o u t in 1907 in a Acqu isitio n Device (DIAD), w h ich can access a
clo set-siz ed b asem en t o ffice. J im Casey an d Clau d e w ireless cell p h o n e n etw o rk. As so o n as th e d river
Ryan —tw o teen agers fro m Seattle w ith tw o b icycles lo gs o n , h is o r h er d ay’s ro u te is d o w n lo ad ed o n to
an d o n e p h o n e—p ro m ised th e “best service an d th e h an d h eld . Th e DIAD also au to m atically cap tu res
lo w est rates.” UPS h as u sed th is fo rm u la su ccessfu lly cu sto m ers’ sign atu res alo n g w ith p icku p an d d elivery
for m o re th an a cen tu ry to b eco m e th e w o rld ’s larg- in fo rm atio n . Package trackin g in fo rm atio n is th en
est gro u n d an d air p ackage-d elivery co m p an y. It’s tran sm itted to UPS’s co m p u ter n etw o rk for sto rage
a glo b al en terp rise w ith n early 400,000 em p lo yees, an d p ro cessin g. Fro m th ere, th e in fo rm atio n can
96,000 veh icles, an d th e w o rld ’s n in th largest airlin e. b e accessed w o rld w id e to p ro vid e proof of d elivery
To d ay UPS d elivers 16.3 m illio n p ackages an d to cu sto m ers o r to resp o n d to cu sto m er qu eries. It
d o cu m en ts each d ay in th e Un ited States an d m o re u su ally takes less th an 60 seco n d s fro m th e tim e a
th an 220 o th er co u n tries an d territo ries. Th e firm d river p resses “complete” o n a th e DIAD for th e n ew
h as b een ab le to m ain tain lead ersh ip in sm all-p ack- in fo rm atio n to b e availab le o n th e Web.
age d elivery services d esp ite stiff co m p etitio n fro m Th ro u gh its au to m ated p ackage trackin g system ,
FedEx an d Airb o rn e E xp ress b y in vestin g h eavily in UPS can m o n ito r an d even re-ro u te p ackages
ad van ced in fo rm atio n tech n o lo gy. UPS sp en d s m o re th ro u gh o u t th e d elivery p ro cess. At vario u s p o in ts
th an $1 b illio n each year to m ain tain a h igh level alo n g th e ro u te fro m sen d er to receiver, b ar co d e
of cu sto m er service w h ile keep in g co sts lo w an d d evices scan sh ip p in g in fo rm atio n o n th e p ack-
stream lin in g its o verall o p eratio n s. age lab el an d feed d ata ab o u t th e p ro gress of th e
It all starts w ith th e scan n ab le b ar-co d ed lab el p ackage in to th e cen tral co m p u ter. Cu sto m er ser-
attach ed to a p ackage, w h ich co n tain s d etailed vice rep resen tatives are ab le to ch eck th e statu s
in fo rm atio n ab o u t th e sen d er, th e d estin atio n , an d of an y p ackage fro m d eskto p co m p u ters lin ked to
w h en th e p ackage sh o u ld arrive. Cu sto m ers can th e cen tral co m p u ters an d resp o n d im m ed iately to
d o w n lo ad an d p rin t th eir o w n lab els u sin g sp e- in qu iries fro m cu sto m ers. UPS cu sto m ers can also
cial so ftw are p ro vid ed b y UPS o r b y accessin g th e access th is in fo rm atio n fro m th e co m p an y’s Web
UPS Web site. Befo re th e p ackage is even p icked site u sin g th eir o w n co m p u ters o r m o b ile p h o n es.
u p , in fo rm atio n fro m th e “smart” lab el is tran sm it - UPS n o w h as m o b ile ap p s an d a m o b ile Web site for
ted to o n e of UPS’s co m p u ter cen ters in Mah w ah , iPh o n e, BlackBerry, an d An d ro id sm artp h o n e u sers.
New J ersey, o r Alp h aretta, Geo rgia an d sen t to th e An yo n e w ith a p ackage to sh ip can access th e UPS
d istrib u tio n cen ter n earest its fin al d estin atio n . Web site to track p ackages, ch eck d elivery ro u tes,
Disp atch ers at th is cen ter d o w n lo ad th e lab el d ata calcu late sh ip p in g rates, d eterm in e tim e in tran -
an d u se sp ecial so ftw are to create th e m o st efficien t sit, p rin t lab els, an d sch ed u le a p icku p . Th e d ata
d elivery ro u te for each d river th at co n sid ers traffic, co llected at th e UPS Web site are tran sm itted to th e
w eath er co n d itio n s, an d th e lo catio n of each sto p . UPS cen tral co m p u ter an d th en b ack to th e cu sto m er
I n 2009, UPS b egan in stallin g sen so rs in its d elivery after p ro cessin g. UPS also p ro vid es to o ls th at en ab le
veh icles th at can cap tu re th e tru ck’s sp eed an d lo ca- cu sto m ers, su ch Cisco System s, to em b ed UPS fu n c-
tio n , th e n u m b er of tim es it’s p laced in reverse an d tio n s, su ch as trackin g an d co st calcu latio n s, in to
w h eth er th e d river’s seat b elt is b u ckled . At th e en d th eir o w n Web sites so th at th ey can track sh ip m en ts
of each d ay, th ese d ata are u p lo ad ed to a UPS cen tral w ith o u t visitin g th e UPS site.
co m p u ter an d an alyz ed . By co m b in in g GPS in fo rm a- A Web-based Post Sales Ord er Man agem en t System
tio n an d d ata fro m fu el-efficien cy sen so rs in stalled (OMS) m an ages glo b al service o rd ers an d in ven to ry
o n m o re th an 46,000 veh icles in 2011, UPS red u ced for critical p arts fu lfillm en t. Th e system en ab les
fu el co n su m p tio n b y 8.4 m illio n gallo n s an d cu t 85 h igh -tech electro n ics, aero sp ace, m ed ical equ ip -
m illio n m iles off its ro u tes. UPS estim ates th at savin g m en t, an d o th er co m p an ies an yw h ere in th e w o rld
o n ly o n e d aily m ile d riven p er d river saves th e th at sh ip critical p arts to qu ickly assess th eir critical
co m p an y $30 m illio n . p arts in ven to ry, d eterm in e th e m o st o p tim al ro u tin g
Th e first th in g a UPS d river p icks u p each d ay is strategy to m eet cu sto m er n eed s, p lace o rd ers o n lin e,
a h an d h eld co m p u ter called a Delivery I n fo rm atio n an d track p arts fro m th e w areh o u se to th e en d u ser.
56 Part One Organizations, Management, and the Networked Enterprise

An au to m ated e-m ail o r fax featu re keep s cu sto m ers UPS m an ages lo gistics an d in tern atio n al sh ip p in g
in fo rm ed of each sh ip p in g m ilesto n e an d can p ro vid e for Celaris, th e wo rld ’s largest wireless accesso ry
n o tificatio n of an y ch an ges to fligh t sch ed u les for ven d o r, sellin g m o b ile p h o n e cases, h ead p h o n es,
co m m ercial airlin es carryin g th eir p arts. screen p ro tecto rs, an d ch argers. Cellaris h as n early
UPS is n o w leveragin g its d ecad es of exp ertise 1,000 fran ch ises in th e Un ited States, Can ad a an d
m an agin g its o w n glo b al d elivery n etw o rk to m an age th e Un ited K in gd o m . Th e co m p an y’s su p p ly ch ain
lo gistics an d su p p ly ch ain activities for o th er co m p a- is co m p lex, w ith p ro d u cts d evelo p ed in Geo rgia,
n ies. It created a UPS Su p p ly Ch ain So lu tio ns d ivisio n m an u factu red at m o re th an 25 lo catio n s in Asia an d
th at p ro vid es a co m p lete b u n d le of stan d ard iz ed ser- 10 lo catio n s in th e U.S., w areh o u sed in a Geo rgia
vices to su b scrib in g co m p an ies at a fractio n of w h at it d istrib u tio n cen ter, an d sh ip p ed to fran ch isees an d
w o u ld co st to b u ild th eir o w n system s an d in frastru c- cu sto m ers w o rld w id e. UPS red esign ed Celaris’s
tu re. Th ese services in clu d e su p p ly-ch ain d esign an d in b o u n d / o u tbo u nd su p p ly ch ain an d in tro d u ced
m an agem en t, freigh t fo rw ard in g, cu sto m s b ro kerage, n ew services to create a m o re efficien t sh ip p in g
m ail services, m u ltim o d al tran sp ortatio n, an d fin an - m o d el. UPS Bu yer Co n so lid atio n for I n tern atio n al
cial services, in ad d itio n to lo gistics services. Air Freigh t red u ces co m p lexity in d ealin g w ith
For exam p le, UPS h an d les lo gistics for Ligh tin g m u ltip le in tern atio n al m an u factu rin g so u rces. UPS
Scien ce Group, th e w o rld ’s lead in g m aker of ad van ced W o rld w id e E xp ress Freigh t gu aran tees o n -tim e
ligh t p ro d u cts su ch as en ergy-efficien t ligh t-em itting service for critical freigh t p allet sh ip m en ts an d
d io d e (LED) lam p s an d cu sto m d esign ligh tin g UPS Cu sto m s Bro kerage en ab les sin gle-so u rce
system s. Th e co m p an y h as m an u factu rin g o p era- clearan ce for m u ltip le tran sp o rtatio n m o d es. Th ese
tio n s in Satellite Beach , Flo rid a an d Ch in a. UPS con- ch an ges h ave saved Celaris m o re th an 5,000 h o u rs
d u cted a w areh o u se/ d istrib utio n an alysis to sh ap e an d $500,000 an n u ally, an d th e su p p ly ch ain
th e m an u factu rer’s d istrib u tio n strategy, in w h ich red esign alo n e h as saved m o re th an 15 p ercen t o n
fin ish ed goods fro m Ch in a are b ro u gh t to a UPS sh ip m en ts.
w areh o u se in Fort Worth, Texas, for d istrib ution . Th e Sources: “A Good Call B ecome s a Thri vi ng Business,” UPS Comp ass,
UPS w areh o u se rep ackages fin ish ed goods, h an d les Fe bru ary 2014;”Hi gh-Tech Man u f ac tu rer Master s Lo gistic s, UPS
retu rn s an d co n d u cts d aily cycle co u n ts as w ell as Comp ass, Jan u ar y 2014; www .u ps.com , acce ssed Apr il 17, 2014;
Steve Rosen bush and Mic h ael Totty, “How Big Data Is T r an sforming
an n u al in ven to ry. Ligh tin g Scien ce u ses UPS Trade Busine ss,” Th e Wall Street J ournal, Marc h 10, 2013; T h om as H.
Man agem en t Services an d UPS Cu sto m s Bro kerage to Daven por t, “Analytics T h at Tell You Wh at to Do,” Th e Wall Street
h elp m an age im p o rt an d exp o rt co m p lian ce to en su re J ournal, April 3, 2013; El an a Varon, “How UPS Tr ains Front-Lin e
tim ely, reliab le d elivery an d red u ce cu sto m s d elays. Wor kers to U se Pr edic ti ve Analytics,” DataInf ormed , Jan u ar y 31,
2013; an d Jen ni fe r Levitz an d T imo th y W. Martin , “UPS, O ther Big
UPS also h elp s Ligh tin g Scien ce red u ce cu sto m er Shi pper s, Car ve He al th Care Niches,” T h e Wall Street J ournal,
in ven to ry an d im p ro ve o rd er fu lfillm en t. Ju n e 27, 2012.

C A S E S T U DY Q U E S T I O N S
1. W h at are th e in p u ts, p ro cessin g, an d o u tp u ts of 3. W h at strategic b u sin ess o b jectives d o UPS’s
UPS’s p ackage trackin g system ? in fo rm atio n system s ad d ress?
2. W h at tech n o lo gies are u sed b y UPS? Ho w are th ese 4. W h at wo u ld h ap p en if UPS’s in fo rm atio n system s
tech n o lo gies related to UPS’s b u sin ess strategy? w ere n o t availab le?

The technolo gy supportin g this sys tem co nsists of han dhel d computers,
bar code scanners, desk top computers, wired and wirele ss c ommunica tio ns
network s, UPS’s data center, storage technology for the pack age deliv ery data,
UPS in-house pack age track ing sof tware, and software to access the World Wide
Web. The result is an inf ormation system solution to the business challen ge
of prov iding a high lev el of serv ice with low prices in the f ace of mounting
competition.
 Chapter 1 Information Systems in Global Business Today 57

Using a handheld computer

called a Delivery Information
Acquisition Device (DIAD), UPS
drivers automatically capture
customers’ signatures along with
pickup, delivery, and time card
information. UPS information
systems use these data to track
packages while they are being
transported.

© Bill Aron/PhotoEdit

IT ISN’T JUST TECHNOLOGY: A BUSINESS

PERSPECTIVE ON INFORMATION S Y STEMS
M anagers and business f irms inv est in inf ormation technolo gy and sy stem s
because they prov ide real economic v alue to the business. The decision to build
or maintain an i nf ormation system a ssu mes that the returns on this inv est-
ment w ill be superior to other inv estme nts i n buildings, machi nes, or other
assets. These superior returns will be expressed as increases in productiv ity,
as increases in rev enues (which wil l increase the f irm’s stock mark et v alue),
or perhaps as superior long-term strategic positioning of the f irm in certain
mark ets (which produce superior rev enues in the f uture).
We can see that from a business perspective, an inf ormation system is an
important in stru men t f or creating v alue f or the f irm. Inf ormation system s
enable t he f irm to increa se its rev en ue or decrease its costs by prov iding
inf ormation that helps managers mak e better decisions or that improv es the
execution of busi ness processes. For e xample, the i nf ormation syst em f or
analyzing supermark et check out data illustrated in Figure 1 .3 can increase f irm
prof itability by helping managers mak e better decisions as to which products to
stock and promote in retail supermark ets.
Ev ery business has an inf ormation v alue chain, illustrated in Figure 1 .7 , in
which raw inf ormation is systematically acquired and then transf ormed through
v arious stages that add v alue to that inf ormation. The v alue of an inf ormation
system to a business, as well as the decision to inv est in a ny new inf ormation
system, is, in large part, determined by the extent to which the system w ill lead
to better managemen t decisions, more eff icient business processes, and higher
f irm prof itability. Although there are other reasons w hy systems are built, their
primary purpose is to contribute to corporate v alue.
From a business perspectiv e, inf ormation systems are part of a series of
v alue-adding activ ities for acquiring, transf orming, and distributing inf orma-
tion that managers can u se to improv e decisio n mak in g, e n hanc e organiza -
tional perf ormance, and, ultimately, increase f irm prof itability .
The bu s in es s pe rs pec tiv e cal ls at te nt io n to the orga ni zati ona l a n d
managerial nature of inf ormation systems. An inf ormation system represents
58 Part One Organizations, Management, and the Networked Enterprise

F I GURE 1.7 THE BUS I N ES S I N F ORMATION VALUE CHAI N

From a business perspective, information systems are part of a series of value-adding activities for acquiring,
transforming, and distributing information that managers can use to improve decision making, enhance organizational
performance, and, ultimately, increase firm profitability.

an organizational and manage men t solution, based on inf ormation technology,

to a challe nge or problem posed by the env ironment. Ev ery chapter in this
book begins with a short case study that illustrates this concept. A diagram at
the beginning of each chapter illustrates the relationship between a business
challenge and resulting mana geme nt and organizational decisions to use IT as
a solution to challenges generated by the business env ironment. You can use
this diagram as a starting point for analyzing a n y inf ormation system or infor-
mation system problem you encounter .
Rev iew the diagram at the beginning of this chapter . The diagram shows how
the Rugby Football Union’s systems solv ed the business problem presented by
the need to generate rev enue in a high ly competitiv e industry. These systems
prov ide a solution that tak es adv antage of opportunities prov ided by new digital
technology and the Internet. They opened up new c hannel s for sellin g tick ets
and interacting with customers, optimized tick et pricing, and used new tools
to analyze player perf ormance. These systems were essential in improv ing the
Union’s ov erall business perf ormance. T he diagram also illustrates how man-
agement, technology, and organizational elements work together to create the
systems.

COMPLEMENTARY ASSETS: ORGANIZATIONAL

CAPITAL AND THE RIGHT BU S IN ESS MODEL
Awarenes s of the organizational and mana geria l d imens ion s of i nf ormation
systems can help us understand w h y some f irms achiev e better results f rom
 Chapter 1 Information Systems in Global Business Today 59

their inf ormation s yst ems t han others. Studies of returns f rom inf ormation
technology inv estments sho w that there is considerable v ariation in the returns
f irms receiv e (see Figure 1 .8 ). Some f irms inv est a great deal and receiv e a
great deal (quadrant 2 ); others inv est an equal amount and receiv e f ew returns
(quadrant 4 ). Still other f irms inv est little and receiv e much (quadrant 1 ),
wherea s others inv est little and receiv e little (quadrant 3 ). This suggests that
inv esting in inf ormation technology does not by itself guarantee good returns.
What accounts for this v ariation among f irms?
The ans wer lie s in the conce pt of com pl eme nt ary assets. Inf ormation
technology inv estments alone cannot mak e organizations and managers more
eff ectiv e unless they are accompanied by supportiv e v alues, structures, and
behav ior patterns in the organization and other complementary assets. Business
f irms need to cha nge h ow t hey do business bef ore they can really reap the
adv antages of new inf ormation technologies.
Some f irms f ail to adopt the right busi nes s mode l that suit s the n e w
technology, or seek to preserv e an old business model that is doomed by ne w
technology. For instance, recording label companies ref used to change thei r
old business model, whic h wa s based on physical musi c stores for distribu-
tion rather than adopt a ne w online distribution model. As a result, onlin e
legal music sales are dominated not by record companies but by a technology
company called Apple Computer .
Complementary assets are those assets required to deriv e v alue from
a p ri mary inv estm en t (Teece, 19 88 ). For instance , to rea lize v a lue f rom
automobiles requires substant ial com pl eme ntary inv es tment s in h ig hway s ,
roads, gasoline stations, repair f acilities, and a legal regulatory structure to set
standards and control driv ers.
Research indicates t hat f irms that support their techno logy i nv est men ts
with i nv es tmen ts in com p leme ntar y asset s, such a s n e w business mode ls,
n e w business processes, m a n a g e me nt behav ior, organizational culture, or

F I GURE 1.8 VARIATION I N RETURN S ON I N F ORM ATION TECHNOLOGY

I NVES TMENT

Although, on average, investments in information technology produce returns far above those returned
by other investments, there is considerable variation across firms.
Source: Based on Brynjolfsson and Hitt (2000).
60 Part One Organizations, Management, and the Networked Enterprise

training, receiv e superior returns, whereas those f irms f ailing to mak e t hese
comp leme ntary i nv estmen ts receiv e less or no returns on their inf ormation
techn ol ogy i nv es tme nt s (Brynjo lf sson , 2 0 03 ; Brynjolf sson and Hitt, 20 00 ;
Laudon, 1 97 4). These inv estment s in organization and managem en t are also
k nown as organizational and man agemen t capital.
Table 1 .3 lists the major co mp lem en tary i nv es tme nts t hat f irms ne ed to
mak e to realize v alue f rom their inf ormation technology inv estments. Some
of this inv e stm ent i nv olv es tangi ble assets, such as bui ldin gs, m a ch i ner y,
and tools. Howev er, the v alue of inv e stm en ts in inf ormat io n techn olo gy
depen ds to a large exte nt on comp leme nta ry i nv es tme nts i n m a n ag em e nt
and organization.
Key organizati onal co mp le me ntar y inv e stm en ts are a su pport iv e busi-
ness culture that v alues ef f iciency and eff ectiv eness, an appropriate business
model, ef f icient business processes, decentralization of authority, high ly dis-
tributed decision rights, a nd a strong inf ormation s ys tem (IS) dev elopment
team.
Important managerial complementary assets are strong senior manageme nt
support f or change, incentiv e sy ste ms that monitor and re ward indiv idual
innov ation, an emphasis on teamwork and collaboration, training programs,
and a management culture that v alues f lexibility and k nowledge.
Important social inv estments (not made by the f irm but by the society at
large, other f irms, gov ernments, and other k ey market actors) are the Internet
and the supporting Internet culture, educational systems, network and comput-
ing standards, regulations and laws, and the presence of technology and serv ice
f irms.
Throughout the book we emphasize a f ramework of analysis that considers
technol ogy, ma na gem en t, an d organizational asset s and their interaction s.
Perhaps the single most important theme in the book, ref lected in case studies
and exercises, is that managers need to consider the broader organization and

TABL E 1.3 COM PLEM EN TARY SOCIAL, M ANAGERI AL, AN D ORG ANI ZATION AL
AS S ETS REQUI RED TO OP TI M I ZE RETURNS FROM I N F ORM ATI ON
TECHNOLOGY I N VES TM EN TS

Organizational assets Supportive organizational culture that values efficiency and effectiveness
Appropriate business model
Efficient business processes
Decentralized authority
Distributed decision-making rights
Strong IS development team
Managerial assets Strong senior management support for technology investment and change
Incentives for management innovation
Teamwork and collaborative work environments
Training programs to enhance management decision skills
Management culture that values flexibility and knowledge-based decision
making.
Social assets The Internet and telecommunications infrastructure
IT-enriched educational programs raising labor force computer literacy
Standards (both government and private sector)
Laws and regulations creating fair, stable market environments
Technology and service firms in adjacent markets to assist implementation
 Chapter 1 Information Systems in Global Business Today 61

m an a ge me nt dimensi on s of inf ormati on s ys tem s to under sta nd curre n t

problems as well as to deriv e substant ial abov e-av erage returns f rom their
inf ormation technology inv estments. As you will see throughout the text, f irms
that can address these related dimensions of the IT inv estment are, on av erage,
richly rewarded.

1.3 W HAT ACADEM IC D I S CI PLINES ARE USED

TO
STUDY INFORMATION S Y STEMS AND HOW DOES
EACH CONTRIBUTE TO AN UNDERSTANDING OF
INFORM ATION S Y STEMS ?
The study of inf ormation systems is a multidisciplinary f ield. No single theory or
perspectiv e dominates. Figure 1 .9 illustrates the major disciplines that contribute
problems, issues, and solutions in the study of inf ormation systems. In general,
the f ield can be div ided into technical and behav ioral approaches. Information
systems are sociotechnical systems. Though they are composed of machines,
dev ices, and “hard” physical technology, they require substantial social, organiza -
tional, and intellectual inv estments to mak e them work properly.

TECHNICAL APPROACH
The technical approach to inf ormation systems emphasize s mathemat ical ly
based models to study inf ormation systems, as well as the physical technology
and formal capabilities of these systems. The disciplines that contribute to the
technical approach are computer science, management science, and operations
research.

F I GURE 1.9 CON TEMP ORARY AP P ROACHES TO I N FORM ATION S Y S TEM S

The study of information systems deals with issues and insights contributed from technical and
behavioral disciplines.
62 Part One Organizations, Management, and the Networked Enterprise

Computer science is concerned with establishing theories of computabil-

ity, methods of computation, and methods of eff icient data storage and access.
M anagement science emphasizes the dev elopmen t of models for decision-mak -
ing and manageme nt practices. Operations research f ocuses on mathematical
techniques for optimizing selected parameters of organizations, such as trans-
portation, inv entory control, and transaction costs.

BEHAVIORAL APPROACH
An important part of the inf ormation systems f ield is concerned with behav ioral
issues that arise in the dev elopment and long-term maintenance of inf ormation
systems. Issues such as strategic business integration, design, implementation,
utilization, and managemen t cannot be explored usef ully with the models used
in the technical approach. Other behav ioral disciplines contribute important
concepts and methods.
For instance , sociologists study inf ormation system s w ith an e y e toward
how groups and organizations shape the dev elopme nt of s yst ems and also
how sys tems af fect indiv iduals, groups, and organizations. Psychologists study
inf ormation systems with an interest in how hu man decision mak ers perceiv e
and use f ormal inf ormation. Economists study inf ormation systems wit h an
interest in under stand in g the production of digital goods, the dynamic s of
digital mark ets, and how ne w inf ormation systems chan ge the control and cost
structures within the f irm.
The behav ioral approach does not ignore technology. Indeed, inf ormation
systems technology is of ten the stimulus for a behav ioral problem or issue. But
the f ocus of this approach is generally not on technical solutions. Instead, it
concentrates on changes in attitudes, managemen t and organizational policy,
and behav ior .

APPROACH OF THIS TEXT: SOCIOTECHNICAL S Y STE MS

Throughout this book you will f ind a rich story with f our main actors: suppliers of
hardware and sof tware (the technologists); business f irms mak ing inv estments
and seek in g to obtain v alue f rom the technology; ma nager s and em pl oyee s
seek ing to achiev e bu sine ss v alue (and ot her goals); and the contemporary
legal, social, and cultural context (the f irm’s env ironmen t). Together these
actors produce what we call management information systems.
The study of manage men t inf ormation systems (M IS) arose to f ocus on the
use of computer -based inf ormation sys tems i n busi ness f irms and gov ern-
men t age ncies . M IS combines the work of computer science, m a na gem en t
science, and operations research with a practical orientation toward dev eloping
system solutions to real-world problems and managing inf ormation technology
resources. It is also concerned with behav ioral issues surrounding the dev elop-
ment, use, and im pact of inf ormation systems, which are typical ly discussed in
the f ields of sociology, economics, and psychology.
Our experience as academics and practitioners leads us to believ e that no
single approach ef f ectiv ely captures the reality of inf ormation systems. The
successes and failures of inf ormation are rarely all technical or all behav ioral.
Our best adv ice to students is to understand the perspectiv es of m an y disciplines.
Indeed, the challenge and e xcitement of the inf ormation systems f ield is that it
requires an appreciation and tolerance of m a n y dif f erent approaches.
 Chapter 1 Information Systems in Global Business Today 63

The v ie w we adopt in th is book is best characterized as the sociotech-

nical view of system s. In this v iew, optimal or ganizational perf ormance i s
achiev ed by jointly optimizing both the social and technical systems used i n
production.
Adopting a sociotechnical s ys tem s perspect iv e help s to av oid a purel y
technolog ical approach to i nf ormation sy stems . For ins tance, the f act that
inf ormation technology is rapidly declining in cost and growing in power does
not necessarily or easily translate into productiv ity enhanceme nt or bottom-
line prof its. The f act that a f irm has recent ly insta lled an en terpris e- wid e
f inancial reporting system does not necessarily mean that it will be used, or
used ef f ectiv ely. Lik ewise, the f act that a f irm has recently introduced n e w
business procedures and processes does not necessarily mean em pl oyees w il l
be more productiv e in the absence of inv estments in new inf ormation systems
to enable those processes.
In this book , we stress the need to o ptimize the f irm’s perf ormance as a
whole. Both the technical an d behav ioral com pone nts nee d attention . This
mean s that technolo gy must be chan ged and des igned in such a w a y as to fit
organizati onal a nd i ndiv idual need s. So metim es, t he tec hno lo gy m a y hav e
to be “de-optimized” to accompli sh this f it. For instance, mobile phone users
adapt this tec hno lo gy to the ir perso nal needs , an d as a resul t manuf actur -
ers quick ly seek to adjust the technology to conf orm with user expectations.
Organizations and indiv iduals must also be changed through training, learn-
ing, and pla nne d organizati onal chan ge to al low the techno logy to operate
and prosper . Figure 1.10 illustrates th is process of mutua l ad ju stme nt in a
sociotechnical system.

F I GURE 1.10 A S OCI OTECHN ICAL P ERS P ECTI VE ON I N F ORM ATION

S Y S TEM S

In a sociotechnical perspective, the performance of a system is optimized when both the technology
and the organization mutually adjust to one another until a satisfactory fit is obtained.
64 Part One Organizations, Management, and the Networked Enterprise

Review Summary
1. How are i nf ormati on sy stems transf ormi ng busi ness, and wh y are th ey essenti al f or runni ng and
manag i ng a busi ness today?
E -m ail, o n lin e co n fe ren cin g, sm a rtp h o n es, an d tab let co m p u ters h a ve b e co m e ess en tial to o ls fo r
co n d u ctin g b u sin ess. I n fo rm atio n s yst em s a r e th e fo u n d atio n of fast-p a ced su p p l y ch ain s . Th e
I n tern et allo w s m a n y b u sin ess es to b u y, se ll, ad v e rtise, an d so li cit cu st o m e r fe ed b a ck o n lin e.
Organ iz atio n s are t ryin g to b e co m e m o re co m p etitive an d effi cien t b y d igitall y en ab lin g th eir co re
b u sin ess p ro cesses an d e vo lvin g in to d igital firm s. Th e I n t ern et h as st im u lat ed glo b aliz atio n b y
d ram ati ca ll y red u cin g th e co sts of p ro d u cin g, b u yin g , an d se llin g go o d s o n a glo b al s cale . New
in fo rm atio n s ys tem tr en d s in clu d e th e em e rgi n g m o b il e d igit al p l atfo rm , o n lin e so ftw ar e as a
service, an d clo u d co m p u tin g.
I n fo rm ation system s ar e a fo u n d atio n for co n d u ctin g b u sin ess to d ay. I n m an y in d u stries, su rvival
an d th e ab ility to a ch ie ve strategic b u sin ess go als are d ifficu lt w ith ou t exten sive u se of in fo rm atio n
te ch n o lo gy. Bu sin esses to d ay u s e in fo rm atio n s ystem s to a ch i ev e six m ajo r o b je ctives: o p eratio n al
ex cell en ce; n e w p ro d u cts, ser vi ces, an d b u sin ess m o d els; cu sto m er/ su p p lie r in tim a cy; im p ro ved
d ecisio n m akin g; co m p etitive ad van tage; an d d ay-to -d ay su rvival.

2. Wh at i s an i nf ormati on system? How d oes it work? Wh at are i ts manag emen t, org ani zation, and
tech nol og y comp onents and wh y are comp l ementary assets essenti al f or ensuring th at i nf ormati on
sy stems p rov i d e g enuine v alue f or organizations?
Fro m a te ch n i cal p e rsp e ctive, an in fo rm atio n syst em co lle cts, sto res, an d d issem in ates in fo rm atio n
fro m an o rgan iz atio n’s en viro n m en t an d in te rn al o p eratio n s to su p p o rt o rgan iz ation al fun ctio n s an d
d e cisio n m a kin g , co m m u n i catio n , co o rd in atio n , co n tro l, an al ysis, an d visu aliz atio n . I n fo rm atio n
system s tr an sfo rm raw d ata in to u sefu l in fo rm ation th ro ugh th ree b asic a ctivities: in p u t, p ro cessin g,
an d o u tp u t.
Fro m a b u sin ess p e rsp e cti ve, a n in fo rm atio n s ys tem p ro vid es a so lu tio n to a p ro b lem o r ch al len ge
fa cin g a fi rm an d r ep r es en ts a co m b in ati o n of m a n ag em en t, o rgan iz atio n , an d t e ch n o lo g y ele-
m en ts. Th e m an ag em en t d im en sio n o f in fo rm atio n sys tem s in vo lv es issu es su ch as l e ad e rsh ip ,
strat eg y, an d m an a g em e n t b eh avio r. Th e t e ch n o lo gy d im en sio n co n sists of co m p u te r h a rd w a re,
so ftw a re , d at a m a n a g e m e n t te ch n o l o g y, an d n et w o r ki n g/ t el e co m m u n i ca t i o n s t e ch n o lo g y
(in clu d in g th e I n te rn et). Th e o rgan iz atio n d im en sio n o f in fo rm atio n s yst em s in vo lv es issu es su ch
as th e o rgan iz atio n ’s h ie ra r ch y, fu n ctio n al sp e ci alti es, b u sin ess p ro cess es, cu ltu re, an d p o liti cal
in terest gro u p s.
I n o rd er to o b tain m ean in gfu l v alu e f ro m in fo rm atio n system s, o rg an iz atio n s m u st su p po rt th eir
te ch n o lo g y in v e stm en t s w ith ap p r o p r ia te co m p l em en t a r y in v es tm e n ts i n o rg an iz atio n s an d
m an a g em en t . Th es e co m p l em e n ta r y assets in clu d e n ew b u sin ess m o d els an d b u sin ess p ro cesses,
su p p o rtive o rg an iz atio n a l cu ltu re an d m an a g em en t b eh avio r, ap p ro p ri ate t e ch n o lo gy st an d a rd s,
regu latio n s, an d l aw s. N ew in fo rm atio n te ch n o lo gy in vestm en ts ar e u n li k el y to p ro d u ce h igh r etu rn s
u n less b u sin ess es m a k e th e ap p ro p ri at e m an ag e ri a l an d o rgan iz atio n al ch an g es to su p p o rt th e
tech n o lo gy.

3. Wh at acad emi c d i sci p lines are used to stud y i nf ormati on sy stems and h ow d oes each contri bute to an
und erstand i ng of i nf ormati on systems?
Th e stu d y o f in fo rm atio n system s d e als w ith issu es an d in sigh ts co n trib uted from te ch n i cal an d
b eh avio ral d iscip lin es . Th e d iscip lin es th at co n trib u te to th e te ch n i cal ap p ro a ch fo cu sin g on fo rm al
m o d els an d cap ab iliti es o f s yst em s ar e co m p u ter s ci en ce, m a n ag em en t s ci en ce, an d o p er atio n s
resea r ch . Th e d is cip lin es co n trib u tin g to th e b eh avio ral ap p ro a ch fo cu sing o n th e d esign , im p lem en ta-
tio n , m an ag em en t, an d b u sin ess im p a ct o f s yst em s a re p s y ch o lo g y, so cio lo gy, an d e co n o m ics. A
so cio te ch n ical vi ew o f s yst em s co n sid ers b o th tech n i cal an d so cial featu res of s ystem s an d so lu tion s
th at rep resen t th e b est fit b etw een th em .
 Chapter 1 Information Systems in Global Business Today 65

Key Terms
Business functions, 51 In for mation te chn ology (IT) infrastructure, 54
Business mode l, 46 Input, 48
Business pr oce s ses, 51 Internet, 53
Comple me n tar y assets, 59 Intranets, 54
Compu te r hardware , 53 Kn ow le dge workers, 53
Compu te r literacy, 50 Man age me nt in for mation s ystems (MIS), 50
Compu te r software, 53 Middle man age me n t, 51
Culture, 52 Network, 53
Data, 48 Networking an d te le commu n ications te chn ology, 53
Data man age me n t te chnology, 53 Ope r ational man age men t, 51
Data workers, 51 Organization al an d man age me n t capital, 60
Digital fir m, 44 Output, 49
Extranets, 54 Processing, 49
Fe e db ack, 50 Production or s e r vice workers, 53
In for mation , 48 Senior man age me n t, 53
In for mation s yste m, 48 S ociote chn ical view, 63
In for mation s ys te ms literacy, 50 World Wide Web, 54
In for mation te chn ology (IT), 48

MyMISLab
Go to mymislab.com to complete the problems marked with this icon .

Review Questions
1-1 Ho w a r e in fo rm atio n s y st em s t r an sfo rm in g • Distin gu ish b etw een in fo rm atio n te ch n o l-
b u sin ess, an d w h y ar e t h ey so ess en ti a l fo r o gy an d an in fo rm atio n system .
ru n n in g an d m an agin g a b u sin ess to d ay? • E xp lain h o w th e I n t ern et an d th e W o rld
• Des crib e h o w in fo rm atio n sy st em s h av e W id e Web a re r elated to th e o th er te ch n o l-
ch an g ed th e w a y b u sin ess es o p e r ate an d o gy co m p o n en ts of in fo rm atio n system s.
th eir p ro d u cts an d services . • Defin e co m p lem en t ar y assets an d d es crib e
• Describ e th e b u sin ess im p a ct o f clo u d co m - th eir relatio n sh ip to in fo rm atio n tech n o l-
p u tin g, Big Data, an d th e m o b ile p latfo rm . o gy.
• Describ e th e ch aracteristics of a d igital firm . • Des crib e th e co m p lem en t a r y so cial, m an a-
• E xp lain w h at glo b aliz atio n h as to d o w ith gerial, an d o rgan iz atio n al assets requ ired to
m an agem en t in fo rm atio n system s . o p tim iz e retu rn s fro m in fo rm atio n tech n o l-
o gy in vestm en ts.
• List an d d escrib e six re aso n s w h y in fo rm a-
tio n system s ar e so im po rtan t fo r b u sin ess 1-3 W h at a cad em i c d is cip lin es a re u s ed to stu d y
to d ay. in fo rm ati o n s y s t e m s an d h o w d o es e a ch
co n trib u te to an u n d erstan d in g of in fo rm atio n
1-2 W h at is an in fo rm atio n s yst em ? Ho w d o es it
system s?
w o rk? W h at are its m an ag em en t, o rgan iz atio n ,
an d te ch n o lo gy co m p o n en ts an d w h y a re co m - • List an d d escrib e each d iscip lin e th at contrib-
p lem e n ta r y assets essen ti al fo r en su r in g th at u tes to a tech n ical ap p ro ach to in fo rm atio n
in fo rm ation system s p ro vid e gen u in e valu e fo r system s.
o rgan iz atio n s? • List an d d escrib e each d iscip lin e th at contrib-
• Defin e an in fo rm atio n system an d d escrib e u tes to a b eh avio ral ap p ro ach to in fo rm atio n
th e activities it p erfo rm s . system s.
• List an d d es crib e th e o rg an iz atio n al, m an - • Describ e th e so cio tech n ical p ersp ective o n
ag em en t , a n d te ch n o lo g y d im en s io n s o f in fo rm atio n system s.
in fo rm atio n system s .
66 Part One Organizations, Management, and the Networked Enterprise

Discussion Questions
4 I n fo rm ation system s a re too im p o rtan t to b e 1-6 Ho w h av e fed e ral an d state statu tes an d regu -
left to co m p u ter sp e cialists . Do yo u a gr e e? latio n s im p acted th e u se of in fo rm atio n sys-
W h y o r wh y n o t? tem s?
5 If yo u w e re settin g u p th e W eb site fo r a ru gb y
team , wh at m an ag em en t, o rg an iz atio n , an d
tech n o lo gy issu es m igh t yo u en co u n ter?

Hands-On M I S Projects
The projects in this section give you hands-on experience in analyzing f inancial reporting and inv entory
manage men t problems, using data management sof tware to improv e managemen t decision mak ing about
increasing sales, and using Internet sof tware for researching job requirements.

Managemen t Decisio n Problem s

7 W arb en to n Sn ack Foods is a m an u factu rer of p o tato crisp s an d savo u ry sn acks in th e U.K. W arb en to n ’s
fin an cial d ep artm en t u ses sp read sh eets an d m an u al p ro cesses for m u ch of its d ata gath erin g an d rep o rt-
in g. W arb en to n ’s fin an cial an alyst w o u ld sp en d th e en tire fin al w eek of every m o n th co llectin g sp read -
sh eets fro m th e h ead s of vario u s d ep artm en ts. Sh e w o u ld th en co n so lid ate an d re-en ter all th e d ata in to
an o th er sp read sh eet, w h ich w o u ld serve as th e co m p an y’s m o n th ly p ro fit an d -lo ss statem en t. If a d ep art-
m en t n eed ed to u p d ate its d ata after su b m ittin g th e sp read sh eet to th e m ain o ffice, th e an alyst h ad to
retu rn th e o rigin al sp read sh eet an d th en w ait for th e d ep artm en t to resu b m it its d ata b efo re fin ally sub-
m ittin g th e u p d ated d ata in th e co n so lid ated d o cu m en t. Assess th e im p act of th is situ atio n o n b u sin ess
p erfo rm an ce an d m an agem en t d ecisio n m akin g.
8 Rab att o p erates d eep -d isco u n t sto res o fferin g h o u sewares, clean in g su p p lies, clo th in g, h ealth an d b eau ty
aid s, an d p ackaged food th ro u gh o u t Germ an y, w ith m o st item s sellin g for 1 eu ro . Its b u sin ess m o d el calls
for keep in g co sts as lo w as p o ssib le. Th e co m p an y h as n o au to m ated m eth o d for keep in g track of in ven -
to ry at each sto re. Man agers kn o w ap p ro xim ately h o w m an y cases of a p articu lar p ro d u ct th e sto re is su p -
p o sed to receive wh en a d elivery tru ck arrives, b u t th e sto res lack tech n o lo gy for scan n in g th e cases o r
verifyin g th e item co u n t in sid e th e cases. Merch an d ise lo sses fro m th eft o r o th er m ish ap s h ave b een
risin g an d n o w rep resen t o ver 3 p ercen t of to tal sales. W h at d ecisio n s h ave to b e m ad e b efo re in vestin g in
an in fo rm atio n system so lu tio n ?

Im provin g Decisio n Making : U si n g Database s t o Analyz e Sale s Trend s

Sof tware sk ills: Database querying and reporting
Business sk ills: Sales trend analysis

9 I n th is p ro ject, yo u w ill start o u t w ith raw tran sactio n al sales d ata an d u se Micro so ft Access d atab ase
so ftware to d evelo p qu eries an d rep o rts th at h elp m an agers m ake b etter d ecisio n s ab o u t p ro d u ct
p ricin g, sales p ro m o tio n s, an d in ven to ry rep len ish m en t. I n MyMI SLab , yo u can fin d a Sto re an d
Regio n al Sales Datab ase d evelo p ed in Micro so ft Access. Th e d atab ase co n tain s raw d ata o n weekly
sto re sales of co m p u ter equ ip m en t in vario u s sales regio n s. Th e d atab ase in clu d es field s fo r sto re
id en tificatio n n u m b er, sales regio n , item n u m b er, item d escrip tio n , u n it p rice, u n its so ld , an d th e
w eekly sales p erio d w h en th e sales w ere m ad e. Use Access to d evelo p so m e rep o rts an d qu eries to
m ake th is in fo rm atio n m o re u sefu l fo r ru n n in g th e b u sin ess. Sales an d p ro d u ctio n m an agers wan t
an sw ers to th e fo llo w in g qu estio n s:
• W h ich p ro d u cts sh o u ld b e resto cked ?
• W h ich sto res an d sales regio n s w o u ld b en efit fro m a p ro m o tio n al cam p aign an d ad d itio n al
m arketin g?
• W h en (w h at tim e of year) sh o u ld p ro d u cts b e o ffered at fu ll p rice, an d w h en sh o u ld d isco u n ts b e
u sed ?
 Chapter 1 Information Systems in Global Business Today 67

You can easily modif y the database table to f ind and report your answers. Print your reports and
results of queries.

Im p r o vi ng Dec isio n M a k i ng : U s i ng the Interne t to Lo c ate Jo bs Requiring

Inf o r m at io n S ys t e m s K no w le dg e
Sof tware sk ills: Internet-based sof tware
Business sk ills: Job searching
1-10 Visit a jo b -po stin g Web site su ch as Mo n ste r. co m . Sp en d so m e tim e at th e sit e e x am in in g jo b s fo r
a cco u n tin g, fin an ce, s ales, m a rk etin g, an d h u m a n r eso u r ces . Fin d two o r th r ee d es crip tio n s of jo b s th at
re qu i re so m e in fo rm atio n sy stem s kn o w led g e. W h at in fo rm atio n sy stem s kn o w l ed ge d o th es e jo b s
requ ire? W h at d o yo u n eed to d o to p rep are for th ese jo b s? W rite a o n e- to two -p age rep o rt su m m ariz in g
yo u r fin d in gs.

Collaboration and Teamwork Project

1-11 I n MyMI SLab , yo u w ill fin d a Co llab o ratio n an d Team w o rk Pro ject d ealin g w ith th e co n cep ts in th is
ch ap ter. You w ill b e ab le to u se Google Drive, Google Docs, Google Sites, Go o gle+ , o r o th er o p en -so u rce
co llab o ratio n to o ls to co m p lete th e assign m en t.

Mashaweer: Online Personal Services in the Gulf

CASE STUDY

M ash aw eer is th e first p erso n al service

co m p an y in E gyp t. It’s p u rely d ed icated
to savin g its clien ts’ tim e an d effort b y
o fferin g a p erso n al assistan t 24 h o u rs
a d ay. Th e p erso n al assistan t is a rid er w ith a motor-
Cairo , wh ere traffic is an issu e, savin g p eo p le o n e of
th e m o st valu ab le co m m o d ities o u t th ere: tim e. Th e
service is ab le to give p eo p le m o re qu ality tim e to
sp en d w ith fam ily o r frien d s, in stead of takin g care
of th e d aily erran d s th at u su ally take u p h alf of o n e’s
d ay. Th ey also act as a secu rity o r safety m easu re as
cycle w h o ru n s an y erran d s for in d ivid u al clien ts o r
co rp o ratio n s at an y given tim e. Th e m o st co m m o n th ey p erfo rm p eo p le’s erran d s in u n safe tim es, su ch
service th ey p ro vid e is b u yin g gro ceries o r o th er as th e p erio d after th e revo lu tio n o r sim p ly late at
goods fro m sto res, p ayin g b ills, an d actin g as a co u rier. n igh t. Most in d ivid u als can n o t afford h avin g a full-
Mash aw eer’s su ccess relies h eavily o n th eir flexib ility, tim e assistan t to p erfo rm th eir erran d s w h en ever
an d th ey h ave o ften received u n u su al requ ests th at n eed ed . Mash aweer’s agen ts act as fu ll-tim e assistan ts
th ey h ave fu lfilled in o rd er to gain cu sto m er lo yalty, for every in d ivid u al at a p art-tim e co st.
in clu d in g: go in g to th e gym to tell so m eo n e to tu rn o n Sin ce startin g th e co m p an y in Alexan d ria in 2010,
th e p h o n e as so m eo n e is tryin g to reach th em , d eliv- Mash aw eer h as sin ce exp an d ed to Cairo an d oper-
erin g p resen ts to a clien t’s fian cée every 15 m in u tes, ates aro u n d 600 o rd ers p er d ay. Th ey p lan to exp an d
an d carryin g a clien t’s sh o p p in g b ags fro m th e car to even fu rth er geo grap h ically w ith in E gyp t an d to o th er
th e h o u se. co u n tries in th e regio n as well as en h an cin g an d
Mash aw eer is an essen tial service for E gyp tian s in creasin g th e services th ey p ro vid e.
b ecau se traffic is a p ro b lem th at everyo n e in E gyp t Th e id ea of Mash aweer was created b y Mo h am ed
faces, m akin g it d ifficu lt for an in d ivid u al to get a Wahid (24 years o ld ) an d th en co -fo u n d ed w ith h is
co u p le of erran d s d o n e o n th e sam e d ay. Mash aw eer’s p artn ers, Ah m ed El Kordy (25 years o ld ) an d Aly El
service h as ach ieved su ch su ccess in Alexan d ria an d Sh az ly (27 years o ld ). Th ey w ere all b o rn an d raised
68 Part One Organizations, Management, and the Networked Enterprise

in Alexan d ria. Ah m ed El Kordy an d Mo h am ed Wahid all o ver th e co u n try h ad co m e to a stan d still, th ey

m et w h en th ey both tran sferred fro m d ifferen t sch o o ls m ad e several large p u rch ases su ch as m o to rcycles an d
to IGCSE Acad em y (AAST) for h igh sch o o l. Ah m ed El ad vertisin g sp ace for fractio n s of th e p rice. W h en oth-
Kordy fin ish ed h igh sch o o l in 2 years an d wen t o n to ers saw it as a tim e to slo w d o w n , th e en trep ren eu rs
ach ieve h is b ach elo r’s d egree in in d u strial en gin eerin g saw it as an o p p o rtu n ity to start m arketin g for th eir
fro m th e Arab Acad em y of Scien ce an d Tech n o lo gy b u sin ess. By March th ey realiz ed th at th ey n eed ed to
(AAST), grad u ating in 2008. Part of h is u n d ergrad u - in crease th e o rigin al in vestm en t so th at th ey can gro w
ate d egree was sp en t d o in g a year ab ro ad in Carleto n large en o u gh to cap tu re th e m arket in Cairo . To do
Un iversity in Ottaw a, Can ad a. Du rin g th e su m m ers so , th ey b ro u gh t in o th er in vesto rs, m ain ly fro m th eir
of h is u n d ergrad u ate years, Ah m ed co m p leted sev- frien d s an d fam ily, to raise th e cap ital in vestm en t u p
eral in tern sh ip s in th e Un ited K in gd o m an d I relan d . to $1.67 m illio n . Th ey p lan n ed to en ter Cairo w ith fu ll
Mo h am ed Wahid also wen t to AAST, grad u atin g in force so th at th ere w o u ld b e a h igh b arrier of en try
2009 w ith a b ach elo r’s d egree in co n stru ctio n en gi- for an y co m p etitor. Th ey d ecid ed th at th eir co m p eti-
n eerin g. Aly El Sh az ly atten d ed St. Marks School for tive ad van tage w o u ld h ave to b e in in vestin g in tech -
h is en tire sch o o l career, h e th en w en t o n to Alexan d ria n o lo gy. Th ey w an ted to get an en terp rise reso u rce
Un iversity, wh ere h e stu d ied b u siness an d grad u ated p lan n in g (ERP) system b u t fo u n d qu o tation s to b e
in 2007. After co llege, Ah m ed El Kordy w en t o n to too h igh . To fix th is th ey started th eir o w n in fo rm a-
wo rk at h is fath er’s im p o rt/exp ort b u siness. Mo h am ed tio n tech n o lo gy co m p an y, I n n o v8 (“innovate”), w h ere
Wahid w en t o n to estab lish a co m p an y called X-trade th ey created a cu sto m iz ed ERP system th at th ey th en
for trad e an d co n tractin g, fo llo wed b y a m arketin g an d co n n ected to th eir cu sto m iz ed PDAs (Perso n al Digital
ad vertisin g co m p an y called Green Med ia. Cu rren tly, Assistan ts) th ro ugh a clo u d co m p u tin g system m ad e
h e’s a m ain sh areh o ld er in both, in ad d itio n to b ein g b y LinkDotNet an d Mo b in il. E ach rid er receives tasks
th e vice-ch airm an of Green Towers, a real estate com- o n e at a tim e o n th e PDA, w h ich also in clu d es a GPS
p an y with a n et wo rth of ab o u t $16 m illio n . to p ro vid e d etailed d irectio n s. Th e GPS m o n ito rs th e
Wahid th o u gh t of th e id ea of estab lish in g rid er’s lo catio n .
Mash aweer wh ile h e was p rep arin g for h is wed d in g. To red u ce co st an d en su re qu ality, Mash aw eer
His bride-to-be w as o verw h elm ed w ith erran d s th at d o es n o t rely o n o u tso urcin g in an y of its stages as
sh e h ad to get d o n e with in a few d ays an d h e started lo n g as it can do th e w o rk w ith th e sam e o r b etter
w o n d erin g w h at sh e w o u ld h ave d o n e if sh e co u ld n ’t qu ality. Th is w as w h y Mash aw eer fo u n d ed I n n ov8
afford a fu ll-time d river wh o d id all of h er erran d s for in o rd er to b u ild its system an d m an age its tech n ical
h er. W h ile o n h is h o n eym o o n , h e kep t th in kin g ab o u t w o rk. Now, Mash aw eer o n ly o w n s p art of th is com-
th is id ea an d h o w m u ch tim e p eo p le co u ld save an d p an y an d is o n e of its n u m ero u s clien ts. On e fu rth er
w h at a valu ab le service it co u ld b e. He d ecid ed to call exam p le of Mash aw eer’s in -h o u se cap ab ilities is its
h is frien d s to start tran sfo rm in g th e id ea in to an actu al call cen ter. Th e co m p an y p referred to h ave an in ter-
b u sin ess p lan . After d evelo p in g th e p lan , th e th ree n al call cen ter after rejectin g a n u m b er of offers for
en trep ren eu rs d ecid ed to go in to th e im p lem en tatio n an o u tso urced o n e. Th ey w an ted to b e ab le to m o n i-
p h ase an d actu ally b u ild th is b u sin ess. Th ey started tor th e p erfo rm an ce of th e agen ts an d alw ays w o rk
sm all an d grew o rgan ically as th e d em an d for th e o n im p ro vin g th e qu ality of th eir cu sto m er service.
service in creased . E ach of th e th ree en trep ren eu rs I n vestin g in an in n o vative co n tact cen ter an d u sin g
in vested $5,000 in to th e p ro ject to total a startin g cap i- CISCO, w h ich su p p o rts u p to 300IP p h o n es, a report-
tal of $15,000. Th ey started w ith o n ly 3 m o to rcycles, 6 in g m o d u le, an d a reco rd in g system , m ad e it m u ch
rid ers, an d a h o tlin e. easier for Mash aw eer to track its received calls an d
As th e th ree frien d s realiz ed th ey h ad actu ally suc- w o rk o n an y p ro b lem s th at m igh t face its cu sto m er
ceed ed in Alexan d ria, th ey d ecid ed th ey wan ted to service agen ts.
m o ve to th e n ext p h ase b y estab lish in g Mash aw eer So ftw are co m p o n en ts d evelo p ed b y I n n o v8 in clu d e
in Cairo . W h en th ey d ecid ed to exp an d to Cairo , th ey th e Mash aw eer Server, Mash aw eer API (Ap p licatio n
d ecid ed to ad o p t a co m p letely d ifferen t strategy. Pro gram m ers’ I n terface), an d Mash aw eer PDA clien t.
Th ey wan ted to b e ab le to co ver all of Greater Cairo , Th e Mash aw eer Server is a cen traliz ed ap p licatio n
as a w h o le, an d n o t ju st sp ecific areas, fro m th e very th at m an ages th e fo llo w ing elem en ts:
b egin n in g. Du rin g th e Revo lu tion in J an u ary 2011 • Ord ers (p lacem en t, ed itin g, p ricin g, review,
th ey started gath erin g m arket research to exp an d in trackin g, an d rep o rts)
Cairo an d started in vestin g h eavily. Sin ce b u sin ess • Ro u tes m an agem en t an d o p tim iz atio n
 Chapter 1 Information Systems in Global Business Today 69

• Clien ts (m an agem en t, rep o rts, d isco u n ts) fro m th e ad van cem en ts an d p rice red u ctio n s th at
• Packages trackin g co n tin u o u sly take p lace. As a resu lt, Mash aw eer’s total
• Co n tracts co sts w ill d ecrease, en ab lin g it to d ecrease its p rices
• Th e call cen ter an d fu rth er im p ro ve its qu ality to b eco m e even m o re
• Satellite offices co n ven ien t for a larger n u m b er of p eo p le.
• Rep resen tatives Mash aw eer is th e o n ly co m p an y of its kin d in
• Cash tran sactio n s an d exp en ses trackin g for E gyp t th at o p erates o n th is scale. Ho w ever, th ere is
rep resen tatives an d satellite offices a co m p an y called W assaly th at w as estab lish ed in
• Asset trackin g of veh icles, PDAs, an d m o b ile Cairo after Mash aw eer’s su ccess in Alexan d ria. Th is
p rin ters co m p an y o p erates o n a m u ch sm aller scale. Th eir
• Man agem en t rep o rts in d irect co m p etito rs in clu d e o th er co u rier services
Th e API is a m eth o d of in tegratin g Mash aweer (e.g. DHL, UPS, TNT, an d FedEx). Ho w ever, th ey h ave
o rd erin g system w ith th ird p arties. Th is allo w s th ird p o sitio ned th em selves as th e flexib le co u rier in con-
p arties to au to m ate th eir d elivery system an d in te- trast to th e o th ers availab le in th e m arket to d ay; th ey
grate Mash aw eer in to th eir existin g CRM/ d isp atch in g offer sam e-d ay d elivery rath er th an n ext-d ay d elivery.
system s, o p en in g a wid e o p p o rtu nity for b u sin ess Mash aw eer h as several o th er ad van tages th at m ake it
exp an sio n . very h ard for o th ers to co m p ete:
Th e Mash aweer PDA ap p licatio n is in stalled o n • A d atab ase of th o u san d s of lo yal clien ts.
each rep resen tative PDA an d m an ages th e fo llo w in g • Man ageab le self-in vestm en t.
elem en ts: • High ly qu alified an d carefu lly sele cted rid ers d u e
• Ord er item s p ro gress trackin g to th e h igh salaries co m p ared to th e d elive ry sec-
• Co llectio n of o rd er fees an d o th er co sts, tor in th e E gyp t.
again st a p rin ted in vo ice • Various reven u e stream s.
• Package h an d lin g (b arco d e scan n in g an d • Bein g th e o w n er of I n n o v8, w h ich fosters te ch n o l-
d estin atio n s) o gy in tegratio n in Mash aw eer.
• Messagin g Mash aw eer h as several u n iqu e sellin g proposi-
• Cash an d exp en ses trackin g tio n s. Th e m ain tw o asp ects are b ein g th e first in th e
• Syn ch ro n iz in g d ata p erio d ically an d at th e m arket, an d b ein g th e o n ly co m p an y of its kin d . Th e
b egin n in g of each sh ift m o st im p o rtan t d ifferen tiato r is th e flexib ility of th eir
W h en Mash aweer was first in tro d u ced in E gyp t, service, w h ich ad d resses all of th eir cu sto m er’s n eed s
it cap tu red 100 p ercen t of m arket sh are for su ch a an d requ ests.
service, b ecau se it was th e first an d o n ly co m p an y Un like n ew en tran ts o r co p ycats in th e m arket,
of its n atu re. Ho w ever, th e m arket w as n o t aw are o r Mash aw eer h ave in vested h igh ly in th e system s th ey
u sed to su ch a service, so it started gro win g slo wly u se. Th ey in vested in PDAs to en ab le th e o p eratio n s
in Alexan d ria u n til p eo p le grasp ed th e id ea an d got p ro cess to b e m o n ito red accu rately sin ce it p ro vid es
accu sto m ed to th e fact th at th ere is a co m p an y th at d ata like GPS trackin g to track each o rd er an d th e
can take o ver yo u r erran d s. I n co n trast, w h en th e lo catio n o r stage th e m essen ger is lo cated . Th ro u gh
co m p an y started o p eratin g in Cairo , it grew at a su r- th is tech n o lo gy, Mash aw eer d ecreases th e am o u n t
p risin gly fast p ace. Th ere are several factors th at are of erro rs, as th e m essen gers are tied to an au to m ated
exp ected to affect th e target m arket an d m ake it easier p ro cess w h ere th ey receive th eir tasks th ro u gh th e
for Mash aw eer to p en etrate it aggressively. PDA h an d h eld . Mean w h ile, a SCADA (Su p erviso ry
At th e b egin n in g, p eo p le’s assu mp tion is th at u sin g Co n tro l an d Data Acqu isitio n ) system p resen ted o n
Mash aw eer is too lu xu rio u s an d co stly. W h en th ey u se a b ig screen w ill b e availab le at Mash aw eer h ead -
it for th e first few tim es, th is p ercep tio n ch an ges an d qu arters to m o n ito r all live o rd ers an d m easu re th e
th ey b egin to rely o n th is co n ven ien t service. As m o re traffic in case of ru sh h o u rs, th u s en ab lin g th e o p era-
an d m o re p eo p le get accu sto m ed to th e service, it tio n team to react an d try a p reven tive an d co rrective
creates a cu ltu ral ch an ge th at sign ifican tly affects th e actio n .
d em an d o n th e service.
An oth er facto r th at is exp e ct ed to fa cilitate wo rk- Mash aw eer’s in frastru ctu res in clu d es th e fo llo w in g.
in g co n d itio ns an d r ed u ce co sts is th e tech n o lo gical Equipment: 130 m o to rcycles u n its an d 10 cars.
ad van ces th at o ccu r e v er y d a y. M ash aw e er h ea vily Software: A lo gistics m an agem en t so lu tion system
d ep en d s o n tech n o lo gical tools, an d wo u ld b en efit w as d evelo p ed sp ecifically for Mash aw eer, an d served
70 Part One Organizations, Management, and the Networked Enterprise

fro m a clo u d -h o sted server. Th e so lu tio n co n sists of a co m p an y in th e n ear fu tu re, as th e co m p an y starts

w eb -b ased p o rtal w h ere call cen ter agen ts, lo gistics, in tro d u cin g m arketin g cam p aign s. I n ad d itio n ,
an d m an agers can ad d , ed it, track, an d view rep o rts. Mash aw eer is p lan n in g to exp an d its call cen ter to
PDA: A PDA clien t was d evelo p ed to co n n ect to in clu d e o th er co m p an ies o th er th an Mash aw eer.
th e server in o rd er to allo w Mash aw eer rep resen ta- Geographical Expansion: Usin g th e tech n o lo gy
tives to view an d u p d ate th eir assign ed o rd ers via an th ey h ave in vested in b u ild in g th eir in frastru ctu re,
XML-based w eb service. Except for th e PDA clien t, th e Mash aw eer n o w h as th e p o ten tial to easily en ter
so lu tion is b ased o n o p en so u rce tech n o lo gies (PHP, an d p en etrate o th er m arkets in d ifferen t regio n s at
Co d eI gn iter, MySQL, jQu ery, Ub u n tu Lin u x). Th e a very lo w in itiatio n co st. Th ey p lan to exp an d to
PDA d evices will b e a m ain factor in in tegratin g th e o th er regio n s w ith in E gyp t, in ad d itio n to exp an d in g
o p eratio n al team w ith th e fleet of rid ers. to o th er co u n tries w ith in th e Mid d le East. I n October
Hardware: W in d o ws Mo b ile PDAs were u sed for 2013 th ey o p en ed th eir first fran ch ise in Beiru t,
view in g an d u p d atin g o rd ers o n th e m o ve. E ach PDA Leb an o n . I n 2014 th ey o p en ed u p for b u sin ess in
is p aired to a Blu eto o th m o b ile p rin ter for p rin tin g Du b ai, an d h ave p lan s for exp an d in g to several co u n -
receip ts. Th e p rin ter is also equ ip p ed w ith a sw ip e tries in th e Gulf.
card read er m o d u le so th at it can b e u sed in th e fu tu re
for cred it card p aym en t co llectio n , an d for p ro m o tion Sources: Pam e l l a d e Le on, “Startup Mash aw e e r Wants to Do Your
card s. Mash aweer server is a Lin u x VM h o sted o n a Er r an ds In Dubai,” e n tr e pren eurmi ddlee ast.com, No vember 19,
clo u d so lu tio n p ro vided b y I n n o v8, th e sister com- 2014; Mo h am m ad O sman goni , “Case 1: Mashaweer,” mo ham-
p an y th at d evelo p ed th e en tire in fo rm atio n tech n o l- m ad o smangon i.wor dpress.com/2014/10/17/case-1, October 17,
2014; “Brands Sp e ak Di gital: Mahsaweer ’s Soc ial Media Strategy,”
o gy system . h ttp :/ /www.di gibuzzme .com, No vember 22, 2012.
Head Quarters: Th e d ecisio n was m ad e to b u y a
n ew h ead qu arters in stead of ren tin g an existin g o n e.
C A S E STUDY QUESTIONS
Mash aw eer’s fu tu re strategy is as follows: 12 W h at kin d s of ap p licatio n s are d escrib ed in th is
Mashaweer Market: Mash aweer Market is an case? W h at b u sin ess fu n ctio n s d o th ey su p -
p o rt?
o n lin e su p erm arket th at w ill en ab le p eo p le to do th eir
gro cery sh o p p in g th ro ugh Mash aweer’s web site an d 13 W h at are th e b en efits fro m equ ip p in g th eir rid -
get it d elivered b y its rep resen tatives w ith in 30 m in - ers w ith PDAs?
u tes of p lacin g th e order. Th is will b e m ad e p o ssible 14 Was it a go o d d ecisio n to exp an d th e b u sin ess
b y h avin g access to a large n u m b er of su p erm arkets to Cairo ? W h at are th e im p licatio n s of in fo rm a-
aro u n d Cairo an d Alexan d ria, so th at rep resen tatives tio n system s?
can p ick th e o rd er fro m th e clo sest o u tlet an d d eliver 15 Do yo u th in k th at Mash aw eer w ill b e ab le to
it to th e cu sto m er as qu ickly as p o ssib le. All p ro du cts acco m p lish th eir fu tu re strategy an d su stain its
w ill b e d isp layed o n th e w eb site. m arket sh are?
Mash aweer is h o p in g to reach an average of 4000 16 Do yo u th in k in n ear fu tu re, th e co m p etitio n
o rd ers d aily in retu rn for a d elivery ch arge of 5 b etw een Mash aw eer an d W assaly w ill b e
E gyp tian p o u n d s p er order. aggressive? W h y?
Call ce nte r: Mash aw eer’s call cen ter is exp ected
to m ake u p an im p o rtan t reven u e stream for th e Case contributed by Niveen Ezzat, Cairo
University.

MyMISLab
Go to mymislab.com for the following Assisted-graded writing questions.

17 What are the strategic objectives that firms try to achieve by investing in information systems and technologies?
For each strategic objective, give an example of how a firm could use information systems to achieve the
objective.
18 Describe the complementary assets that firms need in order to optimize returns from their information system
investments. For each type of complementary asset, give an example of a specific asset a firm should have.
 Chapter 1 Information Systems in Global Business Today 71

Chapter 1 References

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(May 2005). IT-Enabled R e so urces: An tecede nts an d Co nsequen ces of
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(May 2003). “The Im p ac t of In f ormatio n Technol ogy In vestments on
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T e c hno logy Capab ility an d Fir m Performan ce: Contradictory B u si ness Value of IT.” Journal of Management Information
Fi n d ings an d T h eir Po ssible Causes.” MIS Quarterly 38, Systems 29, No. 1 (Su m m e r 2012).
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De d r ick, Jaso n, Vi jay Gurbaxani, an d Kenne th L. Kr ae mer. Online.” (May 2013)
“Information T e c h nology an d Ec onomic Pe rf ormance: A Ross, Je an n e W. An d Pe te r Weill. “Four Q uestion s Every CEO
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U n i ve rsi ty of Cali fornia, Ir vi ne (De c ember 2001). Footprint?” MIT Sloan Management Review (W i n te r 2014).
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e Mar ke te r. “US In te rnet U sers Co mple te Forecast.” (Mar c h 2014). Pu b l ish ing (1998).
FedEx Co r p oration. “SEC Fo rm 10-K For th e Fi scal Year En d ed U.S. B u r e au of Labor Stati stics. Occupational Outlook Handbook,
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Gar r e tson, Rob. “IT Sti l l Matters.” CIO Insight 81 (May 2007). De p ar tme nt of Co mmer ce (2013).
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h aw ai i .edu/pubs (2004).
 Global E-business and
Collaboration
2
C H A P T E R

L E AR N I N G O B JE C TI VE S
After reading this chapter, you will be able to answer the following questions:

1. What are business processes? How are they related to information systems?
2. How do systems serve the different management groups in a business and how do
systems that link the enterprise improve organizational performance?
3. Why are systems for collaboration and social business so important and what
technologies do they use?
4. What is the role of the information systems function in a business?

MyMISLab™
Visit mymislab.com for simulations, tutorials, and end-of-chapter problems.

CH A P TE R CA S E S V I D E O CA S E S
Social Business at B ASF Walmart’s Retail Link Supply Chain
Schiphol International Hub to Become Salesforce.com: The Emerging Social
Faultless: Truth or Dare? Enterprise
Is Social Business Working Out? How FedEx Works: Inside the Memphis
Modernization of NTU C Income Hub
Instructional Video: U S Foodservice Grows
Market with Oracle CRM on Demand

72
 SOCIAL B U S INES S AT BASF

B ASF is the largest chemical company in the world, generating ov er

$7 4 billion in 2 0 1 3, 3% higher than 2 0 1 2. BASF is a German company
with headquarters in Ludwigshav en. It has nearly 4 0 0 production
sites around the world, operates in 2 0 0 countries, and has just ov er
1 0 0 ,000 employees. As a div ersif ied chemical company, BASF supplies chem-
icals, plastics, catalysts, industrial coatings, crop technology, and crude oil and
gas exploration for a wide v ariety of industries. The v ery size and scope of
BASF’s operations prov ide obv ious adv antages of scale, but also raise diff icult
manage men t and organizational issues. With existing inf ormation technolo-
gies it was diff icult to create a single global BASF culture, to coordinate initia-
tiv es and employees across so m an y time zones, to collaborate in real time,
and to allow employees to participate in decision mak ing.
BASF managers believ ed one potential solution to the challenges of manag-
ing a f ar-f lung global enterprise was to use social technology as a platf orm to
solv e the challenges. Exactly how to do this, what technology to use, and h ow
to imp leme nt this across the globe for its 100 ,000 employees was not initially
clear . Older stand-alone solutions such as f orums, blogs, wik is, and corporate
Web sites prov ided only partial solutions.
Instead manageme nt imp lement ed a social business platf orm called con-
nect.BASF. The platf orm is based on the IBM Connections enterprise social
network platf orm, which operates in the IBM Cloud env ironment. According
to IDC, enterprise social network platf orms prov ided by sev eral f irms hav e
been adopted rapidly by global f irms in the last f ew years to driv e greater col-
laboration, coordination, and innov ation throughout their f irms. Connect.
BASF includes m a n y of the same f unctions that can be f ound on popular con-

© TTstudio/Shutterstock

73
74 Part One Organizations, Management, and the Networked Enterprise

sumer social sites lik e Facebook , Link edIn, Tumblr, cloud storage sites lik e
Dropbox, and Web-based community k nowled ge sites lik e Wik ipedia, inclduing
user prof iles, status updates, news f eeds, notif ications, book mark s, and f ile
shari ng. T he purp ose is to s hare k no wled ge, collaborate, and en coura ge
employees and managers to hav e conv ersations about their work .
To imp lemen t connect.BASF, managers decided that employees should not
be required to participate, but instead should be attracted to participate based
on the benef its and capabili ties of t he platf orm as they perce iv ed the m.
Implementation was carried out by two global community managers, and t hree
regional commu nit y mana gers. They in turn recruited adv ocates, the early
adopters, who v olunteer their time to spread awareness of the social network ,
and document best practices. Users are encouraged to build communities of
practice, online spaces where employees with similar professional back grounds
can share ideas. The implementation team used a multif aceted set of tools
such as webinars, learning events, demonstrations, and internal consulting to
attract employees.
In the f irst two years of operation, connect.BASF gathered over 33 ,00 0 users.
The network supports more than 3 ,100 activ e work communities, and 8 4% of
the users understand the business objectives of connect.BASF. M anagement
believ es t he en terpr is e social net work prov ides f aster access to c om pa ny
experts, higher employee productiv ity, and better f low of k nowledge through-
out the f irm. Younger work ers in particular are attracted to the network , and
more comf ortable with using it. The use of email and the extensiv e ov erhead in
systems and empl oyee distraction has been greatly reduced. M anagers hav e
also had to learn ne w style s of mana gem ent suitable to an onli ne social env i-
ronment as opposed to relyi ng solely on traditional f ace-to-face interactions
with employees.
The experience of BASF illustrates how muc h organizations today rely on
inf ormation systems to improv e their perf ormance and remain competitiv e. It
also shows how much systems supporting collaboration and teamwork mak e a
dif f erence in an organization’s ability to innov ate, execute, and grow prof its.

Sour ces: “S oci al Busi ness Case S t udy: BASF,” Cordeli a Kroos, “The Growth of an Ent erpri se
S oci al Network at BASF,” si mpl y- com muni cat e. com, Nov ember 2 6 , 201 4; “W orldw ide
Enterpri se S oci al Network s 2014–2018 F orecast and 2013 Vendor Shares, ” Int ernati onal Data
Corporat ion, Jul y 2014; BASF, Annual R eport 2013, htt p: //report. basf.com/201 3/en/not es/
pol i ci es-and- scope- of- consoli dati on/account ing- poli ci es/general- i nformat i on. ht ml, March
1 6 , 2014.

T he chapter -opening diagram calls attention to important points raised by

this case and this chapter. BASF is v ery much a k nowledge-intensiv e
company, but it was hampered by the absence of an inf ormation system that
enabled ef f icient global manage men t decisi on mak in g, collaboration among
professional employees, and conv enient sharing of k nowledge. T his impacted
the company’s ability to create and deliv er leading-edge chemical products and
serv ices. It was v ery diff icult to manage the f irm on a global basis, or to bring
together teams located in distant time zones. BASF managemen t decided that
the best solution was to deploy recently dev eloped social network technologies
to mov e from a static corporate k nowledge and work env ironmen t to one in
which activ ely enga ged empl oyee s and enabled the m to obtain more k nowl-
edge f rom colleagues. T he co mpa ny i mp leme nt ed IBM’s Enterprise Social
Network platf orm as an enterprise-wide platf orm for collaboration, manage-
ment, k nowledge acquisition, and k nowledge transf er . It took adv antage of the
 Chapter 2 Global E-business and Collaboration 75

sof tware’s new “social” tools to increase empl oyee collaboration and engage-
ment. BASF now relies on its internal enterprise social network for much of
employee learning and problem solv ing.
M uch more than technology was inv olv ed in the transf ormation of BASF’s
work culture. BASF managers dev eloped a management philoso phy of volun-
tary participation in the network . It created an implementation team at the
top and middle of the f orm, and slowly spread the word to corporate entities
around the globe through webinars, learning ev ents, and internal consulting.
Here are some questions to think about: How are collaboration and employee
en gag eme nt k ee pin g BASF compe titiv e? How did using a si ngl e ent erpri se
social network platf orm change the way work was perf ormed at BASF?

2.1 W HAT ARE B US I N E SS PROCESSES? HOW ARE

T H E Y RELATED TO INFORMATION SYSTEMS ?

I n order to operate, businesses must deal with m a n y dif f erent pieces

of inf ormation about suppliers, customers, employees, inv oices, and
payments, and of course their products and serv ices. They must organize
work activ ities that use this inf ormation to operate ef ficiently and enhance
the ov erall perf ormance of the f irm. Inf ormation systems mak e it possible for
f irms to manage all their inf ormation, mak e better decisions, and improve the
execution of their business processes.

BU S IN ESS PROCESSES
Business processes, whic h we i ntroduced in Chapter 1 , refer to the ma n ner
in wh ich w ork is organized, coordinated, and f ocused to produce a valuable
product or serv ice. Business processes are the collection of activ ities required
to produce a product or serv ice. These activ ities are supported by flows of
material, inf ormation, and k n ow led ge amo ng the participant s in bu sine ss
proces ses . Busi nes s proce sse s also ref er to the un i que wa y s in w h ic h
organizations coordinate work , inf ormation, and k nowledge, and the ways in
which management chooses to coordinate work .
To a large extent, the perf ormance of a business f irm depends on how well its
business processes are designed and coordinated. A company’s business processes
can be a source of competitive strength if they enable the company to innovate
or to execute better than its rivals. Business processes can also be liabilities if they
76 Part One Organizations, Management, and the Networked Enterprise

TABLE 2.1 EX AM P LES OF F UN CTI ONAL BUS I N ES S P ROCES S ES

FUNCTIONAL AREA BUSINESS PROCESS
Manufacturing and production Assembling the product
Checking for quality
Producing bills of materials
Sales and marketing Identifying customers
Making customers aware of the product
Selling the product
Finance and accounting Paying creditors
Creating financial statements
Managing cash accounts
Human resources Hiring employees
Evaluating employees’ job performance
Enrolling employees in benefits plans

are based on outdated ways of work ing that impede organizational responsiv e-
ness and eff iciency. The chapter -opening case describing BASF’s improvements
in k nowledge-sharing processes clearly illustrates these points, as do many of the
other cases in this text.
Ev ery business can be seen as a collection of busine ss processes, some
of w hi ch are part of larger e nc ompa ss in g proce sses. For instance, use s
of mentorin g, wik is, blogs, and v ideos are all part of the ov erall k nowledge
manage men t process. M any business processes are tied to a specif ic functional
area. For examp le, t he sale s a nd mark e ti n g f uncti on i s respon si ble f or
identif yin g customers, and the h u ma n resources f unction is responsible f or
hiring empl oyees. Table 2 .1 describes some typical business processes for each
of the f unctional areas of business.
Other business processes cross ma ny dif ferent functional areas and require
coordination across departments. For instance, consider the seemingly simple

F I GURE 2.1 THE ORDER F ULF I LLM EN T P ROCES S

Fulfilling a customer order involves a complex set of steps that requires the close coordination of the
sales, accounting, and manufacturing functions.
 Chapter 2 Global E-business and Collaboration 77

business process of fulf illing a customer order (see Figure 2.1 ). Initially, the sales
department receiv es a sales order. The order passes first to accounting to ensure
the customer can pay for the order either by a credit v erif ication or request for
immediate payment prior to shipping. Once the customer credit is established,
the production department pulls the product f rom inventory or produces the
product. Then the product is shipped (and this m a y require work ing with a
logistics f irm, such as UPS or FedEx). A bill or inv oice is generated by the account-
ing department, and a notice is sent to the customer indicating that the product
has shipped. The sales department is notif ied of the shipment and prepares to
support the customer by answering calls or f ulfilling warranty claims.
What at first appears to be a simple process, f ulf illing an order, turns out to
be a v ery complicated series of business processes that require the close coor-
dination of major f unctional groups in a f irm. Moreov er, to eff iciently perf orm
all these steps in the order f ulf illment process requires a great deal of informa-
tion. The required inf ormation must f low rapidly both within the f irm from one
decision mak er to another ; with business partners, such as deliv ery f irms; and
with the customer . Computer -based inf ormation systems mak e this possible.

HOW INFORMATION TECHNOLOGY IMPROVES

B U S INESS PROCESSES
Exactly how do inf ormation systems improv e business processes? Inf ormation
sys tem s auto mate m a n y steps in busi ness processe s that w ere f ormer ly
perf ormed manually, such as check ing a client’s credit, or generating an inv oice
and shipping order. But today, inf ormation technology can do much more. New
technology can actually change the flow of inf ormation, mak ing it possible for
m an y more people to access and share inf ormation, replacing sequential steps
with tasks that can be perf ormed simultaneously, and eliminating delays in deci-
sion mak ing. New inf ormation technology f requently changes the way a business
work s and supports entirely new business models. Downloading a Kindle e-book
from Amazon, buying a computer online at Best Buy, and downloading a music
track f rom iTunes are entirely new business processes based on new business
models that would be inconceiv able without today’s information technology.
That’s wh y it’s so important to pay close attention to business processes, both
in your inf ormation systems course and in y our f uture career . By analyzing
busines s processes, y ou can ac hiev e a v ery c lear understa ndi ng of how a
business actually work s. Moreover, by conducting a business process analysis,
you will also begin to understand how to chan ge the business by improv ing
its processes to mak e it more eff icient or ef fectiv e. Throughout this book , we
exam ine bu sines s processes w ith a v ie w to understan din g ho w th ey mig ht
be improv ed by using inf ormation technol ogy to achiev e greater ef f iciency,
innov ation, and customer serv ice.

2.2 HOW DO S Y S TEMS S E RV E THE DIFFERENT

M ANAGEM ENT GROUPS I N A B U S I NE SS AND HOW
DO S Y S TEM S THAT LI NK THE ENTERPRISE
IM PROV E ORGANIZATIONAL PERFORM ANCE ?
Now that you understand business processes, it is time to look more closely
at how inf ormation systems support the business processes of a f irm. Because
there are dif f erent interests, specialties, and lev els in an organization, there are
78 Part One Organizations, Management, and the Networked Enterprise

diff erent k inds of systems. No single sy stem can prov ide all the inf ormation an
organization needs.
A typical bus iness organization has systems supporting processes for each of
the major business f unctions—sales and mark eting, manuf acturing and produc-
tion, f inance and accounting, and human resources. You can f ind examples of
systems f or each of these bu siness f unctions in the Learning Track s for this
chapter . Functional syst ems that o perate in depe nde nt ly of ea ch ot her are
becoming a thing of the past because they cannot easily share inf ormation to
support cross-functional business processes. M any hav e been replaced w ith
large-scale cross-f unctional system s that integrate the activ ities of related
busin ess proce sses a nd organ izatio nal unit s. We de scribe the se inte grated
cross-f unctional applications later in this section.
A typ ical f irm also has dif f erent systems supp orting the decisio n-mak ing
needs of each of the ma i n man age me nt groups we described in Chapter 1 .
Operational management, middle mana geme nt, and senior mana geme nt each
use system s to support the decisions they must mak e to run the compa ny. Let’s
look at these systems and the types of decisions they support.

S Y STEMS FOR DIFFERENT MANAGEMENT GROUPS

A business f irm has systems to support diff erent groups or lev els of management.
These systems include transaction processing systems and systems for business
intelligence.

Transac tio n P r o c e ss ing S ys t e ms

Operational managers need systems that k eep track of the elementary activ ities
and transactions of the organization, such as sales, receipts, cash deposits,
payroll, credit decisions, and the f low of materials in a f actory. Transaction
processing systems (TP S ) prov ide this k ind of inf ormation. A transaction
processing syst em is a computerized syste m that perf orms and records the
daily routine transactions necessary to conduct business, such as sales order
entry, hotel reserv ations, payroll, employee record k eeping, and shipping.
The principal purpose of syste ms at this lev el is to a ns wer routine questions
and to track the f low of transactions through the organization. How ma n y parts
are in inv entory? What ha ppe ned to Mr. Smith’s payment ? To answer t hese
k inds of questions, inf ormation generally must be eas ily av ailable, current, and
accurate.
At the operational lev el, task s, resources, and goals are predef ined and highly
structured. The decision to grant credit to a customer, for instance, is made by
a lower -lev el superv isor according to predef ined criteria . All that must be
determined is whether the customer meets the criteria .
Figure 2 .2 illustrates a TPS for payroll processing. A payroll system k eeps
track of money paid to employees. An employee time sheet with the employ-
ee’s name, social security number, and number of hours work ed per w e e k
represents a single transaction for this system. Once this transaction is input
into the system, it updates the system’s master f ile (or database—see Chapter 6)
that permanently maintains employee inf ormation for the organization. The
data in the system are combined in dif f erent ways to create reports of interest
to management and gov ernment agencies and to send paycheck s to employees.
M anagers need TPS to monitor the status of internal operations and the f irm’s
relations with the external env ironment. TPS are also major producers of infor-
mation for the other systems and business f unctions. For example, the payroll
system illustrated in Figure 2 .2, along with other accounting TPS, supplies data to
 Chapter 2 Global E-business and Collaboration 79

F I GURE 2.2 A PAY ROLL TP S

A TPS for payroll processing captures employee payment transaction data (such as a time card).
System outputs include online and hard-copy reports for management and employee paychecks.

the company’s general ledger sys tem, wh ich is responsible for maintai nin g
records of the firm’s income and expenses and for producing reports such as
income statements and balance sheets. It also supplies employee payment his-
tory data for insurance, pension, and other benef its calculations to the f irm’s
human resources f unction, and employee payment data to gov ernment agencies
such as the U.S. Internal Rev enue Serv ice and Social Security Administration.
Transaction processing systems are often so central to a business that TPS
f ailure for a f ew hours can lead to a f irm’s demise and perhaps that of other
f irms link ed to it. Imagine what would happen to UPS if its package track ing
system was not work ing! What would the airlines do without their computer -
ized reserv ation systems?

S ys t e m s fo r B us i ne s s Int e lli g e nc e
Firms al so hav e b us ine ss in te ll i gen ce s y s te m s that f ocus on deliv er in g
inf ormation to support managemen t decision mak ing. Business intelligence
is a contemporary term for data and software tools for organizing, analyzing,
and prov iding access to data to help manag ers and other enterprise users mak e
more inf ormed decisions. Business intelligence addresses the decision-mak ing
needs of all lev els of mana gemen t. This section prov ides a brief introduction to
business intelligence. You’ll learn more about this topic in Chapters 6 and 1 2 .
Business intelli gence sy stems f or middle ma na geme nt hel p with monitor -
ing, controllin g, decis ion -mak ing, an d admin istrat iv e activ ities. In Chapter
1 , we def ined managemen t inf ormation systems as the study of inf ormation
systems in business and management. The term man agement in formation
80 Part One Organizations, Management, and the Networked Enterprise

systems (MIS) also designates a specif ic category of inf ormation system s

serv ing middle managemen t. MIS prov ide middle managers with reports on the
organization’s current perf ormance. This inf ormation is used to monitor and
control the business and predict f uture perf ormance.
MIS summarize and report on the company’s basic operations using data
supplied by transaction processing systems. The basic transaction data from TPS
are compressed and usually presented in reports that are produced on a regular
schedule. Today, man y of these reports are deliv ered online. Figure 2.3 shows
how a typical MIS transf orms transaction-lev el data from inv entory, production,
and accounting into MIS f iles that are used to prov ide managers with reports.
Figure 2 .4 shows a sample report f rom this system.
MIS typically prov ide answers to routine questions that hav e been specif ied
in adv ance and hav e a predef ined procedure for answerin g them. For instance,
MIS reports might list the total pounds of lettuce used this quarter by a fast-food
chain or, as illustrated in Figure 2 .4 , compare total annual sales f igures f or
specif ic products to planned targets. These systems generally are not f lexible
and hav e little analyt ical capabi lity. M ost MIS use s imp le routines, such as
summarie s and comparisons, as opposed to sophisticated mathematical models
or statistical techniques.
Other types of bu sines s i ntel li genc e sy stem s support m ore non -routine
decision mak ing. Decision-su pport systems (DSS) f ocus on problems that
are uniq ue and rap idly chang ing , f or which the procedure for arriv ing at a
solution ma y not be f ully predef ined in adv ance. They try to answer questions
such as these: What would be the impact on production schedules if we were to
double sales in the month of December? What would happen to our return on
inv estment if a f actory schedule were delayed for six months?
Although DSS use internal inf ormation f rom TPS and MIS, they of ten bring
in inf ormation f rom external sources, such as current stock prices or product

F I GURE 2.3 HOW MANAGEMENT I NF ORMATION S Y S TEMS OBTAIN THEI R DATA FROM
THE ORGANIZATI ON’S TP S

In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system
at the end of the time period. Managers gain access to the organizational data through the MIS, which provides them
with the appropriate reports.
 Chapter 2 Global E-business and Collaboration 81

F I GURE 2.4 S AM P LE M I S REP ORT

This report, showing summarized annual sales data, was produced by the MIS in Figure 2.3.

prices of competitors. These systems are employed by “super -user” managers

and business analysts who want to use sophisticated analytics and models to
analyze data.
An interesting, small, but powerf ul DSS is the v oyage-estimating system of
a large global shipping company that transports bulk cargoes of coal, oil, ores,
and f inished products. The f irm owns some v essels, charters others, and bids
for ship ping contracts in the open mark et to carry general cargo. A v oyage-
estimating sys tem calculates f inancial and technical v oyage details. Financial
calculations i nclud e sh ip/time costs (f uel, labor, capital), f reight rates f or
v arious types of cargo, and port expenses. Technical details include a myriad
of f actors, such as ship cargo capacity, speed, port distances, f uel and water
consumption, and loading patterns (location of cargo for dif f erent ports).
The system can answer questions such as the f ollowing: Giv en a customer
deliv ery schedule and an of fered freight rate, which v essel should be assigned
at what rate to maximize prof its? What is the optimal speed at which a particu-
lar v essel can optimize its prof it and still meet its deliv ery schedule? What is the
optimal loading pattern for a ship bound for the U.S. West Coast from M alaysia?
Figure 2 .5 illustrates the DSS built for this company. The system operates on a
powerf ul desk top personal computer, prov iding a system of menus that mak es
it easy for users to enter data or obtain inf ormation.
The v oyage-estimating DSS we hav e just described draws heav ily on models.
Other business intelligence sy stems are more data-driv en, f ocusing instead on
extracting usef ul inf ormation f rom massiv e quantities of data . For example,
large sk i resort companies such as Intrawest and Vail Resorts collect and store
large amounts of customer data from call centers, lodging and dining reserv a -
tions, sk i schools, and sk i equipment rental stores. They use special sof tware
to a nalyze these data to determine the v alue, rev enue potential, and loyalty
of each customer to help manager s mak e better decisions about how to target
their mark eting programs.
The Interactiv e Session on Technology prov ides more detail on how Schiphol
International Airport uses data to power its new baggage handling system and
82 Part One Organizations, Management, and the Networked Enterprise

INT E R A C T IV E S E S S IO N: T E C H NO L OGY
SCHIPHOL INTERNATIONAL HUB TO BECOM E FAULTLESS: TRUTH OR DARE?
Co n cep tu ally, b aggage h an d lin g is qu ite sim p le. w o rk. You arrive at ch eck-in d esk, an d yo u r b ags
Baggage in p u t is co n n ected to m erely two even ts: are tagged . Th e tags co n tain yo u r fligh t in fo rm atio n
an airp lan e lan d s o r a p erso n ch ecks in . Ho w ever, an d a b ar-co d e/ RFI D th at all of th e co m p u ters in
it’s risky b u sin ess. Baggage h an d lin g is o n e of th e th e b aggage-h an d lin g system can read . W h en co m -
m o st im p o rtan t facto rs in h avin g a p leasan t trip . p u ters in th e system scan th e b ar co d e o r d etect
Mo reo ver, m ish an d led b aggage is a US$ 2.5 b illio n th e RFID, th ey p ro cess th e in fo rm atio n it co n tain s
p ro b lem for in d u stry every year. Th is p ro b lem m a y an d d eterm in e w h ere to sen d yo u r b ag. After b ein g
an n u ally affect ab o u t 51 m illio n p assen gers travel- scan n ed (at least) o n ce, th e system alw ays kn o w s
in g th ro u gh Sch ip h o l alo n e. w h ere yo u r b ag is at an y p o in t, an d is ab le to red i-
I n 2004, IBM Co rp o ratio n , Van d erlan d e rect it b ased o n th ree p aram eters: (a) tim e of its
I n d u stries, an d later Gren z eb ach Au to m atio n fligh t; (b ) p rio rity; (c) siz e. Bags for im m ed iate
System s jo in tly to o k u p th e ch allen ge of ren ew - em b arkatio n are co n sid ered “hot.” Th ese are sen t
in g th e Baggage Co n tro l System for o n e of th e big- im m ed iately to aircraft stan d s w h ile “cold” b aggage
gest airp o rt h u b s in E u ro p e, an d o n e of th e b u siest (i.e. lo w p rio rity, d istan t fligh t tim e) are qu ickly
in th e w o rld : Sch ip h o l I n tern atio n al Airp o rt, in rero u ted aw ay fro m th e m ain “h igh w ay” tracks,
Am sterd am , Th e Neth erlan d s. W ith an in vestm en t d irected to w ard s vario u s sto rage p o in ts in th e n et-
of aro u n d US$1 b illio n o ver a p erio d of ab o u t 10 w o rk. DCVs are u n m an n ed carts th at can lo ad an d
years, Sch ip h o l’s go al was th reefo ld : (a) realiz e a u n lo ad b ags w ith o u t sto p p in g m o vem en t. Th ese
m o n u m en tal 1% m axim u m lo ss of tran sfer-b ags carts m o ve o n tracks like m in iatu re ro ller co ast-
(again st th e in itial 22 m illio n lo st b aggage); (b ) ers alo n g th e m ain “h igh w ay” tracks th at sp an th e
in crease cap acity fro m 40 to 70 m illio n b ags; (c) airp o rt. Bu ffers an d h o t/ co ld sto rage areas are u sed
red u ce co st p er b ag with o u t in creasin g wait-tim es. to avo id o vercro w d in g. Co m p u ters th ro u gh o u t th e
Mo st of th e jo b in vo lved Sch ip h o l’s gigan tic b ag- system keep track of th e lo catio n of each b ag, its
gage co n veyo rs n etwo rk: 21 kilo m eters of tran sp o rt d estin atio n , an d th e tim e it is n eed ed at th at d esti-
tracks, 6 ro b o tic u n its, 9,000 sto rage cap acito rs all n atio n . Th e system can o p tim iz e th e ro u tes taken
b eh avin g as o n e system . Also , exten d in g it with b y th e carts to get th e b ags n eed ed m o st u rgen tly
m o re su rfaces is n o t p o ssib le, given th e lan d co n d i- to th eir d estin atio n s fastest. Becau se DCVs m o ve at
tio n s su rro u n d in g th e airp o rt. Th e Sch ip h o l b ag- h igh sp eed an d d o n o t co m e to a fu ll sto p to receive
gage co n veyo rs n etw o rks h ave a very sim p le go al: b aggage, th e co n veyo rs m u st b e extrem ely p recise,
th e righ t b ag m u st b e at th e righ t p lace at th e righ t d ep o sitin g b ags w h ere th ey are n eed ed at ju st th e
tim e. To p u rsu e th is go al th e n etw o rk m u st p erfo rm righ t tim e for m axim u m efficien cy. On ce b ags reach
several key ro les: m o ve b ags fro m th e ch eck-in th e gate, th ey en ter a so rtin g statio n w h ere airlin e
area to th e d ep artu re gate, m o ve b ags fro m gate to em p lo yees u se co m p u ter term in als to sen d b ags to
gate, m o ve b ags fro m th e arrival gate to th e b aggage th e co rrect p lan e. To m ake even su rer th at b aggage
claim , an d p lan an d co n tro l p erip h eral h ard w are is n o t lo st, th e system “reco n ciles” b aggage w ith its
an d so ftware. I n ad d itio n , th ese ro les in vo lve a wid e o w n er; it ch ecks if th e b aggage an d th e o w n er are
variety of sen so rs, actu ato rs, m ech an i ca l d evices, actu ally o n th e sam e p lan e.
an d co m p u ters. Th e n etwo rk u ses o ver 3 m illio n Ho w ever b eau tifu l an d h arm o n io u s th is p ro cess
lin es of so u rce co d e. So m e of th e ad van ced tech n o l- m a y seem , th ere are still m a n y th in gs th at can go
o gy u sed in b aggage-h an d lin g system s in clu d es d es- w ro n g. For exam p le, w h at if b aggage is m is-tagged ?
tin atio n -co d ed veh icles (DCVs), au to m atic b ar co d e W h at if th e tag is u n read ab le? W h at ab o u t sch ed -
scan n ers, rad io -frequ en cy id en tificatio n (RFI D) u le ch an ges? Alth o u gh b aggage h an d lin g is a co m -
tags, an d h igh -tech co n veyo rs equ ip p ed w ith so rtin g p lex p ro cess an d b aggage h an d lin g system s can b e
m ach in es. I n ad d itio n , all of th is m u st b e availab le extrem ely exp en sive, if im p lem en ted su ccessfu lly,
an d ro b u st; th at is, o p erate 99.99% of tim es w h ile th ey p ay for th em selves. I m agin e savin g aro u n d
b ein g ab le to m in im iz e lo ss o r d am age in th at 0.01% 0.1% of 2.5 b illio n . It’s a lo t of m o n ey!
of th e tim e it d o esn ’t. Th e n ew b aggage system at Sch ip h o l is n o t flaw-
Th e fo llo w in g sim p le scen ario su m m ariz es th e less. I n No vem b er 2012, a sp ecial w arran t b y lo cal
o p eratio n s of th e Sch ip h o l b aggage co n veyo rs n et- p o lice w as issu ed th at requ ired sto p p in g th e tracks
 Chapter 2 Global E-business and Collaboration 83

at Sch ip h o l as p art of a co cain e-sm u gglin g in vesti- taxis in 2014, fu rth er cem en tin g its statu s as o n e of
gatio n . So m e of th e 140,000 p assen gers th at w ere th e green est airp o rts in th e w o rld .
b ein g served b y th e in tern atio n al h u b su ffered b ag-
Sources: “Airports In Th e New s – Win te r 2014,” Ai rpor tbusiness.
gage lo sses. I n 2014, m a n y of th e b aggage h an d lers
c om , No vember 18, 2014; “B aggage Han dle r s Go on Tri al o ver
in vo lved in th e in vestigatio n wen t o n trial, an d Coc ai ne Smu gglin g R ing at Schiph ol Airport,” Amsterdam Herald,
o th er d ru g -related arrests w ere an n o u n ced . Bu t Jan u ar y 6, 2014; Ci ar a By rne , “Robots, Du tchmen and IBM Cre ate
th ese so rts of in cid en ts aren ’t co n fin ed to Sch ip h o l; Sup ersm ar t B aggage Handli ng Sy stem ,” Ven tur ebe at.c om, Mar ch
18, 2011; “Schiphol In troduce s Inno vati ve U nlo adin g Sy stem for
o th er regio n al airp o rts are also affected b y d ru g- B aggage Containers,” Sc h iphol.n l, ac ce ssed De c ember 2014.
related activities. On a b righ ter n o te, Sch ip h o l
lau n ch ed a fleet of 167 Tesla electri ca lly p o w ered Case Contributed by Damian A. Tamburri and Patricia
Lago, VU University Amsterdam

C A S E S T U DY Q U E S T I O N S
1. Ho w m an y levels of co m p lexity can yo u id en tify 3. W h at is th e p ro b lem th at Sch ip h o l is tryin g to
in Sch ip h o l’s b aggage co n veyo rs n etwo rk? so lve? Discu ss th e b u sin ess im p act of th is
2. W h at are th e m an agem en t, o rgan iz atio n , an d tech - p ro b lem .
n o lo gy co m p o n en ts of Sch ip h o l’s b aggage co n vey- 4. Th in k of th e d ata th at th e n etw o rk u ses. W h at
o rs n etw o rk? kin d s of m an agem en t rep o rts can b e gen erated -
fro m th at d ata?

improv e the customer experience. As you read this case, try to identif y the prob-
lems solv ed by Schiphol’s inf ormation systems and how the systems improv e
business operations and decision making.
Business inte lli gence sy stem s also address the decision-mak ing needs of
senior mana geme nt . Senior manager s need sy stem s that f ocus on strategic
issues and long-term trends, both in the f irm and in the external env ironment.
They are concerned with questions such as: What will emplo yment lev els be in
f ive years? What are the long-term industry cost trends? What products should
we be mak ing in f iv e years?

F I GURE 2.5 VOYAGE-ESTI MATI NG DECI S I ON -S UP PORT S Y S TEM

This DSS operates on a powerful PC. It is used daily by managers who must develop bids on shipping
contracts.
84 Part One Organizations, Management, and the Networked Enterprise

E xecutive su pport systems (ES S) help senior manageme nt mak e t hese

decisions. They address non-routine decisions requiring judgment, ev aluation,
and insight because there is no agreed-on procedure for arriv ing at a solution.
ESS present graphs and data f rom ma ny sources through an interf ace that is
easy for senior managers to use. Often the inf ormation is delivered to senior
executiv es through a portal, which uses a Web interf ace to present integrated
personalized business content.
ESS are designed to incorporate data about external ev ents, such as new tax
laws or competitors, but they also draw summarized inf ormation f rom internal
MIS and DSS. They f ilter, compress, and track critical data, displaying the data
of greatest importance to senior managers. Increasingly, such systems include
business intel ligence analyt ics for ana lyzin g trends, f orecasting, and “drilling
down” to data at greater lev els of detail.
For example, the CEO of Leiner Health Products, the largest manuf acturer
of priv ate-label v itamins and su pp lemen ts in t he United States, has an ESS
that prov ides on his desk top a minute-to-minute v iew of the f irm’s f inancial
perf ormance as measured by work in g capital, accounts receiv able, accounts
payable, cash f low, and inv entory. The inf ormation is presented in the form of
a digital dashboard, wh ich disp lays on a single screen graphs and charts of
k ey perf ormance indicators for managin g a company. Digital dashboards are
becoming an increasingly popular tool for management decision mak ers.
C o nt em po rary b us i ne ss i n te l l ig e nc e a nd a na ly t ic s techno l o gy h a v e
promoted data-driv en manage men t, w here decis ion mak ers re ly heav i ly o n
analyt ical tools and data at their f ingertips to guide their work . Data captured
at the f actory or sales f loor lev el are immed iat ely av ai lable f or high- lev el
or detai led v i e w s in e xec ut iv e das hb oards a n d reports. It 's r ea l- t ime
management.

A digital dashboard delivers

comprehensive and accurate
information for decision
making often using a single
screen. The graphical over-
view of key performance
indicators helps managers
quickly spot areas that need
attention.
 Chapter 2 Global E-business and Collaboration 85

S Y STEMS FOR LINKING THE ENTERPRISE

Rev iewing all the dif ferent types of systems we hav e just described, you might
wonder h ow a busines s can ma na ge all the inf ormation in the se dif f erent
systems. You might also wonder how costly it is to maintain so m an y diff erent
systems . And you m igh t wonder how all these dif f erent systems can share
inf ormation and how managers and emp lo yees are able to coordinate their
work . In f act, these are all important questions for businesses today.

Enterpris e A p p li c at io ns
Getting all the diff erent k inds of systems in a compa ny to w ork together has
prov en a major challenge. Typically, corporations are put together both through
norma l “organic” growth and through acquisiti on of sma ll er f irms. Ov er a
period of time, corporations end up with a collection of systems, most of t hem
older, and f ace the challeng e of gettin g t hem all to “talk” with one an other
and work together as one corporate system. There are sev eral solutions to this
problem.
One solution is to impleme nt enterprise applications, whic h are systems
that span f unctional areas, f ocus on executing business processes across the
business f irm, and include all lev els of management. Enterprise applications
help busine sses become more f lexible and productiv e by coordinating their
business processes more closely and integrating groups of processes so they
f ocus on ef f icient management of resources and customer serv ice.
There are f our major enterprise applications: enterprise system s, sup pl y
chai n m a na ge me nt system s, cu st omer relat ion shi p m a na ge me nt systems ,
and k n ow led ge m a n a ge me nt syste ms . Each of t hes e en ter pri se app lica -
tions integrates a related set of f unctions and business processes to enhanc e
the perf ormance of the organization as a whole. Figure 2 .6 shows that the
architecture for these enterprise applications encompasses processes spanning
the entire organization and, in some cases, extending beyond the organization
to customers, suppliers, and other k ey business partners.

Enterprise Systems Firms u s e en terprise systems, als o k n o w n as

enterprise resource plan nin g (ERP) systems, to inte grate busines s processes
in m a n uf a ctu ri n g and pr oduc ti on, f i na nc e and acc ou nt in g , sal es a n d
mark eting, and h u ma n resources into a single sof tware system. Inf ormation
that was prev iously f ragmented in m a n y diff erent systems is stored in a singl e
comprehen siv e data repository where it can be used by m a n y dif ferent parts
of the business.
For example, w h e n a customer pla ces a n order, the order data f low
automatical ly to other parts of the compa ny that are aff ected by them. The
order transaction triggers the warehouse to pick the ordered products and
schedu le sh ipme nt. The ware hous e inf orms the f actory to repleni sh what -
ev er has been depleted. The accounting department is notif ied to send th e
customer an inv oice. Customer serv ice representativ es track the progress of the
order through ev ery step to inf orm customers about the status of their orders.
M anagers are able to use f irm wide inf ormation to m ak e more precise and
timely decisions about daily operations and longer -term planning.
Supply Chain Management Systems Firms use su pply ch ain management
(SCM) systems to help mana g e relatio nshi ps wit h their suppl iers. Th ese
systems hel p suppliers, purchasing f irms, distributors, and logistics companies
share inf ormation about orders, production, inv entory lev els, and deliv ery of
products and serv ices so they can source, produce, and deliv er goods and
serv ices ef f iciently. The ultimate objectiv e is to get the right amount of their
86 Part One Organizations, Management, and the Networked Enterprise

F I GURE 2.6 EN TERP RI S E AP P LI CATION ARCHI TECTURE

Enterprise applications automate processes that span multiple business functions and organizational
levels and may extend outside the organization.

products f rom their source to their point of consumption in the least amount of
time a nd at the l owe st cost. These sys tem s i ncrea se f irm prof itability by
lowering the costs of mov ing and mak ing products and by enabling managers to
mak e better decisions about how to organize and schedule sourcing, produc-
tion, and distribution.
Supply chain mana gem en t sy stem s are one type of interorganization al
system because t hey automate the f low of inf ormation across organizational
boundarie s. You w il l f ind examp le s of other type s of inter orga nizat io nal
inf ormation systems throughout this text because such systems mak e it possible
for f irms to link electronically to customers and to outsource their work to other
companies.
Cu stomer Relation ship Man agemen t S ystems Firms use cu stom e r
relation ship man agement (CRM) systems to hel p mana ge their relation-
ships wit h their customers. CRM systems prov ide inf ormation to coordinate all
of the busine ss processes that deal w ith customers i n sales, mark etin g, an d
serv ice to optimize rev enue, customer satisfaction, and customer retention.
T his inf ormation helps f irms identif y, attract, and retain the most profitable
customers; prov ide better serv ice to existing customers; and increase sales.
Knowledge Management Systems Some f irms perf orm better than others
because they hav e better k nowledge about how to create, produce, and deliv er
products and serv ices. T his f irm k nowledge is unique, diff icult to imitate, and
can be lev eraged into long-term strategic benef its. Knowledge man agement
systems (KMS) enable organizations to better manage processes for capturing
 Chapter 2 Global E-business and Collaboration 87

and app lyi ng k n ow led ge and e xpertise. The se s yst ems collect all re lev an t
k nowle dge and e xperi ence in t he f irm, and mak e it av ailable wherev er an d
w h e nev er it is need ed to im prov e b usi nes s proce sse s and m a n a g em e nt
decisions. They also link the f irm to external sources of k nowledge.
We examine enterprise systems and systems for supply chain management
and customer relationship management in greater detail in Chapter 9 . We discuss
collaboration systems that support k nowledge management in this chapter and
cov er other types of k nowledge management applications in Chapter 11.

Int r a ne t s and E xt r a ne t s
Enterprise applications create deep-seated changes in the way the f irm conducts
its busines s, of f ering ma n y opportunitie s to i ntegrate imp ortant bus ine ss
data into a single sy stem . The y are of ten costly and dif f icult to impl emen t.
Intranets and extranets deserve mention here as alternativ e tools for increasing
integration and expediting the f low of inf ormation within the f irm, and with
customers and suppliers.
Intranets are simply internal company Web sites that are accessible only by
employees. The term “intranet” refers to an internal network , in contrast to the
Internet, which is a public network link in g organizations and other external
network s. Intranets use the sa me technolo gies and techn iques as the larger
Internet, and they of ten are simply a priv ate access area in a larger company
Web site. Lik ewise wit h extranets. Extranets are company Web sites that are
accessible to authorized vendors and suppliers, and are of ten used to coordinate
the mov ement of supplies to the f irm’s production apparatus.
For example, Six Flags, which operates 1 9 theme park s throughout North
America, maintains a n intranet for its 2 ,500 f ull-time employees that prov ides
company-related news and inf ormation on each park ’s day-to-day operations,
including weather f orecasts, perf ormance schedules, and details about groups
and cele brit ies v is itin g th e park s. Th e c om pan y also use s an extra net to
broadcast inf ormation about schedule changes an d park ev ents to its 3 0,000
seasonal employees. We describe the technology for intranets and extranets in
more detail in Chapter 7 .

E-BUSINESS, E-COMMERCE, AND E-GOVERNMENT

The systems and technologies we hav e just described are transf orming f irms’
relationships with customers, employees, suppliers, and logistic partners into
digital relationships using network s and the Internet. So muc h business is no w
enabled by or based upon digital network s that we use the terms “electronic
business” and “electronic commerce” f requently throughout this text.
Electronic business, or e-business, refers to the use of digital technology
and the Internet to execute the maj or busi ness processes i n the enterpr ise.
E-business includes activ ities f or the internal mana geme nt of the f irm and
for coordination with suppliers and other business partners. It also includes
electronic commerce, or e-commerce.
E-commerce is the part of e-business that deals with the buying and selling of
goods and serv ices ov er the Internet. It also encompasses activ ities supporting
those mark et transactions, such as adv ertising, mark eting, customer support,
security, deliv ery, and payment.
The technologies associated with e-business hav e also brought about similar
changes in the public sector. Gov ernments on all levels are using Internet tech-
nology to deliver inf ormation and serv ices to citizens, employees, and businesses
with which they work . E-government ref ers to the application of the Internet
88 Part One Organizations, Management, and the Networked Enterprise

and network ing technologies to digitally enable gov ernment and public sector
agencies’ relationships with citizens, businesses, and other arms of gov ernment.
In addition to improv ing deliv ery of gov ernment serv ices, e-gov ernment
mak es gov ernment operations more ef f icient and also empowers citizens by
giv ing them easier access to inf ormation and the ability to network electroni-
cally with other citizens. For example, citizens in some states can renew their
driv er’s licenses or apply for unemployment benef its online, and the Internet
has become a powerf ul tool for instantly mobilizing interest groups for political
action and f und-raising.

2.3 W HY ARE SYSTEMS FOR COLLABORATION AND

SOCIAL B US I N ESS SO IMPORTANT AND WHAT
TECHNOLOGIES DO T H E Y USE ?
With all these systems and inf ormation, you might wonder how is it possible to
mak e sense of them? How do people work ing in f irms pull it all together, work
towards common goals, and coordinate plans and actions? Inf ormation systems
can’t mak e decisions, hire or f ire people, sign contracts, agree on deals, or
adjust the price of goods to the mark etplace. In addition to the types of systems
we hav e just described, businesses need special systems to support collabora -
tion and teamwork .

WHAT IS COLLABORATION?
Collaboration i s work ing with others to achiev e shared and explicit goals.
Collaboration f ocuses on task or mission accom pli shme nt and us ual ly tak es
place i n a busine ss, or other organization, an d bet wee n bus ine sses. You
collaborate with a colleague in Tokyo hav ing expertise on a topic about which
you k n ow n othi ng. You collaborate wit h m a n y colleague s in pu bli sh ing a
company blog. If you’re in a law f irm, you collaborate with accountants in an
accounting f irm in serv icing the needs of a client with tax problems.
Collaboration can be short-lived, lasting a f ew minutes , or longer term,
depending on the nature of the task and the relationship among participants.
Collaboration can be one-to-one or many-to-many.
Employees m a y collaborate in inf ormal groups that are not a f ormal part
of the business f irm’s organizational structure or they m ay be organized into
f ormal teams. Teams hav e a specif ic mission that so meone in the busine ss
assigned to them. T eam members need to collaborate on the accomplishment
of specif ic task s and collectiv ely achiev e the team mission. The team mission
might be to “win the game,” or “increase online sales by 10 percent.” Teams are
of ten short-liv ed, depending on the problems they tack le and the length of time
needed to f ind a solution and accomplish the mission.
Collaboration and teamwork are more important today than ev er for a v ariety
of reasons.
• Changing nature of work. Th e n atu re of w o rk h as ch an ged fro m facto ry
m an u factu rin g an d p re-co m p u ter o ffice w o rk w h ere each stage in th e
p ro d u ctio n p ro cess o ccu rred in d ep en d en tly of o n e an o th er, an d w as
co o rd in ated b y su p erviso rs. Work w as o rgan iz ed in to silo s. W ith in a silo ,
w o rk p assed fro m o n e m ach in e tool statio n to an o th er, fro m o n e d eskto p to
an o th er, u n til th e fin ish ed p ro d u ct w as co m p leted . To d ay, jo b s requ ire m u ch
 Chapter 2 Global E-business and Collaboration 89

clo ser co o rd in atio n an d in teractio n am o n g th e p arties in vo lved in p ro d u cin g

th e service o r p ro d u ct. A recen t rep o rt fro m th e co n su ltin g firm McK in sey &
Co m p an y argu ed th at 41 p ercen t of th e U.S. lab o r fo rce is n o w co m p o sed of
jo b s wh ere in teractio n (talkin g, e-m ailin g, p resen tin g, an d p ersu ad in g) is th e
p rim ary valu e-ad d in g activity. E ven in facto ries, w o rkers to d ay o ften w o rk in
p ro d u ctio n gro u p s, o r p o d s.
• Growth of professional work. “Interaction” jo b s ten d to b e p ro fessio n al
jo b s in th e service secto r th at requ ire clo se co o rd in atio n an d co llab o ra-
tio n . Pro fessio n al jo b s requ ire su b stan tial ed u catio n , an d th e sh arin g of
in fo rm atio n an d o p in io n s to get w o rk d o n e. E ach acto r o n th e job b rin gs
sp ecializ ed exp ertise to th e p ro b lem , an d all th e acto rs n eed to take o n e
an o th er in to acco u n t in o rd er to acco m p lish th e job.
• Changing organization of the firm. For m o st of th e in d u strial age, m an agers
o rgan iz ed w o rk in a h ierarch ical fash io n . Ord ers cam e d o w n th e h ierarch y,
an d resp o n ses m o ved b ack u p th e h ierarch y. To d ay, wo rk is o rgan iz ed in to
gro u p s an d team s, an d th e m em b ers are exp ected to d evelo p th eir o w n
m eth o d s for acco m p lish in g th e task. Sen io r m an agers o b serve an d m easu re
resu lts, b u t are m u ch less likely to issu e d etailed o rd ers o r o p eratin g
p ro ced u res. I n p art, th is is b ecau se exp ertise an d d ecisio n -m akin g p o wer
h ave b een p u sh ed d o w n in o rgan iz atio n s.
• Changing scope of the firm. Th e wo rk of th e firm h as ch an ged fro m a sin gle
lo catio n to m u ltip le locations —o ffices o r facto ries th ro u gh o ut a regio n , a
n atio n , o r even aro u n d th e glo b e. For in stan ce, Hen ry Ford d evelo p ed th e first
m ass-p ro du ction au to mo bile p lan t at a sin gle Dearb o rn , Mich igan facto ry.
I n 2014, Ford em p lo yed 180,000 p eo p le at aro u n d 965 p lan ts an d facilities
w o rld w id e. W ith th is kin d of glo b al p resen ce, th e n eed for clo se co o rd in atio n
of d esign , p ro d u ctio n, m arketin g, d istrib utio n, an d service o b vio u sly takes
o n n ew im p o rtan ce an d scale. Large glo b al co m p an ies n eed to h ave team s
w o rkin g o n a glo b al b asis.
• Emphasis on innovation. Alth o u gh w e ten d to attrib u te in n o vatio n s in
b u sin ess an d scien ce to great in d ivid u als, th ese great in d ivid u als are m o st
likely w o rkin g w ith a team of b rillian t co lleagu es. Th in k of Bill Gates an d
Steve J o b s (fo u n d ers of Micro so ft an d Ap p le), b o th of w h o m are h igh ly
regard ed in n o vato rs, an d b o th of w h o m b u ilt stro n g co llab o rative team s
to n u rtu re an d su p p o rt in n o vatio n in th eir firm s. Th eir in itial in n o vatio n s
d erived fro m clo se co llab o ratio n with co lleagu es an d p artn ers. I n n o vatio n , in
o th er w o rd s, is a gro u p an d so cial p ro cess, an d m o st in n o vatio n s d erive fro m
co llab o ratio n am o n g in d ivid u als in a lab , a b u sin ess, o r go vern m en t agen cies.
Stro n g co llab o rative p ractices an d tech n o lo gies are b elieved to in crease th e
rate an d qu ality of in n o vatio n .
• Changing culture of work and business. Mo st resea r ch o n co llab o ration
su pp o rts th e n o tio n th at d iverse te am s p ro d u ce b etter o u tpu ts, faster,
th an in d ivid u als w o rkin g o n th eir o w n . Po p u lar n o tio n s of th e cro w d
(“cro wdsou rcing,” an d th e “wisd om of cro wds”) also p ro vid e cu ltu ral su p p o rt
for co llab o ratio n an d team w o rk.

WHAT IS SOCIAL BUSINESS?

M any f irms today enhance collaboration by embracing social business—the
use of social network ing platf orms, including Facebook , Twitter, an d internal
corporate social tools—to enga ge their emp loyee s, customers, and suppliers.
These tools enable workers to set up prof iles, f orm groups, and “follow” each
other’s status updates. The goal of social business is to deep en i nteractions
with groups inside and outside the f irm to expedite and enhance inf ormation-
sharing, innov ation, and decision mak ing.
90 Part One Organizations, Management, and the Networked Enterprise

A k e y word in social busin ess i s “conv ersations.” Customers, suppl iers,

e m pl o yee s , m an a ger s , and e v e n ov ersight a g e n c ie s c on t in ual l y ha v e
conv ersations about f irms, of ten without the k nowledge of the f irm or its k ey
actors (employees and managers).
Supporters of social busi ness ar gue that, if f irms could tune into the se
conv ersations, they would strengthen their bonds with consumers, suppliers,
and employees, increasing their emotional inv olv ement in the f irm.
All of this requires a great deal of inf ormation transparency. People need to
share opinions and facts with others quite directly, without interv ention from
executiv es or others. Employees get to k now directly what customers and other
employee s think ; suppliers will learn v ery directly the opinions of supply chain
partners; and ev en managers presumably will learn more directly from their
employee s how we ll t hey are doing. Nearly ev eryone inv olv ed in the creation
of v alue will k now much more about ev eryone else.
If such an env iron ment could be created, it is lik ely to driv e operational
ef f iciencies, spur in nov ation, a nd acce lerate deci sio n mak i ng . If product
designers can learn directly about how their products are doing in the mark et in
real time, based on consumer f eedback , they can speed up the redesign process.
If employ ees can u se social connections in side and outside the com pan y to
capture new k now ledge and insi ghts, they wil l be able to work more eff iciently
and solv e more business problems.
Table 2 .2 describes important applicati ons of social bu sine ss in side a nd
outside the f irm. This chapter f ocuses on enterprise social business—its internal
corporate uses. Chapters 7 and 10 describe social business applications relating
to customers and suppliers outside the company.

BUS INESS BENEFITS OF COLLABORATION AND SOCIAL

BU S IN ESS
Although m a n y articles and book s hav e been writte n about collaboration,
nearl y all of the research on this topic is anecdotal. Nevertheless, there is a
genera l belief amo ng both bus ine ss and a cadem ic c ommu ni tie s that the
more a bus ines s f irm is “collaborativ e,” the more successf ul it will be, and
that collaboration within and among f irms is more essential than in the

TABLE 2.2 AP P LI CATI ONS OF S OCI AL BUS I NES S

SOCIAL BUSINESS APPLICATION DESCRIPTION

Social networks Connect through personal and business profiles

Harness collective knowledge to generate new ideas and
Crowdsourcing
solutions
Shared workspaces Coordinate projects and tasks; co-create content
Publish and rapidly access knowledge; discuss opinions and
Blogs and wikis
experiences
Share opinions about purchasing or purchase on social
Social commerce
platforms
Upload, share, and comment on photos, videos, audio, text
File sharing
documents
Use social media to interact with customers; derive
Social marketing
customer insights
Communities Discuss topics in open forums; share expertise
 Chapter 2 Global E-business and Collaboration 91

past. A recent global surv ey of busi ness an d inf ormation system s mana gers
f ound that inv estments in collaboration technolo gy produced organizational
improv ement s that returned ov er f our times the amoun t of the inv estme nt,
with the greatest benef its for sales, mark eting, and research and dev elopment
f unctions (Frost and White, 200 9). Another study of the v alue of collaboration
also f ound that the ov erall economic benef it of collaboration was signif icant:
for ev ery word seen by an em pl oyee i n e-mails from others, $70 of additional
rev enue was generated (Aral, Brynjolf sson, and Van A lstyne, 2 007 ). McKinsey
& Company consultants predict that social technologies used within and across
enterprises could potentially raise the productiv ity of interaction work ers by 20
to 2 5 percent (M cKinsey, 2 01 2).
Table 2 .3 summarizes some of the benef its of collaboration and social business
that hav e been identif ied. Figure 2 .7 graphically illustrates how collaboration is
believ ed to impact business perf ormance.

BUILDING A COLLABORATIVE CULTURE AND BUS INESS

PROCESSES
Collaboration won’t tak e place spontaneously in a business f irm, especially if
there is no supportive culture or business processes. Business f irms, especially
large f irms, had a reputation in the past f or being “command and control”
organizations where the top leaders thought up all the really important matters,
and then ordered lower -lev el employees to execute senior managem ent plans.
The job of middle mana gem en t supp osedly was to pass me ssa ges back and
f orth, up and down the hierarchy.
Command a nd control f irms required lower -lev el employe es to carry out
orders without ask ing too m a n y questions, with no responsibility to improv e
processes, and with no rewards for team work or team perf ormance. If your
work group needed help from another work group, that was something for the
bosses to f igure out. You nev er communicated horizontally, always v ertically,
so m a n a g e me n t could control the process. Together, the expectations of

TABLE 2.3 BUS I N ES S BEN EF I TS OF COLLABORATION AND S OCI AL

BUS I N ES S
BENEFIT RATIONALE
People interacting and working together can capture expert knowledge and
Productivity solve problems more rapidly than the same number of people working in
isolation from one another. There will be fewer errors.
People working collaboratively can communicate errors, and corrective
Quality actions faster than if they work in isolation. Collaborative and take social
technologies help reduce time delays in design and production.
People working collaboratively can come up with more innovative ideas for
products, services, and administration than the same number working in
Innovation
isolation from one another. Advantages to diversity and the “wisdom of
crowds.”
People working together using collaboration and social tools can solve
Customer service customer complaints and issues faster and more effectively than if they
were working in isolation from one another.
Financial performance
As a result of all of the above, collaborative firms have superior sales, sales
(profitability, sales, and
growth, and financial performance.
sales growth)
8 ● Module I / Foundation Concepts

F I G UR E 1. 3 Information Systems
The three fundamental
roles of the business
applications of information Support
systems. Information Strategies
systems provide an for Competitive
organization with support Advantage
for business processes and
Support
operations, decision
Business
making, and competitive Decision Making
advantage.
Support
Business Processes and Operations

the systems development life cycle and prototyping approaches to business appli-
cation development.
• Management Challenges. Th e challenges of effectively and ethically managing
information technology at the end-user, enterprise, and global levels of a busi-
ness. Thus, Chapter 13 focuses on security challenges and security management
issues in the use of information technology, while Chapter 14 covers some of the
key methods business managers can use to manage the information systems func-
tion in a company with global business operations.

The Although there are a seemingly endless number of software applications, there are
three fundamental reasons for all business applications of information technology.
Fund am enta l They are found in the three vital roles that information systems can perform for a
Roles of IS in business enterprise:
Business • Support of business processes and operations.
• Support of decision making by employees and managers.
• Support of strategies for competitive advantage.
Figure 1.3 illustrates how the fundamental roles interact in a typical organization.
At any moment, information systems designed to support business processes and op-
erations may also be providing data to, or accepting data from, systems focused on
business decision making or achieving competitive advantage. Th e same is true for the
other two fundamental roles of IS. Today’s organizations are constantly striving to
achieve integration of their systems to allow information to flow freely through them,
which adds even greater flexibility and business support than any of the individual
system roles could provide.
Let’s look at a typical retail store as a good example of how these roles of IS in
business can be implemented.

The Fundamental S upport of Business Process es a nd Operations. As a consumer, you regularly encoun-
Roles of IS in ter information systems that support the business processes and operations at the
many retail stores where you shop. For example, most retail stores now use
Business com puter- bas ed inf orm ation s y stems to help their employees record customer
purchases, keep track of inventory, pay employees, buy new merchandise, and
evaluate sales trends. Store operations would grind to a halt without the support of
such information systems.
S upport of Business D ecis ion Mak ing . Information systems also help store man-
agers and other business professionals make better decisions. For example, decisions
about what lines of merchandise need to be added or discontinued and what kind
of investments they require are typically made after an analysis provided by
 Chapter 1 / Foundations of Information Systems in Business ● 9

computer-based information systems. This function not only supports the decision
making of store managers, buyers, and others, but also helps them look for ways to
gain an advantage over other retailers in the competition for customers.
S upport of S trateg ies f or Com petitiv e Adv antag e. Gaining a strategic advantage
over competitors requires the innovative application of information technologies.
For example, store management might make a decision to install touch-screen kiosks
in all stores, with links to the e-commerce Web site for online shopping. This offer-
ing might attract new customers and build customer loyalty because of the ease of
shopping and buying merchandise provided by such information systems. Thus,
strategic information systems can help provide products and services that give a busi-
ness a comparative advantage over its competitors.

Welch’s: Bal ancing Given dramatic fluctuations in gas prices, it’s no surprise that companies want to find
Truckloads with ways to rein in transportation costs. One company finding success in that endeavor is
Welch’s, a well-known purveyor of food and packaged consumer goods. Th e com-
Business pany is tapping the power of business intelligence for better insight into its supply-
Intelligence chain operations, which in turn can help keep transportation expenses lower. Welch’s,
the $654 million manufacturer known for its jams, jellies, and juices, recently in-
stalled an on-demand BI application from Oco.
One way Welch’s is leveraging the Oco BI application is to ensure that truckloads
delivered by its carriers go out full.
Th e idea is that customers are already paying for the full truck when it delivers
goods, even if it’s only halfway or three-quarters loaded. With the BI system, Welch’s
can tell if a buyer’s shipment is coming up short of full capacity and help them figure
out what else they can order to max it out, thus saving on future shipping costs.
“Welch’s can go to the customer and say, ‘You’re only ordering this much. Why
not round out the load with other things you need? It will be a lot cheaper for you,’”
says Bill Copacino, president and CEO of Oco. “If you’re able to put 4 ,000 more
pounds on the 36,000-pound shipment, you’re getting a 10 percent discount on
transportation costs,” he adds.
“We’re essentially capturing every element—from the customer orders we re-
ceive, to bills of lading on every shipment we make, as well as every data element on
every freight bill we pay,” says Bill Coyne, director of purchasing and logistics for
Welch’s. “We dump them all into one data warehouse [maintained by Oco], and we
can mix-and-match and slice-and-dice any way we want.” Coyne says that Welch’s
tries to ship its products five days a week out of its distribution center. “But we found
ourselves just totally overwhelmed on Fridays,” he says. “We would complain, ‘How
come there are so many orders on Friday?’”
Now, the new system helps Welch’s balance its daily deliveries so that it uses about
the same number of trucks, rather than hiring seven trucks on a Monday, five on a
Tuesday, eight on a Wednesday, and so forth.
Th e company reaps transportation savings by using a stable number of trucks
daily—“as capacity is not jumping all over the place,” Copacino says.
“We are gaining greater visibility into cost-savings opportunities, which is espe-
cially important in light of rising fuel and transportation costs,” says Coyne. Welch’s
spends more than $50 million each year on transportation expenses, and the
Oco BI application and reporting features have become critical in a very short pe-
riod of time. “We literally can’t go any amount of time without knowing this stuff,”
Coyne says.

Source: Adapted from Ted Samson, “Welch’s Leverages BI to Reduce Transport Costs,” InfoWorld, October 16, 2008;
and Thomas Wailgum, “Business Intelligence and On-Demand: The Perfect Marriage?” CIO Magazine, March 27, 2008.
10 ● Module I / Foundation Concepts

Trends i n Th e business applications of information systems have expanded significantly over the
years. Figure 1.4 summarizes these changes.
In fo rmation Until the 1960s, the role of most information systems was simple: transaction
Sys t e ms processing, record keeping, accounting, and other electronic data processing (EDP) ap-
plications. Then another role was added, namely, the processing of all these data into
useful, informative reports. Thus, the concept of management information systems (MIS)
was born. This new role focused on developing business applications that provided
managerial end users with predefined management reports that would give managers
the information they needed for decision-making purposes.
By the 1970s, it was evident that the prespecified information products produced
by such management information systems were not adequately meeting the decision-
making needs of management, so the concept of decision support systems (DSS) was
born. Th e new role for information systems was to provide managerial end users with
ad hoc, interactive support of their decision-making processes. This support would be
tailored to the unique decisions and decision-making styles of managers as they con -
fronted specific types of problems in the real world.
In the 1980s, several new roles for information systems appeared. First, the rapid
development of microcomputer processing power, application software packages, and
telecommunications networks gave birth to the phenomenon of end-user computing.

F I GUR E 1. 4 Enterprise Resource Planning and Business Intelligence: 2000s–2010s

The expanding roles of the
Enterprisew ide common-interface applications data mining and data
business applications of
visualization, customer relationship management, supply-chain management
information systems. Note
how the roles of computer-
based information systems Electronic Business and Commerce: 1990s–2000s
have expanded over time. Internet-based e-business and e-commerce systems
Also, note the impact of
The Expanding Roles of IS in Business and Management

Web-enabled enterprise and global e-business operations and electronic

these changes on the end commerce on the Internet, intranets, extranets, and other networks
users and managers of an
organization.
Strategic and End-User Support: 1980s–1990s
End-user computing systems
Direct computing support for end-user productivity and workgroup collaboration
Executive information systems
Critical information for top management
Expert systems
Know ledge-based expert advice for end users
Strategic information systems
Strategic products and services for competitive advantage

Decision Support: 1970s–1980s

Decison support systems
Interactive ad hoc support of the managerial decision-making process

Management Reporting: 1960s–1970s

Management information systems
Management reports of prespecified information to support decision making

Data Processing: 1950s–1960s

Electronic data processing systems
Transaction processing, record-keeping, and traditional accounting applications
 Chapter 1 / Foundations of Information Systems in Business ● 11

End users could now use their own computing resources to support their job require-
ments instead of waiting for the indirect support of centralized corporate information
services departments.
Second, it became evident that most top corporate executives did not directly use
either the reports of management information systems or the analytical modeling ca-
pabilities of decision support systems, so the concept of executive information systems
(EIS) developed. These information systems were created to give top executives an
easy way to get the critical information they wanted, when they wanted it, and tailored
to the formats they preferred.
Third, breakthroughs occurred in the development and application of artificial
intelligence (AI) techniques to business information systems. Today’s systems include
intelligent software agents that can be programmed and deployed inside a system to
act on behalf of their owner, system functions that can adapt themselves on the basis
of the immediate needs of the user, virtual reality applications, advanced robotics,
natural language processing, and a variety of applications for which artificial intelli-
gence can replace the need for human intervention, thus freeing up knowledge work-
ers for more complex tasks. Expert systems (ES) and other knowledge-based systems also
forged a new role for information systems. Today, expert systems can serve as consult-
ants to users by providing expert advice in limited subject areas.
An important new role for information systems appeared in the 1980s and contin-
ued through the 1990s: the concept of a strategic role for information systems, some-
times called strategic information systems (SIS). In this concept, information technology
becomes an integral component of business processes, products, and services that help
a company gain a competitive advantage in the global marketplace.
Th e mid- to late 1990s saw the revolutionary emergence of enterprise resource plan-
ning (ERP) systems. This organization-specific form of a strategic information system
integrates all facets of a firm, including its planning, manufacturing, sales, resource
management, customer relations, inventory control, order tracking, financial manage-
ment, human resources, and marketing—virtually every business function. Th e pri-
mary advantage of these ERP systems lies in their common interface for all
computer-based organizational functions and their tight integration and data sharing,
necessary for flexible strategic decision making. We explore ER P and its associated
functions in greater detail in Chapter 8.
We are also entering an era where a fundamental role for IS is business intelligence
(BI). BI refers to all applications and technologies in the organization that are fo-
cused on the gathering and analysis of data and information that can be used to drive
strategic business decisions. Through the use of BI technologies and processes, or-
ganizations can gain valuable insight into the key elements and factors—both internal
and external—that affect their business and competitiveness in the marketplace. BI
relies on sophisticated metrics and analytics to “see into the data” and find relation-
ships and opportunities that can be turned into profits. We’ll look closer at BI in
Chapter 10.
Finally, the rapid growth of the Internet, intranets, extranets, and other inter-
connected global networks in the 1990s dramatically changed the capabilities of in-
formation systems in business at the beginning of the 21st century. Further, a
fundamental shift in the role of information systems occurred. Internet-based and
Web-enabled enterprises and global e-business and e-commerce systems are becom-
ing commonplace in the operations and management of today’s business enterprises.
Information systems is now solidly entrenched as a strategic resource in the modern
organization.
A closer look at Figure 1.4 suggests that though we have expanded our abilities
with regard to using information systems for conducting business, today’s information
systems are still doing the same basic things that they began doing more than 50 years
ago. We still need to process transactions, keep records, provide management with
12 ● Module I / Foundation Concepts

useful and informative reports, and support the foundational accounting systems and
processes of the organization. What has changed, however, is that we now enjoy a
much higher level of integration of system functions across applications, greater con-
nectivity across both similar and dissimilar system components, and the ability to
reallocate critical computing tasks such as data storage, processing, and presentation
to take maximum advantage of business and strategic opportunities. Because of these
increased capabilities, the systems of tomorrow will be focused on increasing both the
speed and reach of our systems to provide even tighter integration, combined with
greater flexibility.

T h e Role of Th e Internet and related technologies and applications have changed the ways busi-
nesses operate and people work, as well as how information systems support business
e-Business i n processes, decision making, and competitive advantage. Thus, many businesses today
Business are using Internet technologies to Web-enable their business processes and create
innovative e-business applications. See Figure 1.5.
In this text, we define e-business as the use of Internet technologies to work and
empower business processes, e-commerce, and enterprise collaboration within a com-
pany and with its customers, suppliers, and other business stakeholders. In essence, e-
business can be more generally considered an online exchange of value. Any online ex-
change of information, money, resources, services, or any combination thereof falls un-
der the e-business umbrella. The Internet and Internet-like networks—those inside the
enterprise ( intranet) and between an enterprise and its trading partners ( extranet) —
have become the primary information technology infrastructure that supports the e-
business applications of many companies. These companies rely on e-business
applications to (1) reengineer internal business processes, (2) implement e-commerce
systems with their customers and suppliers, and (3) promote enterprise collaboration
among business teams and workgroups.

F I G UR E 1. 5 Suppliers and Other

The Internet
Businesses today depend on Business Partners
the Internet, intranets, and Extranets
extranets to implement and Company
manage innovative Boundary
e-business applications.
Supply chain management:
Procurement, distribution, and logistics

Intranets

Engineering and Manufacturing Accounting

research and production and finance

Intranets

Customer relationship management:

Marketing Sales Customer service

Extranets

Consumers and
Business Customers
 Chapter 1 / Foundations of Information Systems in Business ● 13

Enterprise collaboration systems involve the use of software tools to support com-
munication, coordination, and collaboration among the members of networked teams
and workgroups. A business may use intranets, the Internet, extranets, and other net-
works to implement such systems. For example, employees and external consultants
may form a virtual team that uses a corporate intranet and the Internet for e-mail,
videoconferencing, e-discussion groups, and Web pages of work-in-progress informa-
tion to collaborate on business projects.
E-com merce is the buying, selling, marketing, and servicing of products, services,
and information over a variety of computer networks. Many businesses now use the
Internet, intranets, extranets, and other networks to support every step of the com-
mercial process, including everything from advertising, sales, and customer support
on the World Wide Web to Internet security and payment mechanisms that ensure
completion of delivery and payment processes. For example, e-commerce systems in -
clude Internet Web sites for online sales, extranet access to inventory databases by
large customers, and the use of corporate intranets by sales reps to access customer
records for customer relationship management.

Types of Conceptually, the applications of information systems that are implemented in today’s
business world can be classified in several different ways. For example, several ty pes of
In fo rmation inf ormation systems can be classified as either operations or management information
Sys t e m s systems. Figure 1.6 illustrates this conceptual classification of information systems ap-
plications. Information systems are categorized this way to spotlight the major roles
each plays in the operations and management of a business. Let’s look briefly at some
examples of such information systems categories.

Operations Support Information systems have always been needed to process data generated by, and used
Systems in, business operations. Such operations support systems produce a variety of infor-
mation products for internal and external use; however, they do not emphasize the

F I G UR E 1. 6 Operations and management classifications of information systems. Note how this conceptual overview
emphasizes the main purposes of information systems that support business operations and managerial decision making.

Information
Systems

Support of Operations Management Support of

Business Support Support Managerial
Operations Systems Systems Decision Making

Specialized Transaction Process Enterprise Management Decision Executive Specialized

Processing Processing Control Collaboration Information Support Information Processing
Systems Systems Systems Systems Systems Systems Systems Systems
Processing Control of Team and Prespecified Interactive Information
Business Industrial Workgroup Reporting Decision Tailored for
Transactions Processes Collaboration for Managers Support Executives
Know ledge Strategic Functional
Expert
Management Information Business
Systems
Systems Systems Systems
Expert Manage Support Support Basic
Advice to Organizational Competitive Business
Decision Makers Know ledge Advantage Functions
14 ● Module I / Foundation Concepts

F I G UR E 1. 7 A summary of operations support systems with examples.

Operations Support Systems

• Transaction processing systems. Process data resulting from business transactions, update operational databases, and
produce business documents. Examples: sales and inventory processing and accounting systems.
• Process control systems. Monitor and control industrial processes. Examples: petroleum refining, power generation,
and steel production systems.
• Enterprise collaboration systems. Support team, workgroup, and enterprise communications and collaborations.
Examples: e-mail, chat, and videoconferencing groupware systems.

specific information products that can best be used by managers. Further processing
by management information systems is usually required. Th e role of a business firm’s
operations support systems is to process business transactions, control industrial proc-
esses, support enterprise communications and collaborations, and update corporate
databases efficiently. See Figure 1.7.
Transaction processing sy stems are important examples of operations support
systems that record and process the data resulting from business transactions. They
process transactions in two basic ways. In batch processing, transactions data are ac-
cumulated over a period of time and processed periodically. In real-time (or online)
processing, data are processed immediately after a transaction occurs. For example,
point-of-sale (POS) systems at many retail stores use electronic cash register termi-
nals to capture and transmit sales data electronically over telecommunications links
to regional computer centers for immediate (real-time) or nightly (batch) processing.
Figure 1.8 is an example of software that automates accounting transaction processing.
Process control sy stem s monitor and control physical processes. For example, a
petroleum refinery uses electronic sensors linked to computers to monitor chemical
processes continually and make instant (real-time) adjustments that control the refin-
ery process. Enterprise collaboration systems enhance team and workgroup communi-
cations and productivity and include applications that are sometimes called office
automation systems. For example, knowledge workers in a project team may use e-mail
to send and receive e-messages or use videoconferencing to hold electronic meetings
to coordinate their activities.

Management When information system applications focus on providing information and support for
Support Systems effective decision making by managers, they are called manag ement support systems.
Providing information and support for decision making by all types of managers

F I G UR E 1. 8
QuickBooks is a popular
accounting package that
automates small office or
home office (SOHO)
accounting transaction
processing while providing
business owners with
management reports.

Source: Courtesy of Quickbooks.

 Chapter 1 / Foundations of Information Systems in Business ● 15

F I G UR E 1. 9 A summary of management support systems with examples.

Management Support Systems

• Management information systems. Provide information in the form of prespecified reports and displays to support
business decision making. Examples: sales analysis, production performance, and cost trend reporting systems.
• Decision support systems. Provide interactive ad hoc support for the decision-making processes of managers and other
business professionals. Examples: product pricing, profitability forecasting, and risk analysis systems.
• Executive information systems. Provide critical information from MIS, DSS, and other sources tailored to the infor-
mation needs of executives. Examples: systems for easy access to analyses of business performance, actions of competi-
tors, and economic developments to support strategic planning.

and business professionals is a complex task. Conceptually, several major types of infor-
mation systems support a variety of decision-making responsibilities: (1) management
information systems, (2) decision support systems, and (3) executive information sys-
tems. See Figure 1.9.
Manag ement information systems (MIS) provide information in the form of
reports and displays to managers and many business professionals. For example, sales
managers may use their networked computers and Web browsers to receive instanta-
neous displays about the sales results of their products and access their corporate
intranet for daily sales analysis reports that evaluate sales made by each salesperson.
Decision support systems (DSS) give direct computer support to managers during
the decision-making process. For example, an advertising manager may use a DSS to
perform a what-if analysis as part of the decision to determine how to spend advertis-
ing dollars. A production manager may use a DSS to decide how much product to
manufacture, based on the expected sales associated with a future promotion and the
location and availability of the raw materials necessary to manufacture the product.
Executive information systems (EIS) provide critical information from a wide vari-
ety of internal and external sources in easy-to-use displays to executives and managers.
For example, top executives may use touch-screen terminals to view instantly text
and graphics displays that highlight key areas of organizational and competitive
performance. Figure 1.10 is an example of an MIS report display.

Other Classifications Several other categories of information systems can support either operations or
of Information management applications. For example, expert systems can provide expert advice for
Systems operational chores like equipment diagnostics or managerial decisions such as loan
portfolio management. Knowledge management systems are knowledge-based in -
formation systems that support the creation, organization, and dissemination of busi-
ness knowledge to employees and managers throughout a company. Information
systems that focus on operational and managerial applications in support of basic
business functions such as accounting or marketing are known as functional business
systems . Finally, strategic information systems apply information technology to a
firm’s products, services, or business processes to help it gain a strategic advantage
over its competitors. See Figure 1.11.
It is also important to realize that business applications of information systems in
the real world are typically integrated combinations of the several types of informa-
tion systems just mentioned. Tha t is because conceptual classifications of informa-
tion systems are designed to emphasize the many different roles of information
systems. In practice, these roles are combined into integrated or cross- functional
inf orm ational system s that provide a variety of functions. Thus, most information
systems are designed to produce information and support decision making for vari-
ous levels of management and business functions, as well as perform record-keeping
and transaction-processing chores. Whenever you analyze an information system,
16 ● Module I / Foundation Concepts

F I G UR E 1. 10
Management information
systems provide information
to business professionals in
a variety of easy-to-use
formats.

Source: Courtesy of Infor.

F I G UR E 1. 11 Other Categories of Information Systems

A summary of other
categories of information • Expert systems. Knowledge-based systems that provide expert advice and act as
systems with examples. expert consultants to users. Examples: credit application advisor, process monitor, and
diagnostic maintenance systems.
• Knowledge management systems. Knowledge-based systems that support the
creation, organization, and dissemination of business knowledge within the enterprise.
Examples: intranet access to best business practices, sales proposal strategies, and
customer problem resolution systems.
• Strategic information systems. Support operations or management processes that
provide a firm with strategic products, services, and capabilities for competitive advantage.
Examples: online stock trading, shipment tracking, and e-commerce Web systems.
• Functional business systems. Support a variety of operational and managerial
applications of the basic business functions of a company. Examples: information systems
that support applications in accounting, finance, marketing, operations management,
and human resource management.

you probably see that it provides information for a variety of managerial levels and
business functions.

Ma n a ge ria l Figure 1.12 illustrates the scope of the challenges and opportunities facing business
managers and professionals in effectively managing information systems and technol-
C h a l l e nge s of ogies. Success in today’s dynamic business environment depends heavily on maximiz-
In fo rmat ion ing the use of Internet-based technologies and Web-enabled information systems to
Te ch n o l o gy meet the competitive requirements of customers, suppliers, and other business part-
ners in a global marketplace. Figure 1.12 also emphasizes that information systems
 Chapter 1 / Foundations of Information Systems in Business ● 17

F I G UR E 1. 12 Examples of the challenges and opportunities that business managers face in managing information
systems and technologies to meet business goals.

Information
The Business Enterprise Technology
Customer
Value
Strategies/Processes/Structure/Culture Business
Value

Business / IT Challenges Business / IT Developments Business / IT Goals

Speed and flexibility requirements of Use of the Internet, intranets, Give customers w hat they want,
product development, manufacturing, extranets, and the Web as the w hen and how they want it, at the
and delivery cycles. primary IT infrastructure. low est cost.
Reengineering and cross-functional Diffusion of Web technology to Coordination of manufacturing and business
integration of business processes internetw ork employees, processes with suppliers and customers.
using Internet technologies. customers, and suppliers. Marketing channel partnerships with
Integration of e-business and e-commerce Global netw orked computing, suppliers and distributors.
into the organization’s strategies, collaboration, and decision
processes, structure, and culture. support systems.

and their technologies must be managed to support the business strategies, business
processes, and organizational structures and culture of a business enterprise. That is
because computer-based information systems, though heavily dependent on informa-
tion technologies, are designed, operated, and used by people in a variety of organiza-
tional settings and business environments. Th e goal of many companies today is to
maximize their customer and business value by using information technology to help
their employees implement cooperative business processes with customers, suppliers,
and others.

Success and By now you should be able to see that the success of an information system should not
Failure with I T be measured only by its efficiency in terms of minimizing costs, time, and the use of
information resources. Success should also be measured by the effectiveness of the in-
formation technology in supporting an organization’s business strategies, enabling its
business processes, enhancing its organizational structures and culture, and increasing
the customer and business value of the enterprise.
It is important to realize, however, that information technology and informa-
tion systems can be mismanaged and misapplied in such a way that IS perform-
ance problems create both techn ological and business failures. Let’s look at an
example of what happens after these failures occur, as well as what can be done to
avoid them.

Responsibility and Your department—information technology—has just played a starring role in blow-
Accountability for ing a multimillion-dollar enterprise software project. Th e intense glare from the
CEO, CFO and other business leaders is squarely focused on the CIO, VP of appli-
Project Success cations, project managers and business analysts charged with making sure that this
(and Failure) didn’t happen. Of course, IT is never 100 percent at fault for any massive project—
whether an ERP or CRM implementation, mainframe migration, or networking up-
grade. Th e business side usually plays its part.
18 ● Module I / Foundation Concepts

But the unfortunate and unfair fact is that because these initiatives are considered
“technology projects,” the business will almost always look in IT’s direction when
there’s blame to be tossed around. “That’s just a fact of life in IT,” says Chris Curran,
who’s both a consulting partner at Diamond Management & Techonology Consult-
ants and its Chief Technology Offer.
No sane executive would dismiss the strategic importance of IT today. And most
don’t: An IT Governance Institute study, consisting of more than 250 interviews
with executives of both large and small companies in a variety of industry sectors,
found that half of the respondents said that IT is “very important to the enterprise,”
and three-quarters stated that they align IT and business strategies.
When it came to I T project accountability, “executive management” was identi-
fied as the group held accountable for IT governance in 71 percent of the enter-
prises. That’s all well and good, but when it comes to walking the walk with
technology projects, non-IT executives appear to fall back on familiar rhetoric. In a
similar 2009 survey of more than 500 IT professionals by ISACA, a nonprofit trade
group focusing on corporate governance, almost half of respondents said “the CIO is
responsible for ensuring that stakeholder returns on IT-related investments are opti-
mized,” notes the survey report.
Curran takes those results a step further. “Business investments need to have
business accountability,” Curran says. “But when a project goes south, especially
high-profile ERP implementations, IT gets blamed—but it’s not an IT project.”
Curran’s advice for such massive undertakings, which CIOs and analysts talk up
but many don’t follow, is practical: Think bite-sized project chunks and set proper
expectations. He also advises his clients and their IT shops to embrace change and
transparency—even if it hurts at first. “The corporate culture—the status quo—
tends to be: ‘Everything’s good. We don’t talk about problems until they are near
unrecoverable, because we know people don’t like bad news,’” Curran says.
But th ere are always going to be problems. Tha t, also, is “just a fact of life
in IT.”
Source: Adapted from Thomas Wailgum, “After a Massive Tech Project Failure: What I T Can Expect,” CIO.com,
August 5, 2009.

Developing D ev eloping successf ul inf orm ation system solutions to business problems is a major
IS Solutions challenge for business managers and professionals today. As a business professional,
you will be responsible for proposing or developing new or improved uses of infor-
mation technologies for your company. As a business manager, you will frequently
manage the development efforts of information systems specialists and other business
end users.
Most computer-based information systems are conceived, designed, and imple-
mented using some form of systematic development process. Figure 1.13 shows that
several major activities must be accomplished and managed in a complete IS develop-
ment cycle. In this development process, end users and information specialists design
information system applications on the basis of an analysis of the business require-
ments of an organization. Examples of other activities include investigating the eco-
nomic or technical feasibility of a proposed application, acquiring and learning how to
use any software necessary to implement the new system, and making improvements to
maintain the business value of a system.
We discuss the details of the information systems development process in Chapters 11
and 12. We will explore many of the business and managerial challenges that arise in
developing and implementing new uses of information technology in Chapters 13 and
14. Now let’s look at how a company changed its development practices to deliver the
 Chapter 1 / Foundations of Information Systems in Business ● 19

F I G UR E 1. 13
Developing information
Investigate
systems solutions to
business problems can be
implemented and managed Analyze
as a multistep process or
cycle. Developing
Information
Maintain System
Solutions

Design

Implement

right functionality to users and become more responsive to their needs. This example
emphasizes the importance of tailoring systems development practices to the needs of
a business.

Agi le Systems In the old days, companies could spend months planning a technology project and
De ve lopment at then months or even years implementing it. Not anymore. Strategies are far more
dynamic these days, especially as companies respond to challenging economic
Con-Way, Inc. times.
When someone has a good idea, it’s nice to see it come to fruition right away.
At transportation company Con-Way—founded in 1929, with more than 26,000 em-
ployees and 2008 revenue of more than $5 billion—almost all good ideas require
technology to implement. Yet historically, ideas became cold by the time they
made it through IT steering committees, project planning, and design reviews.
Then, Con-Way became agile—that is, it adopted Agile development practices.
Using Agile, software development is no longer accomplished through lengthy
projects.
Instead, the overall concept of the desired system is defined at a high level up
front and then developed in short iterations. An iteration is typically no longer than
one month, and the software is released for use after each iteration. As people use the
software, they determine which features should be built next, providing a feedback
loop that results in building the highest priority functionality. One big change for
IT is that with Agile, an implementation date is always impending; team members
never feel they are able to relax on a project. Meanwhile, developers, used to having
private space, can feel that space is violated resulting from “pair programming,”
which has two developers constructing the same piece of code at the same time, and
colocation, which has team members sitting as close together as humanly possible.
As for th e business users, Agile requires them to take a much more active role
throughout the entire process. They must work jointly with IT to determine the
priorities for each iteration, and they must provide daily direction to I T on the
needs for the functionality being built.
“I made the case for change in IT by explaining how the business would benefit
if we delivered the highest priority functionality faster. I also kept reiterating what
was in it for them—and there was a lot,” says Jackie Barretta, vice president and CIO
of Con-Way, Inc. “At the same time, I made the case for change to the business by
preparing a solid ROI that quantified the benefits of increasing the efficiency of
20 ● Module I / Foundation Concepts

development processes, delivering the right functionality more quickly and reducing
the overall amount of work in progress.”
Th e change effort has been worth it: After nine months, Agile is delivering on its
promises. Th e iterative approach to software development is providing a feedback
loop that results in building the right functionality. “We no longer have the waste
problem that was inherent in the old waterfall method. Agile is creating greater
alignment between IT and the business because of the constant, daily interaction and
because Agile techniques help IT personnel understand the business better,” says
Barretta. “However, like anything that’s really going to pay off, Agile is a huge change
for IT and the user community.”
Source: Adapted from Jackie Barretta, “How to Instill Agile Development Practices Among Your I T Team,” CIO Magazine,
January 14, 2009.

Challenges and As a prospective manager, business professional, or knowledge worker, you will be
Ethics of IT challenged by the ethical responsibilities generated by the use of information tech-
nology. For example, what uses of information technology might be considered im-
proper, irresponsible, or harmful to other people or to society? What is the proper
business use of the Internet and an organization’s IT resources? What does it take to
be a responsible end user of information technology? How can you protect yourself
from computer crime and other risks of information technology? These are some of
the questions that outline the ethical dimensions of information systems that we will
discuss and illustrate with real world cases throughout this text. Figure 1.14 outlines
some of the ethical risks that may arise in the use of several major applications of in-
formation technology. Th e following example illustrates some of the security chal-
lenges associated with conducting business over the Internet.

Hannaford Bros.: Hannaford Bros. may have started as a fruit and vegetable stand in 1883, but it has
The Importance expanded from its Maine roots to become an upscale grocer with more than 160
stores throughout Maine, Massachusetts, New Hampshire, upstate New York, and
of Se curing Vermont. In March 2008, the supermarket chain disclosed a data security breach;
Customer Data Hannaford said in a notice to customers posted on its Web site that unknown intrud-
ers had accessed its systems and stolen about 4.2 million credit and debit card numbers
between December 7 and March 10. Th e breach affected all of Hannaford’s

F I G UR E 1. 14 Examples of some of the ethical challenges that must be faced by business managers who implement major
applications of information technology.

Applications of IT

■ Customer
Potential Risks
Relationship Potential Harms ■Consumer
Possible Responses
Management boycotts
■ Infringements on privacy ■ Codes of ethics
■ Human
■Work
Resources ■ Inaccurate information ■ Incentives
stoppages
Management
■ Collusion ■ Certification
■ Government
■ Business
intervention
Intelligence
Systems
 Chapter 1 / Foundations of Information Systems in Business ● 21

165 supermarkets in New England and New York, as well as 106 stores operated
under the Sweetbay name in Florida and 23 independently owned markets that sell
Hannaford products.
In a likely precursor of what was yet to come, two class-action lawsuits were
filed against the company within the week. Th e filers argued that inadequate data
security at Hannaford had resulted in the compromise of the personal financial data
of consumers, thereby exposing them to the risk of fraud. They also claimed the
grocer also appeared not to have disclosed the breach to the public quickly enough
after discovering it.
Even though the Hannaford breach is relatively small compared with some other
corporate security problems, it is likely to result in renewed calls for stricter regula-
tions to be imposed on companies that fail to protect consumer data. In addition to
facing the likelihood of consumer lawsuits, retailers who suffer breaches have to deal
with banks and credit unions, which are getting increasingly anxious about having to
shell out tens of thousands of dollars to pay for the cost of notifying their customers
and reissuing credit and debit cards.
Retailers, on the other hand, have argued that the commissions they pay to card
companies on each transaction are supposed to cover fraud-related costs, making any
additional payments a double penalty. They also have said that the only reason they
store payment card data is because of requirements imposed on them by the major
credit card companies.
While the ultimate impact of these and other security breaches may be hard to
quantify, it represents one of the most important challenges resulting from the ubiq-
uitous use of electronic transaction processing and telecommunication networks in
the modern networked enterprise, and one that is likely to keep growing every day.
Th e security of customer and other sensitive data also represents one of the primary
concerns of IT professionals.
Source: Adapted from Jaikumar Vijayan, “Hannaford Hit by Class-Action Lawsuits in Wake of Data-Breach Disclosure,”
Computerworld, March 20, 2008.

Challenges of Both information technology and the myriad of information systems it supports have
I T Careers created interesting, challenging, and lucrative career opportunities for millions of men
and women all over the globe. At this point in your life you may still be uncertain
about the career path you wish to follow, so learning more about information technol-
ogy may help you decide if you want to pursue an IT-related career. In recent years,
economic downturns have affected all job sectors, including IT. Further, rising labor
costs in North America, Canada, and Europe have resulted in a large-scale movement
to outsource basic software programming functions to India, the Middle East, and
Asia-Pacific countries. Despite this move, employment opportunities in the informa-
tion systems field are strong, with more new and exciting jobs emerging each day as
organizations continue to expand their use of information technology. In addition,
these new jobs pose constant human resource management challenges to all organiza-
tions because shortages of qualified information systems personnel frequently occur.
Dynamic developments in business and information technologies cause constantly
changing job requirements in information systems, which will ensure that the long-term
job outlook in IT remains both positive and exciting.
Along with the myth that there are no jobs for IS professionals (we will dispel
this one below!), another common myth is that IS professionals are computer geeks
who live in a cubicle. Once again, nothing could be further from the truth! Today’s IS
professional must be highly skilled in communication, dealing with people, and, most
of all, articulate in the fundamentals of business. Th e marketplace is demanding a
22 ● Module I / Foundation Concepts

business technologist with a big “B” and a big “T.” Th e world of the IS professional is
filled with constant challenge, variety, social interaction, and cutting-edge decision
making. No desks and cubicles here. If action is what you are after, then you have
found it here.
One major recruiter of IS professionals is the IT industry itself. Thousands of com-
panies develop, manufacture, market, and service computer hardware, software, data,
and network products and services. Th e industry can also provide e-business and e-
commerce applications and services, end-user training, or business systems consulting.
Th e biggest need for qualified people, however, comes from the millions of businesses,
government agencies, and other organizations that use information technology. They
need many types of IS professionals, such as systems analysts, software developers, and
network managers to help them plan, develop, implement, and manage today’s Internet-
based and Web-enabled business/IT applications.
Th e accounting industry is a more recent major recruiter of IS professionals.
Recent legislation, entitled the Sarbanes-Oxley Act of 2002, required major changes
with regard to auditing practices by public accounting firms and internal control
processes within publicly held organizations of all sizes and industries. Many of
these changes directly affect the IT/IS practices of all parties involved. To facilitate
the execution of the covenants of Sarbanes-Oxley, the accounting industry is ac-
tively recruiting graduates from accounting programs that have a significant
emphasis on IS education. In addition, they are spending equal energy to recruit
IS/IT professionals to work within the accounting industry. In either case, the result
is a significant increase in demand for graduates with an IS/IT background or em-
phasis. Figure 1.15 lists just a few of the many career roles available to the modern
IT professional.
According to recent reports by the U.S. Department of Labor, computer systems
analysts, database administrators, and other managerial-level IS positions are expected
to be among the fastest-growing occupations through 2012. Employment of IS pro-
fessionals is expected to grow more than 36 percent (much higher than average) for all
occupations as organizations continue to adopt and integrate increasingly sophisti-
cated technologies. Job increases will be driven by very rapid growth in computer
system design and related services, which is projected to be one of the fastest-growing

F I G UR E 1. 15 Business
Systems Analyst System Consultant
Careers in IS are as diverse Applications
and exciting as the Consultant
technologies used in them; Chief Information Officer Computer Operator Computer Serviceperson
IS professionals have career
Data Dictionary
opportunities in every Network Administrator Network Manager
Specialist
business environment and
activity throughout the Database Administrator Database Analyst Documentation Specialist
world. End-User Computer Equipment Manufacturer
IS Auditor
Manager Representative

PC Sales Representative Programmer Program Librarian

Project Manager Records Manager Hardware Sales Representative
Scheduling and
Security Officer Office Automation Specialist
Control
Person
Service Sales
Senior Project Leader Software Sales Representative
Representativ
e
Software
Technical Analyst Technical Writer
Quality
Evaluator
Telecommunication Training & Standards
User Interface Specialist
s Specialist Manager
 Chapter 1 / Foundations of Information Systems in Business ● 23

industries in the U.S. economy. In addition, many job openings will arise annually
from the need to replace workers who move into managerial positions or other occu-
pations or who leave the labor force. Most important to you, IS/IT graduates generally
receive one of the highest starting salaries in the school.
Despite the recent economic downturn among information technology firms, IS
professionals still enjoy favorable job prospects. Th e demand for networking to fa-
cilitate sharing information, expanding client/server environments, and the need for
specialists to use their knowledge and skills in a problem-solving capacity will be
major factors in the rising demand for computer systems analysts, database adminis-
trators, and other IS professionals. Moreover, falling prices of computer hardware
and software should continue to induce more businesses to expand their computer-
ized operations and integrate new technologies. To maintain a competitive edge and
operate more efficiently, firms will keep demanding the services of professionals who
are knowledgeable about the latest technologies and can apply them to meet the
needs of businesses.
Perhaps the time has come to put a sharper edge on this message: The field of in-
formation systems is growing at an increasingly rapid pace, and there is no risk of being
unemployed upon graduation! I believe that the concern over a lack of IT/IS-related
jobs was fueled by the news media and is now, quite simply, unfounded. Headlines
proclaimed the death of IS and the lack of jobs in the United States due to massive
outsourcing and offshoring. Th e jobs that were being sent overseas were real ones, to
be sure. They were, however, not the jobs that you or your fellow students were ever
going to train for during your stay in college—unless, of course, you aspire to being
a faceless voice in a call center. These jobs are service-related jobs that, while vital to
the big picture, are not the management level, creative business technologist posi-
tions that colleges and universities typically train their students to obtain. Th e real
problem facing the IS field today is the lack of graduates! Students are choosing other
professions because they fear low pay and unemployment, whereas recruiters are
simultaneously begging for more graduates to feed their voracious appetites for more
IS professionals. If you choose to avoid a career in information systems, it should not
be because you think there are no jobs, that it does not have to do with people, or
that it is no fun. Over the course of this book, we will dispel, with strong evidence, all
of these rumors and myths. Let’s start with some facts related to the first one.
Th e Bureau of Labor Statistics has some compelling evidence in favor of a career
in information systems:
Prospects for qualified computer and information systems managers should be excellent.
Fast-paced occupational growth and the limited supply of technical workers
will lead to a wealth of opportunities for qualified individuals. While technical
workers remain relatively scarce in the United States, the demand for them
continues to rise. This situation was exacerbated by the economic downturn in
the early 2000s, when many technical professionals lost their jobs. Since then,
many workers have chosen to avoid this work since it is perceived to have
poor prospects.
People with management skills and an understanding of business practices and princi-
ples will have excellent opportunities, as companies are increasingly looking to technology
to drive their revenue. (Bureau of Labor Statistics Occupational Outlook Handbook,
2008–2009)
Increasingly, more sophisticated and complex technology is being implemented
across all organizations, which will continue to fuel the demand for these computer
occupations. The demand for systems analysts continues to grow to help firms maxi-
mize their efficiency with available technology. Expansion of e-commerce—doing busi-
ness on the Internet—and the continuing need to build and maintain databases that
store critical information about customers, inventory, and projects are fueling demand
for database administrators familiar with the latest technology. Finally, the increasing
24 ● Module I / Foundation Concepts

importance placed on “cybersecurity”—the protection of electronic information—will

result in a need for workers skilled in information security. Let’s take a look at the
emerging role of business analysts as liaisons between IT specialists and their business
customers.

The Critical Role For two decades, the CI O has been viewed as the ultimate broker between the
of Business business and technology functions. But while that may be an accurate perception
in the executive boardroom, down in th e trenches, business analysts (BA) have
Analysts been the ones tasked with developing business cases for I T application develop-
ment, in the process smoothing relations among competing parties and moving
projects along.
Th e 21st century business analyst is a liaison, bridge, and diplomat who balances
the oftentimes incongruous supply of IT resources and demands of the business. A
recent Forrester Research report found that those business analysts who were most
successful were the ones who could “communicate, facilitate and analyze.” Th e busi-
ness analyst is a hot commodity right now due to business reliance on technology,
according to Jim McAssey, a principal at The W Group, a consulting firm. “The
global delivery capabilities of technology today make the challenges of successfully
bridging the gap between business and IT even harder,” he says.
“Companies typically don’t invest in an IT project without a solid business case,”
says Jeff Miller, senior vice president of Aetea, an IT staffing and consulting firm.
A good business analyst is able to create a solution to a particular business prob-
lem and act as a bridge to the technologists who can make it happen. “Without the
BA role, CIOs are at significant risk that their projects will not solve the business
problem for which they were intended,” says Miller.
Th e ideal candidate will have 5 to 10 or more years of experience (preferably
in a specific industry), a technical undergraduate degree, and an MBA.
Strong risk assessment, negotiation, and problem resolution skills are key, and
hands-on experience is critical. Business analysts must be process-driven and able to
see a project through conflict and change, from start to finish. “The BA also must
have the ability to learn new processes,” says Miller. “A good BA learns business
concepts and can quickly relate them to the specific needs of the project.”
In the end, the more business technology analysts that are working in the busi-
ness, the better off the CIO and IT function will be—no matter if the business tech-
nology analysts are reporting into I T or the business side. That’s because those IT-
savvy analysts, who will have a more in-depth understanding of and more exper- tise
in technologies, will “ultimately help the business make better decisions when it
comes to its interactions with IT,” contend the Forrester analysts. And “CIOs have
new allies in the business.” Salaries range from $45,000 (entry level) to $100,000
(senior business analyst) per year.
Source: Adapted from Thomas Wailgum, “Why Business Analysts Are So Important for I T and CIOs ,” CIO Magazine,
April 16, 2008; and Katherine Walsh, “Hot Jobs: Business Analyst,” CIO Magazine, June 19, 2007.

The IS Function Th e successful management of information systems and technologies presents major
challenges to business managers and professionals. Thus, the information systems
function represents:
• A major functional area of business equally as important to business success as the
functions of accounting, finance, operations management, marketing, and human
resource management.
• An important contributor to operational efficiency, employee productivity and
morale, and customer service and satisfaction.
 Chapter 1 / Foundations of Information Systems in Business ● 25

• A recognized source of value to the firm.

• A major source of information and support needed to promote effective decision
making by managers and business professionals.
• A vital ingredient in developing competitive products and services that give an
organization a strategic advantage in the global marketplace.
• A dynamic, rewarding, and challenging career opportunity for millions of men
and women.
• A key component of the resources, infrastructure, and capabilities of today’s net-
worked business enterprises.
• A strategic resource.
26 ● Module I / Foundation Concepts

SECTI ON II Fo u n d a t i o n C o n c e p t s :
T h e C o m p o n e n t s of
I n fo rm a t i o n Sy s t em s
Sys t e m System concepts underlie all business processes, as well as our understanding of infor-
mation systems and technologies. That’s why we need to discuss how generic system
C o n ce p t s : concepts apply to business firms and the components and activities of information
A Fo u n d at io n systems. Understanding system concepts will help you understand many other con -
cepts in the technology, applications, development, and management of information
systems that we cover in this text. For example, system concepts help us understand:
• Technology. Computer networks are systems of information processing compo-
nents that use a variety of hardware, software, data management, and telecommu-
nications network technologies.
• Applications. E-business and e-commerce applications involve interconnected
business information systems.
• Development. Developing ways to use information technology in business in-
cludes designing the basic components of information systems.
• Management. Managing information technology emphasizes the quality, strate-
gic business value, and security of an organization’s information systems.
Read the Real World Case about how some companies are turning to IT to help them
develop new products and services. We can learn a lot from this case regarding the
various ways in which IT can be used to foster innovation. See Figure 1.16.

What Is a System? We have used the term system more than 100 times already and will use it thousands more
before we are done. It therefore seems reasonable that we focus our attention on ex-
actly what a sy stem is. As we discussed at the beginning of the chapter, a system is
defined as a set of interrelated components, with a clearly defined boundary, working together
to achieve a common set of objectives by accepting inputs and producing outputs in an organized
transformation process. Many examples of systems can be found in the physical and bio-
logical sciences, in modern technology, and in human society. Thus, we can talk of the
physical system of the sun and its planets, the biological system of the human body,
the technological system of an oil refinery, and the socioeconomic system of a business
organization.
Systems have three basic functions:
• Input involves capturing and assembling elements that enter the system to be
processed. For example, raw materials, energy, data, and human effort must be
secured and organized for processing.
• Processing involves transformation processes that convert input into output. Ex-
amples are manufacturing processes, the human breathing process, or mathemati-
cal calculations.
• Output involves transferring elements that have been produced by a transforma-
tion process to their ultimate destination. For example, finished products, human
services, and management information must be transmitted to their human users.

Example. A manufacturing system accepts raw materials as input and produces fin-
ished goods as output. An information system is a system that accepts resources (data)
as input and processes them into products (information) as output. A business organi-
zation is a system in which human and economic resources are transformed by various
business processes into goods and services.
 Chapter 1 / Foundations of Information Systems in Business ● 27

2
RE AL W O R L D The New York Times and
Boston Scientific: Two Different
CASE Ways of Innovating with
Information Technology

A lmost everybody has a theory about how to save the

U.S. newspaper industry. The only consensus, it
seems, is that it needs to change fundamentally or it
could all but disappear. At The New York Times, tough times
have elevated IT-enabled innovation to the top of the agenda.
and the resources to turn their ideas into reality. Typical projects
are measured against criteria like revenue potential or journalis-
tic value. R&D projects aren’t. “Since we build software, there’s
no huge capital investment up front,” Frons says, “which allows
us to experiment. The emphasis is on rapid development.”
A research and development group, created in 2006, op- Times Widgets, a widget-making platform, was a con-
erates as a shared service across nearly two dozen newspa- test winner, as was the recently launched Times Wire, a near
pers, a radio station, and more than 50 Web sites. real-time customizable interface for online content. “We’re
“Our role is to accelerate our entry onto new platforms trying to solve specific problems and think about where the
by identifying opportunities, conceptualizing, and prototyp- business is going,” Frons says. Frons is focused on enhanc-
ing ideas,” explains Michael Zimbalist, the company’s vice ing revenue, cutting costs, and increasing efficiency through
president of R&D. process improvements and automation.
Zimbalist’s staff of 12 includes experts in rapid prototyp- The New York Times has launched a cool interactive
ing, specialists in areas like mobile or cloud computing and map that shows the most popular Netflix rentals across 12
data miners who probe Web site data for insight into what U.S. metropolitan areas: New York, San Francisco/Bay Area,
visitors do. They work within a common framework based Boston, Chicago, Washington, Los Angeles, Seattle, Minne-
on idea generation, development, and diffusion throughout apolis, Denver, Atlanta, Dallas, and Miami. If you’re a Netflix
the business. Recent projects included prototypes for new junkie and a closet Twilight fan (and you live in a major U.S.
display ad concepts, as well as BlackBerry applications for city), your rental habits are now on display. To create the
Boston.com and the expert site About.com. The team’s work map, The New York Times partnered with Netflix. The map
is intended to supplement and support innovation taking is a graphical database of the top 100 most-rented Netflix
place within the business units. For example, the team is films of 2009 laid on top of maps. With it you can graphically
prototyping E-Ink, an emerging display technology; some explore top 2009 Netflix movies based on three criteria: films
business units can’t spare the resources to investigate it. that were hated or loved by critics, an alphabetical list, and
At NYTimes.com, the design and product development most rented. For example, select most rented, and when you
group of Marc Frons, C TO of Digital Operations, worked with place the mouse over a zip code, a window pops up showing
Zimbalist’s team and Adobe developers on the Times Reader you what the top Netflix rentals are for that specific region.
2.0 application, the next generation, on-screen reading system it Some trends are not surprising: The most popular Netf-
developed on the Adobe AIR platform. Frons further encour- lix movie of 2009 was The Curious Case of Benjamin Button,
ages forward thinking among his 120-person team with twice- although Slumdog Millionaire and Twilight were both in the
annual innovation contests. Winners receive cash, recognition top 10. Milk, the story of San Franciscan activist Harvey
Milk, was popular in San Francisco and other city centers,
F I GUR E 1. 16 but not so much in the suburbs of southern cities (such as
Dallas and Atlanta). Mad Men, the 1960s-set drama about
advertising execs, was hot in parts of Manhattan and Brook-
lyn, but not in any other major cities. It barely got mention
in Denver and Dallas, and not at all in Miami.
The map does show some interesting trends: Big block-
busters were not as popular in city centers (Wanted and Trans-
formers: Revenge of the Fallen, barely made a splash in the city
centers of Manhattan and San Francisco), although this could
be due to the fact that a lot of people see blockbusters in
movie theaters. Last Chance Harvey, a romantic comedy star-
ring Dustin Hoffman and Emma Thompson, was enjoyed in
wealthier suburbs (such as Scarsdale), but not in city centers
(such as Manhattan). Tyler Perry’s movies (Tyler Perry’s
Madea Goes to Jail and Tyler Perry’s The Family That Preys)
were popular in predominantly black neighborhoods.
Much of what has been innovative thus far at The New
IT c an e n able i nnovation initiatives as c omp anies seek York Times can be classified as process or product innovation.
t o d e vel op n e w p r oducts an d services. Typically, a healthy and growing company should be con-
tent with focusing 90 to 95 percent of its innovation dollars
on such core business innovation and 5 percent or 10 per-
Source: © Stockbyte/Getty Images. cent on new business models, says Mark Johnson, chairman
28 ● Module I / Foundation Concepts

of strategic innovation consultancy Innosight. However, he quality system improvements, Currier says. Boston Scientific
adds, “The newspaper industry is in so much trouble that had inherited regulatory problems from acquisitions it made
business model innovation is more important than ever.” during that time. Now that those situations are addressed,
Now is a good—and bad—time for fostering such innova- the company is ready to reinvigorate internal innovation.
tion. “You’ve got the leadership’s attention you need,” says Boston Scientific is piloting Invention Machine’s Gold-
Johnson. “But it’s harder in the sense that there’s an urgency to fire software, which, Currier says, provides the right mix of
fix the financials, and being patient in the way you need to be for openness and security for data. Before, Boston Scientific’s
a new business model to unfold is a very difficult thing to do.” product developers worked in silos with limited access to re-
The New York Times is focused on experimenting with search by colleagues on different product lines. Information
a number of different initiatives, but Boston Scientific faces was so locked down that even if scientists found something
a much different challenge: how to foster innovation without useful from a past project, they often didn’t have access to it.
risking the disclosure and leakage of very valuable intellec- “We’re changing that,” Currier says.
tual property. And the company has turned to technology to Goldfire makes an automated workflow out of such tasks
help find the right mix of access and security. as analyzing markets and milking a company’s intellectual
Boston Scientific wants to tear down barriers that prevent property. It combines internal company data with information
product developers from accessing the research that went into from public sources, such as federal government databases.
its successful medical devices so that they can create new prod- Researchers can use the software to find connections
ucts faster. But making data too easily accessible could open among different sources, for instance by highlighting similar
the way to theft of information potentially worth millions or ideas. Engineers can use such analysis to get ideas for new
billions of dollars. It’s a classic corporate data privacy problem. products and begin to study their feasibility. The goal is to have
“The more info you give knowledge workers, the more any engineer be able to access any other engineer’s research.
effective they can be in creating a lot of value for the com- “The people in the trenches can’t wait for that day to
pany,” says Boris Evelson, a principal analyst at Forrester. arrive,” he says.
“This creates disclosure risks—that someone’s going to walk Although the goal is more openness, not all data stay
away with the data and give it to a competitor.” open forever. For example, as a project gets closer to the
This tension compels the $8 billion company to seek out patent application stage, access to the data about it is clipped
software that allows the broader engineering community to share to fewer people, Currier says.
knowledge while managing access to product development He adds that since installing Goldfire, patent applica-
data, says Jude Currier, cardiovascular knowledge manage- tions are up compared to similar engineering groups that do
ment and innovation practices lead at Boston Scientific. “Ac- not use the Goldfire tool. “We have had to educate people
tive security is the way to address this problem,” Currier says. that we aren’t throwing security out the window but making
That is, regularly monitor who’s accessing what, and ad- valuable knowledge available to the organization,” he says.
just permissions as business conditions change.
Keeping the pipeline of new stents, pacemakers, and Source: Adapted from Stephanie Overby, “Rapid Prototyping Provides Innova-
catheters fresh is especially important because heart-related tion that Fits at the New York Times,” CIO.com, June 24, 2009; Sarah Jacobson,
“Netflix Map Shows What’s Hot in Your Neighborhood,” PCWorld.com,
items account for 80 percent of Boston Scientific’s sales. January 11, 2010; and Kim S. Nash, “Innovation: How Boston Scientific Shares
Over the past few years, engineers have been focused on Data Securely to Foster Product Development,” CIO.com, November 23, 2009.

CASE S T U DY Q U E ST IO NS R E AL WO R LD AC T IVIT IE S
1. As stated in the case, The New York Times chose to de- 1. The newspaper industry has been facing serious chal-
ploy their innovation support group as a shared service lenges to its viability ever since the Internet made news
across business units. What do you think this means? available online. In addition to those initiatives described
What are the advantages of choosing this approach? in the case, how are The New York Times and other
Are there any disadvantages? leading newspapers coping with these challenges? What
2. Boston Scientific faced the challenge of balancing open- do you think the industry will look like 5 or 10 years from
ness and sharing with security and the need for restrict- now? Go online to research these issues and prepare a
report to share your findings.
ing access to information. How did the use of technology
allow the company to achieve both objectives at the 2. Go online and search the Internet for other examples
same time? What kind of cultural changes were required of companies using technology to help them innovate
for this to be possible? Are these more important than and develop new products or services. Break into small
the technology-related issues? Develop a few examples groups with your classmates to share your findings and
to justify your answer. discuss any trends or patterns you see in current uses of
technology in this regard.
3. The video rental map developed by The New York Times
and Netflix graphically displays movie popularity across
neighborhoods from major U.S. cities. How would Netflix
use this information to improve their business? Could
other companies also take advantage of these data? How?
Provide some examples.
 Chapter 1 / Foundations of Information Systems in Business ● 29

Feedback and Th e system concept becomes even more useful by including two additional elements:
Control feedback and control. A system with feedback and control functions is sometimes
called a cybernetic system, that is, a self-monitoring, self-regulating system.
• F eedback is data about the performance of a system. For example, data about
sales performance are feedback to a sales manager. Data about the speed,
altitude, attitude, and direction of an aircraft are feedback to the aircraft’s
pilot or autopilot.
• Control involves monitoring and evaluating feedback to determine whether
a system is moving toward the achievement of its goal. Th e control function
then makes the necessary adjustments to a system’s input and processing
components to ensure that it produces proper output. For example, a sales
manager exercises control when reassigning salespersons to new sales territo-
ries after evaluating feedback about their sales performance. An airline pilot,
or the aircraft’s autopilot, makes minute adjustments after evaluating the
feedback from the instruments to ensure that the plane is exactly where the
pilot wants it to be.

Example. Figure 1.17 illustrates a familiar example of a self-monitoring, self-regulating,

thermostat-controlled heating system found in many homes; it automatically monitors
and regulates itself to maintain a desired temperature. Another example is the human
body, which can be regarded as a cybernetic system that automatically monitors and
adjusts many of its functions, such as temperature, heartbeat, and breathing. A busi-
ness also has many control activities. For example, computers may monitor and con -
trol manufacturing processes, accounting procedures help control financial systems,
data entry displays provide control of data entry activities, and sales quotas and sales
bonuses attempt to control sales performance.

Other System Figure 1 .18 uses a business organization to illustrate the fundamental components of
Characteristics a system, as well as several other system characteristics. Note that a system does not
exist in a vacuum; rather, it exists and functions in an environment containing other
systems. If a system is one of the components of a larger system, it is a subsystem, and
the larger system is its environment.
Several systems may share the same environment. Some of these systems may be
connected to one another by means of a shared boundary, or interface. Figure 1.18 also
illustrates the concept of an open system, that is, a system that interacts with other sys-
tems in its environment. In this diagram, the system exchanges inputs and outputs
with its environment. Thus, we could say that it is connected to its environment by
input and output interfaces. Finally, a system that has the ability to change itself or its
environment to survive is an adaptive system.

F I GUR E 1. 17 A common cybernetic system is a home temperature control system. The thermostat accepts the
desired room temperature as input and sends voltage to open the gas valve, which fires the furnace. The resulting hot air goes
into the room, and the thermometer in the thermostat provides feedback to shut the system down when the desired
temperature is reached.

Heat Loss
Desired Actual
Room Gas Room
Temperature Voltage Fuel Temperature
Thermostat Gas Valve Furnace Room

Temperature
Feedback
30 ● Module I / Foundation Concepts

F I G UR E 1. 18 Stakeholders in the Business Environment

A business is an example of The Community Competitors
an organizational system in
which economic resources
(input) are transformed by Control

Government Agencies
various business processes
(processing) into goods Management

Customers
and services (output).
Information systems
provide information
(feedback) about the Feedback
operations of the system
to management for the Information Systems
direction and maintenance
of the system (control) as
it exchanges inputs and
Economic Business Goods and
outputs with its
Resources: Processes: Services:
environment. People Market, Develop, Products
Money Produce, and Services
Material Deliver Products Payments
Machines and Services Contributions
Land Support Customers

Stockholders
Information
Suppliers

Facilities Other Processes Other Effects

Energy
Information
Input Processing Output

Financial Institutions Labor Unions

Example. Organizations such as businesses and government agencies are good exam-
ples of the systems in society, which is their environment. Society contains a multitude
of such systems, including individuals and their social, political, and economic institu-
tions. Organizations themselves consist of many subsystems, such as departments,
divisions, process teams, and other workgroups. Organizations are examples of open
systems because they interface and interact with other systems in their environment.
Finally, organizations are examples of adaptive systems because they can modify them-
selves to meet the demands of a changing environment.
If we apply our understanding of general system concepts to information systems,
it should be easy to see the parallels.
Information systems are made up of interrelated components:
• People, hardware, software, peripherals, and networks.
They have clearly defined boundaries:

• Functions, modules, type of application, department, or end-user group.

All the interrelated components work together to achieve a common goal by
accepting inputs and producing outputs in an organized transformation process:
• Using raw materials, hiring new people, manufacturing products for sale, and
disseminating information to others.
Information systems make extensive use of feedback and control to improve their
effectiveness:
• Error messages, dialog boxes, passwords, and user rights management.
 Chapter 1 / Foundations of Information Systems in Business ● 31

Many information systems are designed to change in relation to their environ-

ments and are adaptive:
• Intelligent software agents, expert systems, and highly specialized decision
support systems.
Information systems are systems just like any other system. Their value to the
modern organization, however, is unlike any other system ever created.

Components We have noted that an information system is a system that accepts data resources as
input and processes them into information products as output. How does an informa-
of In fo rmatio n tion system accomplish this task? What system components and activities are involved?
Sys t e ms Figure 1.19 illustrates an inf orm ation system m odel that expresses a fundamental
conceptual framework for the major components and activities of information systems.
An information system depends on the resources of people (end users and IS special-
ists), hardware (machines and media), software (programs and procedures), data (data
and knowledge bases), and networks (communications media and network support) to
perform input, processing, output, storage, and control activities that transform data
resources into information products.
This information system model highlights the relationships among the compo-
nents and activities of information systems. It also provides a framework that empha-
sizes four major concepts that can be applied to all types of information systems:
• People, hardware, software, data, and networks are the five basic resources of
information systems.
• People resources include end users and IS specialists, hardware resources consist
of machines and media, software resources include both programs and proce-
dures, data resources include data and knowledge bases, and network resources
include communications media and networks.

F I GUR E 1. 19
The components of an
information system. All
information systems use
people, hardware, software,
data, and network resources
to perform input,
System Activities
processing, output, storage,
and control activities that Control of System Performance
transform data resources
into information products.

Input Processing Output

of Data of
Data into Information
Resources Information Products

Storage of Data Resources

Netw ork Resources

Communications Media and Netw ork Support
32 ● Module I / Foundation Concepts

• Data resources are transformed by information processing activities into a variety

of information products for end users.
• Information processing consists of the system activities of input, processing, out-
put, storage, and control.

In fo rmation Our basic IS model shows that an information system consists of five major resources:
people, hardware, software, data, and networks. Let’s briefly discuss several basic con-
Sys t e m cepts and examples of the roles these resources play as the fundamental components of
Resources information systems. You should be able to recognize these five components at work
in any type of information system you encounter in the real world. Figure 1 .20 out-
lines several examples of typical information system resources and products.

People Resources People are the essential ingredient for the successful operation of all information sys-
tems. These people resources include end users and IS specialists.
• End users (also called users or clients) are people who use an information system
or the information it produces. They can be customers, salespersons, engineers,
clerks, accountants, or managers and are found at all levels of an organization. In
fact, most of us are information system end users. Most end users in business are
k nowledg e workers, that is, people who spend most of their time communicating
and collaborating in teams and workgroups and creating, using, and distributing
information.
• IS specialists are people who develop and operate information systems. They
include systems analysts, software developers, system operators, and other mana-
gerial, technical, and clerical IS personnel. Briefly, systems analysts design infor-
mation systems based on the information requirements of end users, software
developers create computer programs based on the specifications of systems
analysts, and system operators help monitor and operate large computer systems
and networks.

Hardware Resources Th e concept of hardware resources includes all physical devices and materials used in
information processing. Specifically, it includes not only m achines , such as computers

F I G UR E 1. 20 Information System Resources and Products

Examples of information
system resources and People Resources
products. Specialists—systems analysts, software developers, systems operators.
End Users—anyone else who uses information systems.
Hardware Resources
Machines—computers, video monitors, magnetic disk drives, printers, optical scanners.
Media—floppy disks, magnetic tape, optical disks, plastic cards, paper forms.
Software Resources
Programs—operating system programs, spreadsheet programs, word processing
programs, payroll programs.
Procedures—data entry procedures, error correction procedures, paycheck
distribution procedures.
Data Resources
Product descriptions, customer records, employee files, inventory databases.
Network Resources
Communications media, communications processors, network access, control software.
Information Products
Management reports and business documents using text and graphics displays, audio
responses, and paper forms.