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FM C6841 11/24/08

FIFTH
EDITION

Fundamentals of Information Systems


Fifth Edition

Ralph M. Stair
Professor Emeritus, Florida State University

George W. Reynolds

Australia · Canada · Mexico · Singapore · Spain · United Kingdom · United States


FM C6841 11/24/08

Fundamentals of Information Systems, © 2010 Course Technology, Cengage Learning


Fifth Edition by
ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced, transmitted, stored
Ralph M. Stair and George W. Reynolds
or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying,
VP/Editorial Director: Jack Calhoun recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval
systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior
Senior Acquisitions Editor:
written permission of the publisher.
Charles McCormick, Jr.

Product Manager: Kate Hennessy For product information and contact us at


Cengage Learning Customer & Sales Support, 1–800–354–9706
Development Editor: Lisa Ruffolo,
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submit all requests online at cengage.com/permissions
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Further permissions questions can be emailed to
Content Product Manager: Erin Dowler, [email protected]
Jennifer Goguen McGrail
Microsoft, Windows 95, Windows 98, Windows 2000, Windows XP, and Windows Vista are registered trademarks of
Manufacturing Coordinator: Denise Powers
Microsoft® Corporation. Some of the product names and company names used in this book have been used for
Marketing Manager: Bryant Chrzan identification purposes only and may be trademarks or registered trademarks of their manufacturers and sellers. SAP,
R/3, and other SAP product/services referenced herein are trademarks of SAP Aktiengesellschaft, Systems, Applica-
Marketing Coordinator: Suellen Ruttkay
tions and Products in Data Processing, Neurottstasse 16, 69190 Walldorf, Germany. The publisher gratefully
Art Director: Stacy Shirley acknowledges SAP’s kind permission to use these trademarks in this publication. SAP AG is not the publisher of this
book and is not responsible for it under any aspect of press law.
Cover Image: Getty Images/Photonica
ISBN-13:978–14239–2581–1
Compositor: Value Chain International
ISNN-10:1–4239–2581–5
Proofreader: Harry Johnson
Instructor Edition:
Indexer: Rich Carlson ISBN-13:978–1-4239–2583–5
ISBN-10:1–4239–2583–1

Course Technology
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Printed in the United States of America


1 2 3 4 5 6 7 13 12 11 10 09
FM C6841 11/24/08

For Lila and Leslie


—RMS

To my grandchildren: Michael, Jacob, Jared, Fievel, Aubrey, Elijah, Abrielle, Sophia, Elliot
—GWR
This page intentionally left blank
FM C6841 11/24/08

BRIEF
CONTENTS

PART 1 Information Systems in Perspective


Chapter 1 An Introduction to Information Systems in Organizations

PART 2 Technology
Chapter 2 Hardware and Software
Chapter 3 Database Systems and Business Intelligence
Chapter 4 Telecommunications, the Internet, Intranets, and Extranets

PART 3 Business Information Systems


Chapter 5 Electronic and Mobile Commerce and Enterprise Systems
Chapter 6 Information and Decision Support Systems
Chapter 7 Knowledge Management and Specialized Information Systems

PART 4 Systems Development and Social Issues


Chapter 8 Systems Development

PART 5 Information Systems in Business and Society


Chapter 9 The Personal and Social Impact of Computers

Glossary
Index

v
This page intentionally left blank
FM C6841 11/24/08

CONTENTS

Preface xvii

PART 1 Information Systems in Perspective 1


Chapter 1 An Introduction to Information Systems in Organizations 2
Fossil, United States 3
Information Concepts 5
Data, Information, and Knowledge 5
The Characteristics of Valuable Information 6
The Value of Information 7
What is an Information System? 8
Input, Processing, Output, Feedback 8
Manual and Computerized Information Systems 9
Computer-Based Information Systems 10
Business Information Systems 14
Electronic and Mobile Commerce 14
Enterprise Systems: Transaction Processing Systems and Enterprise
Resource Planning 16
Information and Decision Support Systems 17
Ethical and Societal Issues: Green Data Centers 18
Specialized Business Information Systems: Knowledge Management,
Artificial Intelligence, Expert Systems, and Virtual Reality 21
Systems Development 23
Systems Investigation and Analysis 24
Systems Design, Implementation, and Maintenance and Review 25
Organizations and Information Systems 25
Organizational Culture and Change 28
User Satisfaction and Technology Acceptance 29
Competitive Advantage 30
Factors That Lead Firms to Seek Competitive Advantage 30
Strategic Planning for Competitive Advantage 32
Information Systems @ Work: Grand & Toy Seeks Competitive Advantage by
Tracking Key Performance Indicators 33
Performance-Based Information Systems 35
Productivity 35
Return on Investment and the Value of Information Systems 36
Risk 37
Careers in Information Systems 37
Roles, Functions, and Careers in IS 39
Typical IS Titles and Functions 42
Other IS Careers 44
Finding a Job in IS 44

vii
FM C6841 11/24/08

Global Challenges in Information Systems 45


Case One: Yansha Leans on IS to Stay Competitive 52
Case Two: Customer Service Drives Information Systems at Volvo
Cars Belgium 53

PART 2 Technology 57
Chapter 2 Hardware and Software 58
UB Spirits, India 59
Computer Systems: Integrating the Power of Technology 60
Hardware Components 62
Processing and Memory Devices: Power, Speed, and Capacity 62
Processing Characteristics and Functions 62
Memory Characteristics and Functions 63
Multiprocessing 64
Secondary Storage and Input and Output Devices 66
Access Methods 66
Secondary Storage Devices 66
Input Devices 69
Output Devices 72
Ethical and Societal Issues: Collecting Accurate and Verifiable Data Where It
Counts 73
Computer System Types 75
Overview of Software 79
Supporting Individual, Group, and Organizational Goals 80
Installing and Removing New Software 80
Systems Software 81
Operating Systems 81
Current Operating Systems 84
Workgroup Operating Systems 86
Enterprise Operating Systems 87
Operating Systems for Small Computers, Embedded Computers, and
Special-Purpose Devices 87
Utility Programs 89
Application Software 90
Types and Functions of Application Software 90
Information Systems @ Work: Software Helps Target Radiation Treatment for
Cancer 91
Personal Application Software 92
Workgroup Application Software 97
Enterprise Application Software 98
Application Software for Information, Decision Support, and Specialized
Purposes 99
Programming Languages 100
Software Issues and Trends 100
Software Bugs 100
Copyrights and Licenses 101
viii
FM C6841 11/24/08

Software Upgrades 101


Global Software Support 101
Case One: Advance America Implements Grid Computing 107
Case Two: Systems Management Software Helps Fight Crime 107

Chapter 3 Database Systems and Business Intelligence 110


Wal-Mart, United States 111
Data Management 113
The Hierarchy of Data 113
Data Entities, Attributes, and Keys 113
Ethical and Societal Issues: Web-Based Electronic Health Record Systems 117
Data Modeling and Database Characteristics 118
Data Modeling 118
The Relational Database Model 119
Database Management Systems 122
Overview of Database Types 122
Providing a User View 124
Creating and Modifying the Database 124
Storing and Retrieving Data 125
Manipulating Data and Generating Reports 126
Database Administration 129
Popular Database Management Systems 130
Special-Purpose Database Systems 130
Selecting a Database Management System 130
Using Databases with Other Software 131
Database Applications 132
Linking the Company Database to the Internet 132
Data Warehouses, Data Marts, and Data Mining 132
Business Intelligence 136
Information Systems @ Work: Yangtze Power Harnesses the Power 138
Distributed Databases 139
Online Analytical Processing (OLAP) 140
Object-Relational Database Management Systems 141
Visual, Audio, and Other Database Systems 141
Case One: The Getty Vocabularies 147
Case Two: ETAI Manages Auto Parts Overload with Open-Source Database 148

Chapter 4 Telecommunications, the Internet, Intranets, and Extranets 152


Lamborghini, Italy 153
An Overview of Telecommunications 155
Channel Bandwidth 156
Communications Media 156
Telecommunications Hardware 159
Services 160
Networks and Distributed Processing 162
Network Types 162

ix
FM C6841 11/24/08

Information Systems @ Work: Telepresence Eliminates Travel and Saves Valuable


Human Resources 165
Distributed Processing 166
Client/Server Systems 166
Communications Protocols 166
Communications Software 167
Use and Functioning of the Internet 167
How the Internet Works 169
Internet Service Providers 171
Ethical and Societal Issues: Comcast, Packet Shaping and Net Neutrality 173
The World Wide Web 174
Web 2.0 and the Social Web 176
Web Programming Languages 177
Developing Web Content 178
Web Services 179
Internet and Web Applications 179
Search Engines and Web Research 179
E-Mail, Instant Messaging, and Video Chat 180
Career Information and Job Searching 181
Telnet, SSH, and FTP 181
Web Log (Blog), Video Log (Vlog), and Podcasting 182
Chat Rooms 183
Internet Phone and Videoconferencing Services 184
Social Networks 184
Media Sharing 185
Content Streaming 185
Shopping on the Web 185
Web Auctions 186
Music, Radio, Video, and TV on the Internet 186
Office on the Web 187
Other Internet Services and Applications 188
Intranets and Extranets 188
Net Issues 189
Case One: Del Monte Provides Secure Connections for Telecommuters 194
Case Two: Procter & Gamble Implement Enterprise 2.0 195

PART 3 Business Information Systems 197


Chapter 5 Electronic and Mobile Commerce and Enterprise Systems 198
Maporama, France 199
An Introduction to Electronic Commerce 200
Business-to-Business (B2B) E-Commerce 200
Business-to-Consumer (B2C) E-Commerce 200
Consumer-to-Consumer (C2C) E-Commerce 202
e-Government 202
Mobile Commerce 202
Mobile Commerce in Perspective 202
x
FM C6841 11/24/08

Electronic and Mobile Commerce Applications 203


Retail and Wholesale 203
Manufacturing 204
Marketing 205
Investment and Finance 206
Information Systems @ Work: MoneyAisle.com Puts Customers in Charge 208
Online Real Estate Services 209
Auctions 209
Anywhere, Anytime Applications of Mobile Commerce 209
Advantages of Electronic and Mobile Commerce 210
Technology Infrastructure Required To Support E-Commerce and
M-Commerce 211
Hardware 212
Web Server Software 212
E-Commerce Software 213
Technology Needed for Mobile Commerce 214
Electronic Payment Systems 215
An Overview of Enterprise Systems: Transaction Processing Systems and
Enterprise Resource Planning 217
Traditional Transaction Processing Methods and Objectives 218
Transaction Processing Activities 221
Data Collection 221
Data Editing 222
Data Correction 222
Data Manipulation 222
Data Storage 223
Document Production and Reports 223
Control and Management Issues 223
Disaster Recovery Plan 223
Ethical and Societal Issues: JetBlue—Trial by Fire and Ice 225
Transaction Processing System Audit 226
Traditional Transaction Processing Applications 226
Transaction Processing Systems for Small and Medium Size Enterprises
(SMEs) 227
Enterprise Resource Planning, Supply Chain Management, and Customer
Relationship Management 227
An Overview of Enterprise Resource Planning 228
Advantages of ERP 228
Disadvantages of ERP Systems 229
ERP for Small and Medium-Size Enterprises (SMEs) 230
Production and Supply Chain Management 231
Customer Relationship Management and Sales Ordering 232
Financial and Managerial Accounting 234

xi
FM C6841 11/24/08

Hosted Software Model for Enterprise Software 235


International Issues associated with Enterprise Systems 235
Case One: Paying with Cell Phones in Canada 240
Case Two: Delhi Government Embraces Enterprise Systems 241

Chapter 6 Information and Decision Support Systems 244


General Mills, United States 245
Decision Making and Problem Solving 246
Decision Making as a Component of Problem Solving 247
Programmed Versus Nonprogrammed Decisions 248
Optimization, Satisficing, and Heuristic Approaches 249
The Benefits of Information and Decision Support Systems 250
An Overview of Management Information Systems 251
Management Information Systems in Perspective 251
Inputs to a Management Information System 251
Ethical and Societal Issues: Web 2.0 MIS Finds Compromise Between Service
and Privacy 253
Outputs of a Management Information System 254
Characteristics of a Management Information System 256
Functional Aspects of the MIS 257
Financial Management Information Systems 258
Manufacturing Management Information Systems 259
Information Systems @ Work: Pharmaceutical Company Reduces
Time-to-Market 263
Marketing Management Information Systems 264
Human Resource Management Information Systems 266
Other Management Information Systems 269
An Overview of Decision Support Systems 270
Capabilities of a Decision Support System 270
A Comparison of DSS and MIS 272
Components of a Decision Support System 273
The Database 273
The Model Base 274
The User Interface or Dialogue Manager 275
Group Support Systems 275
Characteristics of a GSS That Enhance Decision Making 276
GSS Software 278
GSS Alternatives 279
Executive Support Systems 280
Executive Support Systems in Perspective 280
Capabilities of Executive Support Systems 281
Case One: Enterprise Rent-A-Car and Business Process Management 288
Case Two: Keiper Watches Production Like a Hawk 289

Chapter 7 Knowledge Management and Specialized Information


Systems 292
Ericsson, Sweden 293
xii
FM C6841 11/24/08

Knowledge Management Systems 294


Overview of Knowledge Management Systems 295
Data and Knowledge Management Workers and Communities of
Practice 296
Obtaining, Storing, Sharing, and Using Knowledge 297
Technology to Support Knowledge Management 298
An Overview of Artificial Intelligence 299
Artificial Intelligence in Perspective 299
The Nature of Intelligence 299
The Difference Between Natural and Artificial Intelligence 301
The Major Branches of Artificial Intelligence 301
Expert Systems 302
Robotics 302
Vision Systems 304
Natural Language Processing and Voice Recognition 305
Learning Systems 305
Neural Networks 306
Other Artificial Intelligence Applications 306
Ethical and Societal Issues: Providing Knowledge to Physicians Just in Time 308
An Overview of Expert Systems 309
When to Use Expert Systems 309
Components of Expert Systems 310
The Inference Engine 312
The Explanation Facility 312
The Knowledge Acquisition Facility 312
The User Interface 313
Participants in Developing and Using Expert Systems 313
Expert Systems Development Tools and Techniques 314
Applications of Expert Systems and Artificial Intelligence 315
Virtual Reality 316
Information Systems @ Work: Realtors Rely on Virtual Reality 317
Interface Devices 318
Forms of Virtual Reality 319
Virtual Reality Applications 319
Other Specialized Systems 322
Case One: Bird & Bird Have Knowledge in Hand 329
Case Two: Where Virtual Worlds and AI Collide 329

PART 4 Systems Development and Social Issues 333


Chapter 8 Systems Development 334
GRUMA, Mexico 335
An Overview of Systems Development 336
Participants in Systems Development 337
Information Systems Planning and Aligning Corporate and IS Goals 338
Information Systems @ Work: Investigating Conversion at Art.com 341
Systems Development Life Cycles 342
xiii
FM C6841 11/24/08

The Traditional Systems Development Life Cycle 342


Prototyping 343
Rapid Application Development, Agile Development, Joint Application
Development, and Other Systems Development Approaches 343
The End-User Systems Development 345
Outsourcing and On-Demand Computing 345
Use of Computer-Aided Software Engineering (CASE) Tools 346
Object-Oriented Systems Development 347
Systems Investigation 348
Initiating Systems Investigation 348
Feasibility Analysis 348
Object-Oriented Systems Investigation 349
The Systems Investigation Report 350
Systems Analysis 350
Data Collection 351
Data Analysis 352
Requirements Analysis 354
Object-Oriented Systems Analysis 355
The Systems Analysis Report 355
Systems Design 356
Logical and Physical Design 357
Object-Oriented Design 357
Ethical and Societal Issues: Going Green Saves Millions of Dollars for
Nationwide 359
Environmental Design Considerations 360
Generating Systems Design Alternatives 361
The Design Report 362
Systems Implementation 362
Acquiring Hardware from an IS Vendor 362
Acquiring Software 364
Acquiring Database and Telecommunications Systems 364
User Preparation 365
IS Personnel: Hiring and Training 366
Site Preparation 366
Data Preparation 366
Installation 366
Testing 366
Start-Up 366
User Acceptance 368
Systems Operation and Maintenance 368
Systems Review 369
System Performance Measurement 369
Case One: Information and Security Systems at the All England Lawn Tennis and
Croquet Club 375
Case Two: Rogers Pulls an All-Nighter 376
xiv
FM C6841 11/24/08

PART 5 Information Systems in Business and Society 379


Chapter 9 The Personal and Social Impact of Computers 380
eBay, United States 381
Computer Waste and Mistakes 382
Computer Waste 383
Computer-Related Mistakes 383
Preventing Computer-Related Waste and Mistakes 384
Establishing Policies and Procedures 384
Implementing Policies and Procedures 385
Monitoring Policies and Procedures 385
Reviewing Policies and Procedures 386
Computer Crime 386
The Computer as a Tool to Commit Crime 387
Cyberterrorism 388
Identity Theft 388
Internet Gambling 389
The Computer as the Object of Crime 389
Illegal Access and Use 389
Using Antivirus Programs 391
Spyware 393
Information and Equipment Theft 394
Safe Disposal of Personal Computers 395
Patent and Copyright Violations 395
Computer-Related Scams 397
International Computer Crime 398
Preventing Computer-Related Crime 398
Crime Prevention by State and Federal Agencies 398
Ethical and Societal Issues: International Cyber Espionage 399
Crime Prevention by Corporations 400
Using Intrusion Detection Software 401
Security Dashboard 402
Using Managed Security Service Providers (MSSPs) 402
Filtering and Classifying Internet Content 403
Internet Libel Concerns 404
Preventing Crime on the Internet 405
Privacy Issues 405
Privacy and the Federal Government 405
Privacy at Work 406
E-Mail Privacy 406
Instant Messaging Privacy 406
Privacy and Personal Sensing Devices 407
Privacy and the Internet 407
Fairness in Information Use 408

xv
FM C6841 11/24/08

Information Systems @ Work: Controlling Privacy in Finland’s Largest Information


System 411
Corporate Privacy Policies 412
Individual Efforts to Protect Privacy 412
The Work Environment 413
Health Concerns 413
Avoiding Health and Environmental Problems 414
Ethical Issues in Information Systems 415
Case One: IT Consumerization and Web 2.0 Security Challenges 421
Case Two: San Francisco WAN Held Captive 422

Glossary 427
Index 439

xvi
FM C6841 11/24/08

PREFACE

We are proud to publish the fifth edition of Fundamentals of Information Systems. This new
edition builds on the success of the previous editions in meeting the need for a concise
introductory information systems text. We have listened to feedback from the previous edi-
tions’ adopters and manuscript reviewers and incorporated many suggestions to refine this
new edition. We hope you are pleased with the results.
Like the previous editions, the overall goal of the fifth edition is to develop an outstanding
text that follows the pedagogy and approach of our flagship text, Principles of Information
Systems, with less detail and content. The approach in developing Fundamentals of Information
Systems is to take the best material from Principles of Information Systems and condense it into
a text containing nine chapters. So, our most recent edition of Principles of Information Sys-
tems is the foundation from which we built this new edition of Fundamentals of Information
Systems.
We have always advocated that education in information systems is critical for employ-
ment in almost any field. Today, information systems are used for business processes from
communications to order processing to number crunching and in business functions ranging
from marketing to human resources to accounting and finance. Chances are, regardless of
your future occupation, you will need to understand what information systems can and
cannot do and be able to use them to help you accomplish your work. You will be expected
to suggest new uses of information systems and participate in the design of solutions to
business problems employing information systems. You will be challenged to identify and
evaluate IS options. To be successful, you must be able to view information systems from
the perspective of business and organizational needs. For your solutions to be accepted, you
must identify and address their impact on fellow workers. For these reasons, a course in
information systems is essential for students in today’s high-tech world.
Fundamentals of Information Systems, Fifth Edition, continues the tradition and approach
of the previous editions of this text and Principles of Information Systems. Our primary ob-
jective is to develop the best IS text and accompanying materials for the first information
technology course required of all business students. Using surveys, questionnaires, focus
groups, and feedback that we have received from adopters and others who teach in the field,
we have been able to develop the highest-quality teaching materials available.
Fundamentals of Information Systems stands proudly at the beginning of the IS curriculum,
offering the basic IS concepts that every business student must learn to be successful. This
text has been written specifically for the first course in the IS curriculum, and it discusses
computer and IS concepts in a business context with a strong managerial emphasis.

APPROACH OF THE TEXT

Fundamentals of Information Systems, Fifth Edition, offers the traditional coverage of computer
concepts, but it places the material within the context of meeting business and organizational
needs. Placing IS concepts in this context and taking a general management perspective has
always set the text apart from general computer books thus making it appealing not only to
MIS majors but also to students from other fields of study. The text isn’t overly technical,
but rather deals with the role that information systems play in an organization and the key
principles a manager needs to grasp to be successful. These principles of IS are brought
together and presented in a way that is both understandable and relevant. In addition, this
book offers an overview of the entire IS discipline, while giving students a solid foundation
for further study in advanced IS courses such as programming, the Internet, project man-
agement, database management, data communications, systems development, electronic
commerce and mobile commerce applications, decision support, and knowledge manage-
ment. As such, it serves the needs of both general business students and those who will become
IS professionals.
xvii
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Delphis Cæneus
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